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Financial Services Law Insights and Observations

NYDFS finalizes commercial financing disclosures

State Issues NYDFS State Regulators Commercial Finance Disclosures Bank Regulatory 23 NYCRR 600

State Issues

On February 1, NYDFS adopted a final regulation (23 NYCRR 600) outlining disclosure requirements for commercial financing transactions in the state. Under the state’s Commercial Finance Disclosure Law (CFDL)—which was enacted at the end of December 2020—providers of commercial financing, which include 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.

The final regulation took into consideration comments received on revised proposed regulations published in 2021 and 2022 (covered by InfoBytes here and here), and provides specific instructions for providers on how to comply with the CFDL. Among other things, the final regulation:

  • Outlines detailed definitions for terms used within the CFDL and in the regulation;
  • Clarifies the definition of “finance charge” with respect to commercial financing transactions, and explains how the finance charge and annual percentage rate should be calculated; 
  • Describes allowed tolerances and specifies occurrences where providers or financers will not assume liability for disclosure errors or inadvertent disclosures;
  • Lays out formatting and content requirements for disclosures required by the CFDL for the following types of financing: (i) sales-based financing; (ii) closed-end financing; (iii) open-end financing; (iv) factoring transaction financing; (v) lease financing; (vi) general asset-based financing; and (vii) all other commercial financing transactions that do not fall within the aforementioned categories; 
  • Clarifies specific itemization disclosure requirements for when the amount financed is greater than the recipient funds;
  • Outlines signature requirements;
  • Describes how the CFDL’s disclosure threshold of $2,500,000 is calculated; 
  • Explains how providers should calculate required disclosures for commercial financing transactions with multiple payment options/balances payable on demand;
  • Details certain duties of financers and brokers involved in commercial financing; 
  • Prescribes a process under which certain providers that use the opt-in method of calculating an estimated annual percentage rates will report data to the superintendent; and
  • Specifies provisions related to the assignment of commercial financing agreements.

23 NYCRR 600 will take effect upon publication of the Notice of Adoption in the State Register. The compliance date is six months after the Notice of Adoption is published.