On October 20, the New York Department of Financial Services (NYDFS) issued proposed rules under New York’s Commercial Financing Disclosure Law (CFDL) (See S5470-B, as amended by S898).  Under the CFDL, commercial financing providers will be required to give consumer-style loan disclosures to recipients at the time a specific offering of finance is extended for certain commercial transactions of $2.5 million or less.  The public comment period on the proposed rules are due by December 19, 2021.

Among other things, the proposed regulation:

  • Describes how the CFDL’s $2.5 million disclosure threshold is calculated
  • Explains how providers should calculate the APR and outlines allowed tolerances
  • Outlines formatting requirements for disclosures for the types of commercial financing
  • Provides disclosure signature requirements, which may be electronic
  • Outlines requirements for commercial financings that offer multiple payment options
  • Specifies record retention requirements
  • Prescribes a process under which certain providers calculating estimated APRs will report data to the NYDFS Superintendent relating to the actual retrospective APRs of completed transactions

Putting It Into Practice:   The proposed rules borrow heavily from, but do not exactly mirror, those under the California Department of Financial Protection and Innovation’s (DFPI) proposed rules to implement its own commercial financing disclosure law (See SB1235).  The DFPI’s most recent round of modifications to its proposed rules were issued on August 9, 2021.  While any lack of uniformity between the two states’ regulations will complicate compliance for many commercial financers subject to both laws, finance companies should anticipate some changes between the New York law’s proposed and final rules.  With NYDFS’ ability to seek significant financial penalties as a consequence of not complying with the new law, it is critical that financial institutions develop policies and procedures and train employees in order to adhere to the disclosure requirements.