Missouri Regulates Providers and Brokers Under New Commercial Financing Law

Missouri has enacted the nation’s ninth state commercial finance disclosure law, regulating the providers and brokers of certain commercial financing transactions. Signed by Governor Mike Parson on July 11, 2024, Missouri Senate Bill 1359 enacted the Missouri Commercial Financing Disclosure Law (the “Law”), imposing disclosure and registration requirements for providers and brokers, respectively, of qualifying commercial financing. The Law, which comes a few months after the commercial finance disclosure law Kansas enacted in April, requires providers to disclose, and brokers to register. But providers need not register, and brokers need not disclose. The Law’s structure shows that the industry should not expect each new state commercial finance disclosure law to be a carbon copy of the law that came before it, notwithstanding that the laws tend to share many similarities. This summary discusses: the transactions that are subject to, and exempt from, the Law; the disclosure requirements imposed on providers under the Law; the registration requirements applicable to brokers; and details on the Law’s implementation, penalties, and effective date.

Transactions Subject to the Law

The Law applies to the following business-purpose transactions in amounts of $500,000 or less:

• Commercial loans (secured or unsecured);
• Commercial open-end credit plans; and
• Accounts receivable purchase transactions (i.e., merchant cash advances and factoring).

In addition, the Law exempts the following:

• A depository institution, and an affiliate, subsidiary, and certain service corporations thereof;
• A provider that is a lender regulated under the federal Farm Credit Act;
• A transaction secured by real property;
• A lease;
• A purchase money obligation;
• A transaction of $50,000 or more in which the recipient is a motor vehicle dealer or rental company, or an affiliate thereof;
• A transaction offered by a “captive” company, meaning “a person in connection with the sale or lease of products or services that such person manufactures, licenses, or distributes, or whose parent company or any of its directly or indirectly owned and controlled subsidiaries manufactures, licenses, or distributes;”
• Factoring or purchasing of accounts receivable related to personal injury health care debts;
• A money transmitter licensed in any state;
• A provider that consummates no more than five commercial financing transactions in Missouri in a 12-month period; and
• A commercial financing of more than $500,000.

Disclosure Requirements for Providers

The Law requires providers of qualifying commercial financing to disclose the terms of the financing to recipients at or before consummation of the transaction. A provider is defined in a manner consistent with several of the previously enacted commercial finance disclosure laws, as “a person who consummates more than five commercial financing transactions to a business located in [Missouri] in any calendar year.” (Oddly, the de minimis threshold applies per “twelve-month period” rather than per calendar year under the exemptions.) A provider also includes an online platform that partners with a depository institution to arrange commercial financing.

Specifically, the Law requires a provider to disclose the following at or before the consummation of a commercial financing transaction:

• Total Amount of Funds Provided: the total amount of funds provided to the business applying for financing;
• Total Amount of Funds Disbursed: the total amount of funds actually disbursed to the business, if less than the total amount of funds provided after accounting for fees and third-party costs;
• Total of Payments: the total amount the recipient will pay to the provider when all payments are made;
• Total Dollar Cost of Financing: the total dollar cost of the financing, defined as the delta between the total of payments and the total funds provided;
• Payments or Estimated Payments: the manner, frequency, and amount of each payment; or, if payments may vary, the manner, frequency, and the estimated amount of the initial payment (with the variable payment methodology to be described in the financing agreement); and
• Prepayment: a statement of whether there are any costs or discounts associated with prepayment, and a reference to the paragraph in the financing agreement that creates the contractual rights of the parties related to prepayment.

For commercial financing facilities involving multiple accounts receivable purchases over time, the provider may disclose using an example based on a total face amount owed of $10,000.

Only one disclosure is required for each transaction, and new disclosures are not required as a result of the modification, forbearance, or change to a consummated transaction.

Registration Requirement for Brokers

Brokers must register with the Missouri Division of Finance and obtain a $10,000 surety bond. The registration is effective upon the Division’s receipt if the filing is complete and accompanied by the required $100 fee. The registration must be renewed annually by January 31, with the payment of a $50 fee.

The Law defines a “broker” as any person who, for compensation, “obtains a commercial financing transaction or an offer for a commercial financing transaction from a third party that would, if executed, be binding upon that third party and communicates that offer to a business located” in Missouri. A broker expressly excludes a provider, as well as any person whose compensation is not based on the terms of the specific financing offered. As defined, then, a broker arguably excludes a person who obtains an offer of financing for compensation that is not based on the “terms” of the specific offer, even if the broker is compensated. Persons that receive no compensation are not “brokers” under the Law.

Non-exempt brokers will be relieved to learn that the registration filing requirements are minimal. Applicants for a broker registration need only provide:

• The broker’s name;
• Any d/b/a name in use;
• The broker’s principal office address (which can be outside of Missouri);
• Confirmation of whether any officer, director, manager, operator, or principal of the broker has been convicted of a felony involving an act of fraud, dishonesty, breach of trust, or money laundering; and
• The name and address of a designated agent for service of process in Missouri.

Updates to the information submitted in a registration application are not required until the next renewal.

Implementation of the Law

Missouri’s attorney general is authorized to enforce the Law. Violations of the Law are punishable by fines of $500 per violation (capped at $20,000 in aggregate), with additional penalties for violations committed after receiving a notice of violation from the Missouri Attorney General. The Law does not provide for the impairment of any contracts for violations or authorize a private right of action.

The Law takes effect six months after the Missouri Division of Finance promulgates rules to implement the Law, or on February 28, 2025 if the Division does not. We have not seen an indication from the Division regarding whether it intends to engage in rulemaking. Either way, we can expect an effective date in 2025 at the earliest.