Kansas SB 345 Overview

In a move to enhance transparency and accountability in commercial financing, Kansas took a significant stride forward with the enactment of the Commercial Financing Disclosure Act on April 12, ushered in through SB 345. This legislative measure marks a pivotal shift towards ensuring that businesses engaging in commercial financing are equipped with comprehensive information regarding their transactions, while also imposing penalties for non-compliance.

The scope of the Act encompasses a broad array of commercial financial products and transactions, including commercial loans, accounts receivable purchase transactions, and commercial open-end credit plans, provided that the transaction amount does not exceed $500,000.

Key provisions of the Act dictate that providers must furnish detailed disclosures to applicants, encompassing essential transactional information such as the total amount of funds provided, the total amount disbursed (if less than the furnished amount), and the total amount owed by the borrower, inclusive of all associated costs. Kansas’ legislation is based on total cost of capital, rather than estimated APR. Moreover, the manner, frequency, and amount of each payment must be disclosed. Notably, only a single disclosure per financing agreement is mandated, obviating the need for repeated disclosures in the event of alterations to the arrangement.

Furthermore, the Act imposes stringent prohibitions on brokers, prohibiting the collection of advance fees, dissemination of false representations, or omission of material facts during the sale of services related to commercial financing transactions. However, certain exemptions are carved out under the Act, including depository institutions, commercial financing transactions of more than $500,000 or secured by real property or a lease, and providers engaging in no more than five commercial transactions in the state in a 12-month period.

Non-compliance with the Act invites civil penalties, with individual violations incurring a fine of $500, capped at a total penalty of $20,000 for aggregated violations. Subsequent violations, following a written warning from the attorney general, escalate the penalty to $1,000 per violation, with a maximum aggregate penalty of $50,000. Importantly, the Act precludes individuals from pursuing legal action based on compliance or non-compliance, thereby affirming the exclusivity of enforcement powers vested in the attorney general. Moreover, violations do not impinge upon the enforceability or validity of the underlying agreements.

Connecticut SB 1032

Additionally, Connecticut has joined the ranks of states prioritizing transparency and accountability in the realm of commercial financing, with the enactment of SB 1032 effective July 1, 2024. This Act mandates certain providers of sales-based commercial financing to furnish detailed disclosures to merchants, while also imposing registration requirements on providers and brokers, under the oversight of the state.

At the heart of the Act lies a clear definition of "commercial financing," encompassing any extension of sales-based financing in amounts not exceeding $250,000, intended for purposes other than personal, family, or household use. Providers, as defined by the Act, extend specific offers of commercial financing, inclusive of commercial financing brokers, with exemptions carved out for various financial entities.

Crucially, SB 1032 delineates the parameters for qualifying commercial transactions, emphasizing transparency in the disclosure of transaction terms. Providers must furnish comprehensive disclosures, including additional information if the recipient is required to pay off existing commercial financing from the same provider. Flexibility is granted for providers to adopt alternative state-based disclosure requirements, provided they meet or exceed Connecticut's standards.

The Act safeguards recipients' rights by prohibiting provisions within commercial financing contracts that waive notice, judicial hearing, or prior court order rights in connection with the provider obtaining prejudgment remedies. Moreover, providers are prohibited from revoking, withdrawing, or modifying specific offers until the expiration of a three-day window.

Registration with the state banking commissioner is a prerequisite for providers and brokers, alongside adherence to prescribed disclosure requirements, with a deadline set for October 1, 2024. The banking commissioner is empowered to promulgate regulations to facilitate the Act's implementation, with violators subject to civil penalties and potential injunctive relief for knowing transgressions.

Comparison of Kansas SB 345 & Connecticut SB 1032

Both Kansas and Connecticut established a compliance date of July 1, 2024, for their respective disclosure regulations in commercial financing. The primary focus for both states is ensuring that merchants are fully informed about their financial obligations and rights by prioritizing the disclosure of transaction terms.

However, there are key differences between the two legislative frameworks:

• Time Period: Connecticut specifies a mandatory time period for certain disclosures, unlike Kansas.
• Broker Commission: Connecticut's regulations include provisions for the disclosure of broker commissions, which is not addressed in Kansas's legislation.
• Signature Requirement: Connecticut requires a signature for certain transactions to be valid, while Kansas does not have this requirement.
• Laws of Other States: Connecticut allows for the application of laws from other states if they meet or exceed Connecticut's regulatory standards.
• Revocation Period: Connecticut mandates a three-day waiting period during which an offer can be revoked, a provision not found in Kansas's regulations.
• Registration: Connecticut introduces a registration requirement overseen by the state banking commissioner, while Kansas does not require registration but imposes civil penalties for violations, with escalating fines for repeated transgressions.

Even though both states set the same compliance date, it is important to pay attention to these significant differences in their regulatory approaches.