Compliance with the requirements of New York Financial Services Law sections 801-811 (the Commercial Finance Disclosure Law or “NYCFDL”) as implemented by the New York Department of Financial Services (“DFS”) becomes mandatory on August 1, 2023.  The DFS published final rules in the New York State Register as Part 600 of Title 23 of the state’s Official Compilation of Codes, Rules and Regulations on February 1, 2023, to take effect six months thereafter.  A copy of the final regulations are available on the DFS website.  The prescriptive disclosure calculation rules, table format, and font size requirements under these DFS regulations will remind lenders of the so-called “Schumer box” and similar disclosure requirements of the federal Truth in Lending Act.  The rules also impose certain obligations on covered lenders to provide particular copies of transaction documents and complete other information reporting directly to the DFS. 

With these new requirements, New York joins California, Utah, and a growing number of states requiring consumer lending-like disclosures of commercial-purpose lenders.  Like many of these other laws, the New York law exempts banks and certain other state- or federally chartered-depository institutions and certain subsidiaries of such institutions.^[1]  The NYCFDL disclosure requirements generally apply to non-bank providers offering commercial financing of up to $2.5 million to prospective recipients that are (i) businesses “principally directed or managed from the State of New York” or (ii) natural persons that are legal residents of New York.^[2] 

Key provider type- and transaction-specific statutory exemptions to the NYCFDL include (i) an individual (single) commercial financing transaction in an amount that exceeds $2.5 million; (ii) any real estate-secured commercial financing transaction; (iii) any provider who makes no more than five (5) commercial financing transactions in the state in a twelve-month period; (iv) any commercial financing transaction in which the recipient is a dealer as defined in section 415 of New York’s Vehicle and Traffic Law, or an affiliate of such a dealer, or a rental vehicle company as defined in section 396z of the General Business Law and certain affiliates of such a rental vehicle company; and (v) any true lease as defined in the New York Uniform Commercial Code.^[3] 

For purposes of the exemption noted above relating to a single transaction in an amount exceeding $2.5 million, the DFS rules explain that this should be calculated as “the aggregate amount that a recipient may receive under a commercial financing agreement and not the amount of any particular advance under such agreement.”^[4]  The rules also clarify how this calculation should be made in the specific context of asset-based loan and factoring transactions.^[5] 

In addition, of note to fintech firms and other non-bank technology firms in financial services, the New York law exempts “a person acting in its capacity as a technology services provider, such as licensing software and providing support services, to an entity exempt [under section 802 of the NYCFDL] for use as part of the exempt entity's commercial financing program, provided such person has no interest, or arrangement or agreement to purchase any interest in the commercial financing extended by the exempt entity in connection with such program.”^[6]  

When applicable, the NYCFDL requires that the provider make certain disclosures to the recipient (and in some cases, to a recipient’s loan broker intermediary) at the time of extending “a specific offer” of the proposed financing.  Under the statute, for this purpose “a specific offer” means “the specific terms of commercial financing, including price or amount, that is quoted to a recipient, based on information obtained from, or about the recipient, which, if accepted by a recipient, shall be binding on the provider, as applicable, subject to any specific requirements stated in such terms.”^[7]  The implementing rules adopted by the DFS further tie this law’s disclosure obligations in certain respects to a “specific offer of commercial financing or specific commercial financing offer” and define this to refer to “a written communication to a recipient, based upon information from, or about, the recipient, of a (i) periodic payment amount, irregular payment amount, or financing amount, and (ii) any rate, price, or cost of financing (including, without limitation, any total repayment amount), in connection with a commercial financing, which offer, if accepted by a recipient, shall be binding upon a provider.”^[8]  “Information about the recipient” for this purpose is said to include “information about the recipient that informs the provider’s quote to the recipient, such as the recipient’s financial or credit information, but not the recipient’s name, address, or general interest in financing.”^[9] 

The DFS rules include detailed definitions to be used in connection with making the required disclosure statements as well as formatting and other delivery requirements.  Given that the NYCFDL generally applies to sales based financing, closed-end financing, open-end financing, factoring transactions, and renewal commercial financing, the implementing rules flesh out the specific ways in which its requirements apply given the variability among these forms of financing.  Subject to those rules, the general required disclosures include the following:

1. The total amount of the proposed commercial financing and the disbursement amount after deducting any fees deducted or withheld from disbursement;
2. The finance charge;
3. The estimated annual percentage rate using only the term “annual percentage rate” or abbreviation "APR", expressed a yearly rate and calculated in accordance with the federal Truth in Lending Act, Regulation Z, 12 C.F.R. Part 1026 (which otherwise generally only applies to consumer-purpose lending);
4. The total repayment amount (the disbursement amount plus the applicable finance charge) as well as the specific payment amounts, frequency of payment, and description of how payment is calculated if variable;
5. The estimated term;
6. Any requirements if the recipient chooses to pay off financing early or refinance such financing, such as early payment penalties;
7. A description of other potential fees and charges not included in the finance charge, such as late payment fees;
8. A description of any collateral required or receivables purchased.

The provider must consciously label the required disclosures as an “OFFER SUMMARY” in bold font and must receive an express acknowledgment of the prospective borrower’s receipt of the required disclosures prior to consummating the proposed commercial financing.  Electronic signatures are an acceptable means of obtaining this acknowledgement subject to particular conditions. 

A finding by the DFS that a covered lender has violated the NYCFDL or any of its implementing rules results in exposure to a penalty in the amount of up to $2,000 for each violation or $10,000 for each willful violation and possible additional measures such as injunctive relief on behalf of any borrower affected by such violation.

^[1]           New York Financial Services Law § 801(f), -802(a); 23 NYCRR § 600.1(r).

^[2]           New York Financial Services Law § 801; 23 NYCRR § 600.24(a).

^[3]           New York Financial Services Law § 802.

^[4]           23 NYCRR § 600.1(b) (emphasis added).

^[5]           23 NYCRR § 600.19.

^[6]           New York Financial Services Law § 802(b). 

^[7]           New York Financial Services Law § 802(k).

^[8]           23 NYCRR § 600.1(ai). 

^[9]           Id. 

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