We have reported on the wave of laws enacted and proposed in various states requiring consumer-like disclosures in commercial financing transactions. California, New York and Utah have enacted similar commercial finance disclosure laws (CFDLs) recently. California rules implementing its 2018 CFDL went into effect this month. Utah’s CFDL will apply to certain loans on and after Jan. 1. New York’s CFDL will not go into effect until after the current rulemaking is finalized. The New York Department of Financial Services is now addressing the second round of rulemaking comments. (Virginia also has enacted a CFDL, however, its scope is unique and more limited than the others.)
Many other states introduced CFDLs, some of which failed during the legislative process while others remain pending. In the 2022 session, the Missouri General Assembly introduced companion CFDL bills, both of which failed due to session adjournment. Missouri distinguished itself from other states proposing CFDLs, however, because the proposed bills did not include loan amount thresholds. In other words, if the CFDL otherwise applied to the commercial finance transaction, disclosures would have been required regardless of loan amount. Other states, by contrast, limited disclosures related to loans “less than” a certain loan amount.
Missouri Senate Bill 187 was pre-filed earlier this month. (As of now, we have not seen a House companion bill.) Senate Bill 187 is noticeably different from the 2022 CFDL companion bills in a number of ways. For example, Senate Bill 187 appears to broaden an exemption for commercial finance products that give rise to purchase money obligations. The prior session version limited the purchase money exemption to those purchase money obligations defined under Article 9 of the Missouri Uniform Commercial Code. Senate Bill 187 removes the specific reference to other Missouri laws and exempts a commercial financing product that is a “purchase money obligation that is incurred as all or part of the price of the collateral or for value given to enable the business to acquire rights in or the use of the collateral if the value is in fact so used.” This change appears to broaden the exemption to those transactions that may not otherwise be covered by Article 9 but otherwise qualify as enabling loans.
Senate Bill 187 also proposes to impose a registration requirement for brokers involved in a commercial financing product transaction. A broker under Missouri’s CFDL generally includes any person who, for compensation or the expectation of compensation, obtains a commercial financing product or an offer for a commercial financing product from lender that would be binding upon the lender and communicates that offer to a business located in Missouri.
With Missouri’s new bill, it joins other pending CFDL proposals in New Jersey and at the federal level in both the House of Representatives and Senate. We anticipate the following states soon to reintroduce various forms of CFDL legislation: Connecticut, Maryland, Mississippi, North Carolina and Pennsylvania.
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