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Financial Services Law Insights and Observations

NYDFS seeks to implement Commercial Finance Disclosure Law

State Issues State Regulators NYDFS Disclosures Commercial Finance Agency Rule-Making & Guidance

State Issues

On October 20, NYDFS published a notice announcing a proposed regulation (23 NYCRR 600) to implement New York’s Commercial Finance Disclosure Law (CFDL) (covered by InfoBytes here). The CFDL was enacted at the end of December 2020, and amended in February to expand coverage and delay the effective date to January 1, 2022. (See S5470-B, as amended by S898.) Under the CFDL, providers of commercial financing, which includes persons and entities who solicit and present specific offers of commercial financing on behalf of a third party, are required to give consumer-style loan disclosures to potential recipients when a specific offering of finance is extended for certain commercial transactions of $2.5 million or less.

As previously covered by InfoBytes, NYDFS solicited comments on a pre-proposed regulation released last month, which, among other things, (i) specified persons and entities required to comply with the regulation; (ii) defined terms used within the CFDL, including “commercial financing” and “finance change”; (iii) explained APR rate calculations and allowed tolerances; (iv) outlined specific disclosure requirements, including formatting and signature requirements; and (vi) detailed several provisions related to commercial financings that offer multiple payment options, certain duties of financers and brokers involved in commercial financing, record retention requirements, and the reporting process for certain providers that calculate estimated annual percentage rates.

The proposed regulation made several changes to the pre-proposed regulation based on comments NYDFS received. These include:

  • Modifying the definition of when a specific offer is made that triggers the requirement to provide a disclosure. NYDFS stated that this change “should allow for some negotiations between borrowers and lenders before disclosures are required.”
  • Adding the Secured Overnight Financing Rate (SOFR) as an acceptable rate index for use in adjustable-rate financings due to the cessation of LIBOR at the end of the year.
  • Clarifying the definition of a “broker” to be “defined in terms of the substantive services they perform during the underwriting process.”
  • Modifying the allowed tolerances when calculating APRs as required under Part 600.04. For most transactions, NYDFS explained that the tolerance threshold will remain one-eighth of one percent. For irregular transactions, NYDFS proposed a larger tolerance of one-quarter of one percent.

Additionally, the proposed regulation provides that the compliance date for the final regulation will be six months after the final adoption and publication of the regulation in the State Register. Comments on the proposed regulation are due December 19.