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Missouri recently introduced its version of Commercial Finance Disclosure Law (“CFDL”) legislation, following the lead of other states with laws requiring consumer-like disclosures in certain commercial loans, including California, Connecticut, Florida, Georgia, New York, Virginia, and Utah. With one exception, Missouri Senate Bill 753 is substantially similar to a bill introduced in the Missouri Senate in the prior legislative session and its current companion bill, Missouri House Bill 2063.
This legislative session, the sponsor of Senate Bill 753 proposes an additional exemption from the law’s application should it be enacted. The bill includes an exemption for, among other types of loan products, commercial financing transactions that are insurance premium finance loan agreements offered or entered into by a premium finance company registered to do business in the State of Missouri. Insurance premium financing loans are short-term, secured loans that enable businesses to purchase insurance coverage. Businesses of all sizes obtain commercial, property, casualty, and liability insurance policies to mitigate operational risk and to protect their interests and those of their customers. While some businesses may choose to pay insurance premiums in full at the time of purchase, others either do not have sufficient funds to pay the premium in full upfront or prefer to finance the premium by permitting other uses of their capital. The majority of states regulate insurance premium financing transactions, including Missouri.
This additional CFDL exemption appears appropriate. Insurance premium finance transactions are extensively regulated by the Missouri Division of Finance and are subject to laws that mandate the disclosure of financial terms in insurance premium finance loans. (Mo. Rev. Stat. §§ 364.100 et seq.) Current insurance premium finance law in Missouri requires the disclosure of loan-related information in the insurance premium finance agreement itself, including: (a) the total amount of the premium under the insurance policies purchased; (b) the amount of the down payment made by the insured/ borrower; (c) the principal balance of the loan (meaning the difference between the amounts stated under (a) and (b)); (d) the amount of the interest charged by the insurance premium finance lender; (e) the balance payable by the insured/ borrower under the loan (meaning the sum of amounts stated under paragraphs (c) and (d)); and (f) the number of installment payments required, the amount of each installment payment expressed in dollars, and the due date of the installment payments. Nearly all disclosures contemplated under the proposed CFDL are required under existing Missouri law regulating insurance premium finance loans. Imposing CFDL standards for insurance premium finance transactions, when already required by other Missouri law, appears redundant and unnecessary. Further, application of both disclosure laws could potentially present conflicting obligations for insurance premium finance companies and inconsistent information for borrowers when comparing insurance premium finance loans.
As of the date of this post, the following states have proposed various forms of commercial financing disclosure bills this legislative session: Kansas (Senate Bill 345), New Jersey (Senate Bill 1397 and Assembly Bill 865), and Pennsylvania (House Bill 1792). Bills also remain pending from carry-over sessions in New Jersey (Senate Bill 819 and House Bill 2150). Illinois (Senate Bill 2234 and House Bill 3064), North Carolina (Senate Bill 539 and House Bill 662), and Kansas (Senate Bill 245). Commercial financing disclosure bills also have been proposed at the federal level and remain pending (Senate Bill 2021 and House Bill 4192).
Womble Bond Dickinson (US) LLP is closely monitoring developments in this area and remains ready to assist clients navigate these laws and legislation.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained herein is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above, if any, for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
