SENATE BILL No. 345
AN ACT concerning financial institutions; enacting the commercial financing disclosure
act; requiring the disclosure of certain commercial financing product transaction
information; providing for civil penalties; 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 5, and
amendments thereto, shall be known and may be cited as the
commercial financing disclosure act.
(b) As used in the commercial financing disclosure act:
(1) (A) "Account" includes:
(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 include:
(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
(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, cash receipts 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) "Advance fee" means any consideration that is assessed or
collected prior to the closing of a commercial financing transaction by a
broker.
(5) (A) "Broker" means any person who, for compensation or the
expectation of compensation:
(i) Arranges a commercial financing product transaction between
a third party that, if executed, such transaction would be binding upon
such third party; and
(ii) communicates such transaction to a business in this state.
(iii) "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.
(6) "Business" means an individual, group of individuals, sole
proprietorship, corporation, limited liability company, trust, estate,
cooperative, association, limited partnership or general partnership SENATE BILL No. 345—page 2
engaged in a business activity.
(7) "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.
(8) "Commercial financing facility" means a provider's plan for
purchasing multiple accounts receivable from the recipient over a
period of time pursuant to an agreement that sets forth the terms and
conditions governing the use of the facility.
(9) "Commercial financing transaction" means any commercial
loan, accounts receivable purchase transaction and commercial open-
end credit plan when the transaction is a business purpose transaction.
(10) "Commercial loan" means a loan to a business, whether
secured or unsecured.
(11) "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 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.
(12) "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.
(13) "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.
(14) "Payment intangible" means a general intangible under which
the account debtor's principal obligation is a monetary obligation.
(15) "Person" means any individual, firm, company, partnership,
corporation or association.
(16) "Provider" means a person who consummates more than five
commercial financing 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 transaction by such depository institution to a
business through an online lending platform administered by such
person.
Sec. 2. (a) Before, or at the time of, consummating a commercial
financing transaction, a provider shall disclose to the business the terms
of such commercial financing transaction in accordance with the
provisions of this section. Only one disclosure shall be required for
each commercial financing transaction and disclosure shall not be
required when modification, forbearance or change to a consummated
commercial financing transaction occurs.
(b) A provider shall disclose with each commercial financing
transaction:
(1) The total amount of funds provided to the business under the
terms of such commercial financing transaction. Such disclosure shall SENATE BILL No. 345—page 3
be labeled "total amount of funds provided";
(2) the total amount of funds disbursed to such business under the
terms of such commercial financing transaction 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
commercial financing transaction agreement. Such disclosure shall be
labeled "total of payments";
(4) the total dollar cost of such commercial financing transaction
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 transaction
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 transaction,
including a reference to the paragraph in such agreement that creates
the contractual right to prepayment. Such disclosure shall be labeled
"prepayment".
(c) A provider that consummates a commercial financing facility
may provide disclosures required by this act that are based on an
example of a transaction that could occur under the agreement. The
example shall be based on an account receivable total face amount
owed of $10,000. Only one disclosure is required for each commercial
financing facility, and a disclosure is not required as result of a
modification, forbearance or change to the facility. A new disclosure is
not required each time accounts receivables are purchased under the
facility.
Sec. 3. The provisions of this act shall not apply to a:
(a) Provider that is a depository institution or its parent company
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 transaction 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 transaction 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 or an affiliate of such a
company pursuant to a commercial loan or commercial open-end credit
plan of at least $50,000 or a commercial financing transaction 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 SENATE BILL No. 345—page 4
with the Kansas money transmitter act or the law of any other state,
district, territory or commonwealth of the United States;
(f) provider that consummates not more than five commercial
financing transaction transactions in this state in a 12-month period; or
(g) commercial financing transaction of more than $500,000.
Sec. 4. No broker shall:
(a) Assess, collect or solicit an advance fee from a business to
provide services as a broker. Nothing in this subsection shall be
construed to preclude a broker from soliciting a potential business to
pay for, or preclude a potential business from paying for, actual
services necessary to apply for a commercial financing transaction.
Such actual services may include, but not be limited to, a credit check
or an appraisal of security, where such payment is made by check or
money order payable to a party independent of the broker;
(b) make or use any false or misleading representations or omit
any material fact in the offer or sale of the services of a broker or
engage, directly or indirectly, in any act that operates or would operate
as fraud or deception upon any person in connection with the offer or
sale of the services of a broker, notwithstanding the absence of reliance
by the buyer; or
(c) make or use any false or deceptive representation in its
business dealings.
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 shall be punishable by a civil penalty of
$1,000 per violation, but not to exceed $50,000 for all 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. SENATE BILL No. 345—page 5
Sec. 6. This act shall take effect and be in force from and after its
publication in the statute book.
I hereby certify that the above BILL originated in the
SENATE, and passed that body
_________________________
_________________________
President of the Senate.
_________________________
Secretary of the Senate.
Passed the HOUSE ________________________
_________________________
Speaker of the House.
_________________________
Chief Clerk of the House.
APPROVED ____________________________
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Governor.