New York Commercial Financing Disclosure Requirements Take Effect Soon

Manatt, Phelps & Phillips, LLP

On September 21, 2021, the New York Department of Financial Services (NYDFS) released its pre-proposed regulations to implement the commercial financing disclosure requirements in S5470-B and S898. The ten-day outreach comment period closed on October 1, 2021, but as of today, the proposed regulations have not yet been published in the New York State Register. Once published, there will be a 60-day comment period and then NYDFS will review all comments and issue a final regulation. Absent executive or agency action delaying the effective date, commercial finance companies will need to comply with the new law starting on January 1, 2022.

Similar to California’s SB 1235, the New York law will require Truth in Lending Act–like disclosure requirements not only for loans but also for other types of financing, such as factoring and merchant cash advances (MCAs).

The New York regulations largely track California’s modified regulations issued in April 2021. As such, they preserve many of the same issues we noted with those modifications. These issues include the requirement that the disclosures be provided when “a specific periodic payment or irregular payment amount, rate or price, in connection with a commercial financing, is quoted in writing to a recipient based upon information from, or about, the recipient.” This will require many companies to radically change their application and underwriting procedures and will significantly impair preliminary discussions about potentially available financing terms before full underwriting is complete. While California has been working since April 7 to resolve issues raised by those in the industry about this timing requirement, the effective date of New York’s requirements may not allow time for the state to address the problem.

The New York regulations contain numerous other compliance headaches, but with January 1 looming, providers of commercial financing must act quickly to develop procedures and template disclosures. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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