New York Greatly Expands the Reach of its New Commercial Loan Disclosure Law

In March, we reported on a new law enacted in New York at the end of last year, Senate Bill 5470-B that imposes certain Truth-in-Lending Act modeled disclosure obligations on those making or brokering certain commercial loans of $500,000 or less. We also reported on the existing New York Licensed Lenders Law that imposes a licensing obligation to make commercial loans of $50,000 or less with an annual interest rate in excess of 16 percent. We further indicated that we would monitor developments in New York and issue a follow-up Client Alert if there were any changes to the commercial laws in New York. Well, it did not take long for changes to be enacted to the new New York “Commercial Loan Disclosure Law.” Despite Governor Cuomo’s attention being diverted to other matters, the New York legislature amended and Governor Cuomo already signed into law amendments to New York’s “Commercial Loan Disclosure Law.” The Licensed Lender Law has not been amended, but the legislative session in New York is a few weeks old, and additional related legislation is being championed, so the Licensed Lenders Law may be amended before all is said and done in Albany in 2021.

The 2021 legislation amending New York’s “Commercial Loan Disclosure Law” is Senate Bill 898, which makes five significant amendments to this Law.

  1. When S. B. 5470-B was enacted into law, an exemption from the new law was provided for an individual commercial financing transaction in an amount over $500,000. Thus, many commercial finance transactions would not have been subject to the new disclosure obligations. S. B. 898 greatly expands the commercial financing transactions subject to the new disclosure obligations, as S.B. 898 only exempts commercial financing transaction in an amount over $2,500,000. Now, those commercial financing transactions, regulated under this new Law, of $2.5 million or less are subject to the commercial loan disclosure obligations, unless another exemption applies. With a little stroke of the legislative pen, 5 times the number of commercial financing transaction are subject to the new law and its disclosure obligations.
  2. S. B. 898, adds a new finely tuned exemption from the disclosure obligations involving certain motor vehicle dealers and rental vehicle companies. S. B. 898 provides an exemption for a “commercial financing transaction in which the recipient is a dealer as defined in section [415] of the vehicle traffic law, or an affiliate of such a dealer, or a rental vehicle company as defined in section [396-z] of the general business law, or an affiliate of such a company pursuant to a commercial financing agreement or commercial open-end credit plan of at least [$50,000], including any commercial loan made pursuant to such a commercial financing transaction.”
  3. S. B. 898 also provides certain clarification regarding the annual percentage rate (“APR”) disclosures for the commercial financing transaction regulated under certain sections of the new Commercial Loan Disclosure Law, including for (i) sales based financings under section 803, (ii) closed-end commercial financings under section 804, (iii) open- end commercial financings under section 805, (iv) factoring transactions under section 806, (v) and other forms of commercial financings under section 807. As set out in S. B. 898, the disclosures for these sections must be made “regardless of whether such act or such regulation would require such a calculation.” Thus, the commercial loan disclosure required under these sections of the new Commercial Loan Disclosure Law will apply even if these financing did not otherwise require any disclosure.
  4. S. B. 898 provides that “[n]othing in [S.B. 898] shall authorize transactions in this state which are otherwise illegal or allow an entity or individual to operate in this state without a license where a license would otherwise be required.” Although the Licensed Lender Law remains intact, and deference is paid to this licensing law that compliance with the Commercial Loan Disclosure Law does not relieve parties from being governed under the Licensed Lenders Law, and obtaining a license, legislators are clearing thinking about the licensing of commercial finance activities in New York, so I would not be surprised if during this legislative session, the New Yok Legislature expands the scope of the commercial transaction subject to licensing in New York. (After all, California licenses all forms of commercial transactions, can New York be far behind?)
  5. Finally, S. B. 898 repeals the provision that the new Commercial Loan Disclosure Law was to take effect 180 days after being enacted. Rather, S. B. 898 provides a specific effective date of January 1, 2022, and issues “marching orders” to those who are to administer the new Commercial Loan Disclosure Law, providing that “effective immediately, the addition, amendment and/or repeal of any rule or regulation, necessary for the implementation of this act on its effective date are authorized to be made and completed by the superintendent of financial service on or before such effective date.”

As we reported in our initial Client Alert on commercial financing laws, most states do not license those who make or broker commercial loans. Now those who make or broker certain commercial loans will need to not only worry about complying with such state licensing laws, but also providing the requisite disclosures in New York, and other states that may follow New York’s lead.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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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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