New York Adopts Commercial Finance Disclosure Law
On February 1, 2023, the Superintendent of Financial Services, Adrienne A. Harris, announced that the New York State Department of Financial Services (NYDFS) has adopted a new regulation “to improve fairness and transparency in the financing process, so that entrepreneurs and New York businesses can effectively evaluate and choose the best offer available to them.”
In order “[t]o address the lack of standardized disclosures in small business lending,” the New York legislature passed the Commercial Finance Disclosure Law (CFDL) in December 2020. The CFDL mandates “certain providers of commercial financing in amounts of up to $2,500,000 to provide standardized disclosures to potential borrowers at the time financing offers are extended.” The regulation “implements the CFDL and provides specific instructions to commercial financing providers on how to comply with the CFDL.” Providers “([including] persons and entities who solicit and present specific offers of commercial financing on behalf of a third party)” must be in compliance with the new regulation by August 1, 2023.
The new regulation:
Explains the calculation of finance charges and annual percentage rates;
Provides disclosure requires for the following financing types:
Sales-based financing;
Closed-end financing;
Open-end financing;
Factoring transaction financing;
Lease financing; and
General asset-based financing.
Describes the calculation method for the $2,500,000 disclosure threshold;
Outlines financial employees and brokers disclosure duties; and
“Prescribes a process under which certain providers calculating estimated annual percentage rates will report data to the Superintendent relating to the actual retrospective annual percentage rates of completed transactions, in order to facilitate accurate estimates for future transactions.”
The “regulation took into consideration comments received on revised proposed regulations published in 2021 and 2022”[1] and can be found on the NYDFS website.
[1} https://www.dfs.ny.gov/system/files/documents/2023/01/rf_finservices_23nycrr600_secondapc.pdf