Session of 2023
SENATE BILL No. 245
By Committee on Federal and State Affairs
2-13
AN ACT concerning financial institutions; enacting the commercial
financing disclosure act; requiring the disclosure of certain commercial
financing product transaction information; registration of commercial
finance brokers with the state bank commissioner; obtaining a surety
bond; providing for civil penalties; rules and regulations authority of
the commissioner; authorizing enforcement of such act by the attorney
general.
Be it enacted by the Legislature of the State of Kansas:
Section 1. (a) The provisions of sections 1 through 6, and
amendments thereto, shall be known and may be cited as the commercial
financing disclosure act.
(b) For purposes of sections 1 through 6, and amendments thereto:
(1) (A) "Account" means:
(i) A right to payment of a monetary obligation, whether or not
earned by performance, for:
(a) Property that has been or is to be sold, leased, licensed, assigned
or otherwise disposed of;
(b) services rendered or to be rendered;
(c) a policy of insurance issued or to be issued;
(d) a secondary obligation incurred or to be incurred;
(e) energy provided or to be provided;
(f) the use or hire of a vessel under a charter or other contract;
(g) arising out of the use of a credit card or charge card or
information contained on or for the use with such card; or
(h) winnings in a lottery or other game of chance operated or
sponsored by a state, governmental unit of a state or person licensed or
authorized to operate such lottery or game by a state or governmental unit
of a state; and
(ii) healthcare insurance receivables.
(B) "Account" does not mean:
(i) Rights to payment evidenced by chattel paper or an instrument;
(ii) commercial tort claims;
(iii) deposit accounts;
(iv) investment property;
(v) letter-of-credit rights or letters of credit; or
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(vi) rights to payment for moneys advanced or sold other than rights
arising out of the use of a credit card or charge card or information
contained on or for use with such card.
(2) "Accounts receivable purchase transaction" means any transaction
in which a business forwards or otherwise sells to a provider all or a
portion of accounts of such business or payment intangibles at a discount
to the expected value of such accounts or payment intangibles. The
provider's characterization of an accounts receivable purchase transaction
as a purchase shall be conclusive that such accounts receivable purchase
transaction is not a loan or a transaction for the use, forbearance or
detention of money.
(3) "Act" means the commercial financing disclosure act.
(4) "Broker" means any person who, for compensation or the
expectation of compensation:
(A) Arranges a commercial financing product transaction between a
third party that, if executed, such transaction would be binding upon such
third party; and
(B) communicates such transaction to a business in this state.
"Broker" does not include a provider or any individual or entity whose
compensation is not based or dependent upon the terms of the specific
commercial financing product obtained or offered.
(5) "Business" means an individual, group of individuals, sole
proprietorship, corporation, limited liability company, trust, estate,
cooperative, association, limited partnership or general partnership
engaged in a business activity.
(6) "Business purpose transaction" means any transaction in which
the proceeds resulting therefrom are provided to a business or are intended
to be used to carry on a business and are not for personal, family or
household purposes. A provider may rely on any written statement of
intended purpose signed by a business to determine whether such
transaction is a "business purpose transaction". Such written statement
may be a separate statement or may be contained in an application,
agreement or other document signed by such business or the owner of such
business.
(7) "Commercial financing product" means any commercial loan,
accounts receivable purchase transaction and commercial open-end credit
plan when the transaction is a business purpose transaction.
(8) "Commercial loan" means a loan to a business, whether secured
or unsecured.
(9) "Commercial open-end credit plan" means commercial financing
extended by a provider under a plan in which:
(A) The provider reasonably contemplates repeat transactions; and
(B) subject to any limit set by the provider, the amount of financing
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that such provider may extend to the business during the term of the plan
is made available to the extent that any outstanding balance is repaid.
(10) "Commissioner" means the state bank commissioner or the
commissioner's designee, who shall be the deputy commissioner of the
consumer and mortgage lending division of the office of the state bank
commissioner.
(11) "Depository institution" means a bank, trust company, industrial
loan company, savings and loan association, savings bank or credit union
doing business under the authority of a license, certificate or charter issued
by the United States, this state or any other state and that is authorized to
transact business in this state.
(12) "General intangible" means any personal property, including
things in action, other than accounts, chattel paper, commercial tort claims,
deposit accounts, documents, goods, instruments, investment property,
letter-of-credit rights, letters of credit, money and oil, gas or other minerals
before extraction. "General intangible" includes payment intangibles and
software.
(13) "Payment intangible" means a general intangible under which
the account debtor's principal obligation is a monetary obligation.
(14) "Person" means any individual, firm, company, partnership,
corporation or association.
(15) "Provider" means a person who consummates more than five
commercial financing product transactions to a business located in this
state in a calendar year. "Provider" includes a person that enters into a
written agreement with a depository institution to arrange for the extension
of a commercial financing product by such depository institution to a
business through an online lending platform administered by such person.
Sec. 2. (a) Before consummating a commercial financing product
transaction, a provider shall disclose to the business the terms of such
commercial financing product in accordance with the provisions of this
section. Only one disclosure shall be required for each commercial
financing product, and disclosure shall not be required when modification,
forbearance or change to a consummated commercial financing product
occurs.
(b) A provider shall disclose with each commercial financing product:
(1) The total amount of funds provided to the business under the
terms of such commercial financing product. Such disclosure shall be
labeled "total amount of funds provided";
(2) the total amount of funds disbursed to such business under the
terms of such commercial financing product if less than the total amount
of funds provided under paragraph (1). Such disclosure shall be labeled
"total amount of funds disbursed";
(3) the total amount to be paid to such provider pursuant to such
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commercial financing product agreement. Such disclosure shall be labeled
"total of payments";
(4) the total dollar cost of such commercial financing product under
the terms of the agreement, which shall be determined by subtracting the
total amount of funds provided from the total of payments. Such
calculation shall include any fees or charges deducted by the provider from
the amount under paragraph (1). Such disclosure shall be labeled "total
dollar cost of financing";
(5) the manner, frequency and amount of each payment. Such
disclosure shall be labeled "payments". If such payments vary, the provider
shall instead disclose the manner, frequency and the estimated amount of
the initial payment and shall label such disclosure as "estimated
payments." The commercial financing product agreement shall include a
description of the methodology for calculating any variable payment and
the circumstances for when payments may vary; and
(6) a statement of whether there are any costs or discounts associated
with prepayment of such commercial financing product, including a
reference to the paragraph in such agreement that creates the contractual
right to prepayment. Such disclosure shall be labeled "prepayment".
Sec. 3. The provisions of this act shall not apply to a:
(a) Provider that is a depository institution or a subsidiary or service
corporation that is:
(1) Owned and controlled by a depository institution; and
(2) regulated by a federal banking agency;
(b) provider that is a lender regulated under the federal farm credit
act, 12 U.S.C. § 2001 et seq.;
(c) commercial financing product that is:
(1) Secured by real property;
(2) a lease; or
(3) 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 such collateral if such value is so used;
(d) commercial financing product in which the recipient is a motor
vehicle dealer or a vehicle rental company, or an affiliate of a motor
vehicle dealer or vehicle rental company, pursuant to a commercial loan or
commercial open-end credit plan of at least $50,000 or a commercial
financing product offered by 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 such parent company's
directly or indirectly owned and controlled subsidiaries manufactures,
licenses or distributes;
(e) provider that is licensed as a money transmitter in accordance
with the Kansas money transmitter act or the law of any other state,
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district, territory or commonwealth of the United States; or
(f) provider that consummates no more than five commercial
financing product transactions in this state in a 12-month period.
Sec. 4. (a) No person shall engage in business as a commercial
financing broker in this state unless prior to conducting such business,
such person files for registration with the commissioner. Such registration
shall be effective upon receipt by the commissioner of a completed
registration form and the required registration fee.
(b) After filing an initial registration form, a broker shall file a
renewal registration form on or before January 31 of each year along with
the required renewal fee.
(c) A broker shall pay a $100 registration fee upon the filing of an
initial registration and shall pay a $50 renewal fee upon the filing of a
renewal registration.
(d) The registration form shall include:
(1) The name of the broker;
(2) the name with which the broker is doing business if different than
the name provided in paragraph (1);
(3) the address of the broker's principal office, regardless of whether
located in this state or outside of this state;
(4) 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
(5) the name and address of a designated agent in this state upon
whom service of process may be made.
(e) If any information required by the registration form changes or
becomes inaccurate after filing, the broker shall not be required to file a
further registration form prior to the time of renewal.
(f) Every broker shall obtain a surety bond issued by a surety
company authorized to do business in this state. The amount of such bond
shall be $10,000. Such bond shall be in favor of the state of Kansas. Any
person damaged by the broker's breach of contract or of any obligation
arising therefrom, or by any violation of this act, may bring an action
against such bond to recover damages suffered. The aggregate liability of
the surety shall be only for actual damages and shall not exceed the
amount of such bond.
(g) Employees regularly employed by a broker that has complied with
this act shall not be required to file a registration or obtain a surety bond
when acting within the scope of employment for the broker.
Sec. 5. (a) Violations of the provisions of this act shall be punishable
by a civil penalty of $500 per violation, but not to exceed $20,000 for all
aggregated violations. Any person who violates the provisions of this act
after receiving written notice of a prior violation from the attorney general
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shall be punishable by a civil penalty of $1,000 per violation, but not to
exceed $50,000 for aggregated violations.
(b) Violations of this act shall not affect the enforceability or validity
of the underlying agreement.
(c) This act shall not create a private right of action against any
person based upon compliance or noncompliance with the provisions of
this act.
(d) Authority to enforce compliance with this act shall be vested
exclusively with the attorney general.
Sec. 6. The commissioner shall adopt rules and regulations to
implement the provisions of this act. Such rules and regulations shall be
adopted on or before January 1, 2024.
Sec. 7. This act shall take effect and be in force from and after its
publication in the statute book.
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