On September 21, NYDFS Acting Superintendent Adrienne A. Harris announced a Proposed regulation Implementation of the New York Commercial Finance Disclosure Law (CFDL) (covered by InfoBytes) here), which came into force at the end of December 2020 and was changed in February to expand the scope and postpone the entry into force to January 1, 2022. (Please refer S5470-B, changed by S898.) According to the CFDL, providers of commercial financing, which also includes natural and legal persons who solicit and present specific offers for commercial financing on behalf of a third party, are obliged to provide potential recipients with consumer-friendly information about loans at the time of a particular offer granted on certain commercial transactions of $ 2.5 million or less.
The CFDL and the proposed Implementing Regulation apply to any person or entity that (i) makes a specific offer of commercial finance to a beneficiary (ie, a person who applies for commercial finance and who is made a specific offer of commercial finance); (ii) obtain and present specific commercial financing offers on behalf of a third party; or (iii) provide or provide commercial finance to recipients and transmit a specified amount, rate, or price in connection with the commercial finance either directly to a recipient or to a broker with the expectation that the information will: a. are passed on to recipients.
The term “commercial finance” is broadly defined and includes:
- Open funding
- Closed financing
- Revenue-based financing (i.e. cash advance for dealers)
- Defined as any transaction that is repaid over time as a percentage of sales or sales, where the payment amount may vary based on sales or sales volume, including any financing with a sales or sales based true-up mechanism.
- Accounts receivable purchase transactions, including factoring
- Factoring is any purchase of a receivable transaction that includes an agreement on the purchase, transfer or sale of a legally binding payment claim by a recipient for goods or services that have been delivered or rendered, but for which no payment has yet been made.
- Asset-based lending
- Defined as a transaction in which, from time to time, advances are made dependent on a recipient passing on payments received from one or more third parties for goods or services that the recipient has delivered or rendered to that third party.
- Leasing financing
- Defined as the provision of a lease for goods that includes a purchase option that creates a security interest in the leased goods, including a “finance lease” as defined by the UCC.
- Any other form of financing the proceeds of which are not primarily intended for consumer use.
Notwithstanding this, the proposed regulation provides that commercial financing does not include a transaction in which a financier makes a disclosure required by the Truthfulness Act. The following companies and transactions are exempt from the CFDL: (i) financial institutions (defined as a chartered or licensed bank, trust company, industrial credit company, credit union, or federal credit union authorized to do business in New York); (ii) Lenders subject to Federal Agricultural Loans Act; (iii) commercial financing transactions backed by real estate; (iv) technology service providers; (v) certain leasing transactions under the New York Uniform Commercial Code; (vi) Lenders who have no more than five Applicable Transactions in New York in a 12 month period; (vii) individual commercial financing transactions in excess of $ 2.5 million; and (viii) commercial financing transactions involving certain vehicle dealers.
Among other things, the proposed regulation:
- Provides definitions for terms used in the CFDL and Proposed Regulation, including definitions of “Financing Charges” among the various Transactions Covered (e.g. Transactions).
- Explains how providers should calculate the APR and outlines permissible tolerances.
- Outlines disclosure formatting requirements for the following types of funding: (i) revenue-based funding (including cash advances from dealers); (ii) closed-end funding; (iii) open funding; (iv) factoring transaction finance; (v) lease finance; (vi) general asset-based financing; and (vii) all other commercial financing transactions.
- Provides disclosure requirements in cases where the amount funded is greater than the recipient funds, including a disclosure titled “Funding You Will Receive”.
- Specifies that, in accordance with the CFDL, a provider must make the necessary disclosures to a recipient at the time a specific commercial financing offer is made. The proposed Regulation defines “at the time a particular offer is made” as (i) each time a particular regular or irregular payment amount, rate or price relating to commercial financing is offered to a recipient in writing based on information received from or about the recipient; and (ii) at any subsequent time, if the terms of an existing commercial finance contract are changed before the beneficiary agrees to the changes, if the resulting changes would increase the financing fee (with respect to the perpetual loan, certain alternative parameters apply). Plans). The proposed regulation also notes that if a provider allows a recipient to choose from multiple offer options or to customize a funding offer, the provider only needs to provide the disclosure (s) for the specific offer the recipient is pursuing.
- Provides disclosure signature requirements that can be done electronically (prior to entering into any commercial funding, a financer must receive a copy of the disclosures made under the CFDL, which will be signed by the recipient).
- Describes how the CFDL’s disclosure threshold of $ 2.5 million is calculated.
- Describes requirements for commercial finance that offers multiple payment options.
- Establishes certain obligations for financiers and brokers involved in commercial financing, including record-keeping requirements (four years).
- Describes the reporting process for which certain vendors who calculate estimated annual percentages report data relating to “the annual estimated percentages disclosed to the recipient and the actual annual retrospective percentages of completed transactions” to the superintendent for accurate estimates of future transactions enable .
Outreach comments on the provisional proposed regulation are due by October 1st. After NYDFS completes this preparatory phase, NYDFS will make a formal proposal for a regulation. Comments on the formal proposal for a regulation are due within 60 days of their publication in the State Register. NYDFS expects final regulation by January 1, 2022, the effective date specified in the underlying law.