2023 Regular Session
To: Business and Financial Institutions
By: Senator(s) Sparks
AN ACT TO CREATE COMMERCIAL FINANCING DISCLOSURE LAWS TO ENSURE FULL DISCLOSURE OF CONTRACT TERMS; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. This act is known and may be cited as the "Commercial Financing Disclosure Law."
SECTION 2. Definitions. As used in this section, the following words and phrases shall have the meanings ascribed in this section unless the context clearly indicates otherwise:
(a) "Account" means a right to payment of a monetary obligation, whether or not earned by performance:
(i) For property that has been or is to be sold, leased, licensed, assigned or otherwise disposed of;
(ii) For services rendered or to be rendered;
(iii) For a policy of insurance issued or to be issued;
(iv) For a secondary obligation incurred or to be incurred;
(v) For energy provided or to be provided;
(vi) For the use or hire of a vessel under a charter or other contract;
(vii) Arising out of the use of a credit or charge card or information contained on or for use with the card; or
(viii) As 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 the game by a state or governmental unit of a state.
The term includes health-care-insurance receivables. The term does not include:
1. Rights to payment evidenced by chattel paper or an instrument;
2. Commercial tort claims;
3. Deposit accounts;
4. Investment property;
5. Letter-of-credit rights or letters of credit; or
6. Rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card.
(b) "Accounts receivable purchase transaction" means any transaction in which the business forwards or otherwise sells to the provider all or a portion of the business's accounts or payment intangibles at a discount to their expected value. For purposes of Mississippi law, the provider's characterization of an accounts receivable purchase transaction as a purchase is conclusive that the accounts receivable purchase transaction is not a loan or a transaction for the use, forbearance or detention of money.
(c) "Business" means an individual or group of individuals, sole proprietorship, corporation, limited liability company, trust, estate, cooperative, association or limited or general partnership engaged in a business activity.
(d) "Business purpose transaction" means any transaction where the proceeds are provided to a business or are intended to be used to carry on a business and not for personal, family or household purposes. For purposes of determining whether transaction is a business purpose transaction, the provider may rely on any written statement of intended purpose signed by the business. The statement may be a separate statement or may be contained in an application, agreement or other document signed by the business or the business owner or owners.
(e) "Broker" means any person who, for compensation or the expectation of compensation, obtains a commercial financing product or an offer for a commercial financing product from a third party that would, if executed, be binding upon that third party and communicates that offer to a business located in this state. The term "broker" excludes a "provider," and any individual or entity whose compensation is not based or dependent upon on the terms of the specific commercial financing product obtained or offered.
(f) "Commercial financing product" means any commercial loan, accounts receivable purchase transaction, commercial open-end credit plan or each to the extent the transaction is a business purpose transaction.
(g) "Commercial loan" means a loan to a business whether secured or unsecured.
(h) "Commercial open-end credit plan" means commercial financing extended by any provider under a plan in which:
(i) The provider reasonably contemplates repeat transactions; and
(ii) The amount of financing that may be extended to the business during the term of the plan (up to any limit set by the provider) is generally made available to the extent that any outstanding balance is repaid.
(i) "Depository institution" means any of the following:
(i) A bank, trust company or industrial loan company doing business under the authority of, or in accordance with, a license, certificate or charter issued by the United States, this state, or any other state, district, territory or commonwealth of the United States that is authorized to transact business in this state.
(ii) A federally chartered savings and loan association, federal savings bank or federal credit union that is authorized to transact business in this state.
(iii) A savings and loan association, savings bank or credit union organized under the laws of this or any other state that is authorized to transact business in this state.
(j) "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. The term includes payment intangibles and software.
(k) "Payment intangible" means a general intangible under which the account debtor's principal obligation is a monetary obligation.
(l) "Provider" means a person who consummates more than five (5) commercial financing products to a business located in this state in any calendar year. "Provider" also includes a person that enters into a written agreement with a depository institution to arrange for the extension of a commercial financing product by the depository institution to a business via an online lending platform administered by the person. The fact that a provider extends a specific offer for a commercial financing product on behalf of a depository institution shall not be construed to mean that the Provider engaged in lending or financing or originated that loan or financing.
SECTION 3. Disclosures. (1) A provider that consummates a commercial financing product shall disclose the terms of the commercial financing product as required by this act. The disclosures must be provided at or before consummation of the transaction. Only one (1) disclosure must be provided for each commercial financing product, and a disclosure is not required as a result of the modification, forbearance or change to a consummated commercial financing product.
(2) A provider must disclose the following in connection with each commercial financing product:
(a) The total amount of funds provided to the business under the terms of the commercial financing product. This disclosure shall be labeled "Total Amount of Funds Provided."
(b) The total amount of funds disbursed to the business under the terms of the commercial financing product, if less than the total amount of funds provided, as a result of any fees deducted or withheld at disbursement, any amount paid to the provider to satisfy a prior balance and any amount paid to a third party on behalf of the business. This disclosure shall be labeled "Total Amount of Funds Disbursed."
(c) The total amount to be paid to the provider under the terms of the commercial financing product agreement. This disclosure shall be labeled "Total of Payments."
(d) The total dollar cost of the commercial financing product under the terms of the agreement, calculated by finding the difference between:
(i) the amount described in paragraph (a) of this subsection; and
(ii) the amount described in paragraph 2(c) of this subsection.
This disclosure shall be labeled "Total Dollar Cost of Financing."
(e) The manner, frequency and amount of each payment. This disclosure shall be labeled "Payments." If the payments may vary, the provider shall instead disclose the manner, frequency and the estimated amount of the initial payment labeled "Estimated Payments" and the commercial financing product agreement must include a description of the methodology for calculating any variable payment and the circumstances when payments may vary.
(f) A statement of whether there are any costs or discounts associated with prepayment of the commercial financing product, including a reference to the paragraph in the agreement that creates the contractual rights of the parties related to prepayment. This disclosure shall be labeled "Prepayment".
SECTION 4. Exemptions. This act does not apply to any of the following:
(a) A provider that is a depository institution or a subsidiary or service corporation that is:
(i) owned and controlled by a depository institution; and
(ii) regulated by a federal banking agency.
(b) A provider that is a lender regulated under the federal Farm Credit Act (12 USC Section 2001 et seq.).
(c) A commercial financing product that is:
(i) Secured by real property;
(ii) A lease; or
(iii) 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.
(d) A commercial financing product in which the recipient is a motor vehicle dealer or an affiliate of such a dealer, or a vehicle rental company, or an affiliate of such a company, pursuant to a commercial loan or commercial open-end credit plan of at least Fifty Thousand Dollars ($50,000.00) 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 its directly or indirectly owned and controlled subsidiaries manufacturers, licenses or distributes.
(e) A provider that is licensed as a money transmitter in accordance with a license, certificate or charter issued by this state, or any other state, district, territory or commonwealth of the United States. A provider is also a member of the Mississippi Manufacturers Association.
(f) A provider that consummates no more than five (5) commercial financing products in this state in a twelve-month period.
SECTION 5. Broker Registration. (1) No person shall engage in business as a commercial financing broker within this state, for compensation, unless prior to conducting such business, the person has filed a registration with the Mississippi Secretary of State and has on file a good and sufficient bond. The registration shall be effective upon receipt by the Mississippi Secretary of State of a completed registration form and the required registration fee, and shall remain effective until the time of renewal.
(2) An application for registration shall include disclosure 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.
(3) The Mississippi Secretary of State shall adopt such regulations as it deems appropriate to effect the purposes of section. Before adopting any such regulation, the Secretary of State shall give reasonable notice of its content and shall afford interested parties an opportunity to be heard, in accordance with the rules of the Secretary of State.
SECTION 6. Enforcement. (1) Any person who violates any provision of this act shall be punishable by a fine of Five Hundred Dollars ($500.00) per incident, not to exceed Twenty Thousand Dollars ($20,000.00) for all aggregated violations arising from the use of the transaction documentation or materials found to be in violation of this act. Any person who violates any provision of this act after receiving written notice of a prior violation from the Attorney General of this state shall be punishable by a fine of One Thousand Dollars ($1,000.00) per incident, not to exceed Fifty Thousand Dollars ($50,000.00) for all aggregated violations arising from the use of the transaction documentation or materials found to be in violation of this act.
(2) Violation of any provision of this act will not affect the enforceability or validity of the underlying agreement.
(3) Nothing in this Chapter is intended to, or does, create a private right of action against any person or other entity based upon compliance or noncompliance with its provisions.
(4) Authority to enforce compliance with this act is vested exclusively in the attorney general of this state.
(5) The disclosure and registration requirements of this bill will take effect six (6) months after the regulator finalizes implementing regulations or the law becomes effective.
SECTION 7. This act shall take effect and be in force from and after July 1, 2023.