New York Department Of Financial Services Issues Regulations Regarding Commercial Finance Disclosures – Financial Services

The State of New York passed a law in December 2020 – the
Commercial Finance Disclosure Law (“CFDL”), with an
effective date of June 2021 – that prescribed required
disclosures for commercial finance transactions that are $2,500,000
or less. The required disclosures are similar in style to those
required for consumer financial services, but have
specifics that are quite different from the federal Truth In
Lending Act (“TILA”). Accordingly, the New York
Department of Financial Services (“NY DFS”) finally published regulations implementing the law. In
particular, the regulations clarified the available exemptions from
the law’s requirements, which include:

• Financial institutions, including federally- and
  state-chartered banks, credit unions, industrial loan
  companies;




• Technology services providers providing financing for their
  products and services, as long as they have no interest in the
  financing;




• Real-estate secured financing;




• Leases (as defined in the UCC); and




• Providers that make no more than five (5) annual transactions
  in a rolling 12-month period.

In addition, if the transaction is covered by TILA, then the
CFDL does not apply. Importantly, however, the NY DFS did not
extend that exemption to cover commercial transactions that provide
TILA-compliant disclosures, which has been a popular strategy for
small business lenders to appease the Consumer Financial Protection
Bureau and the Federal Trade Commission.

When the CFDL does apply to a commercial finance transaction,
the breadth of the CFDL is quite broad – drawing in not just
closed-end and open-end transactions but also sales-based financing
and factoring transactions.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.