On December 23, 2020, Governor Cuomo signed S5470B into law, officially enacting a comprehensive commercial finance disclosure bill. The law is scheduled to go into effect this June, however the Governor’s office and the state legislature have stated that the law is likely to be amended before it goes into effect.
We are still waiting for implementation guidance from the Superintendent of New York’s Department of Financial Services and potential amendments to the disclosure law that are actively being discussed by the legislature and the Governor’s office. However, as it stands now, persons or entities operating in New York who are offering commercial financing, or whose transactions are governed by New York law, or where a borrower is located in New York should familiarize themselves with the law.
While we await that guidance and potential amendments, here are the key provisions of the law as written:
Transactions that Trigger the Disclosure Requirements
The disclosure requirements apply to sales-based financing transactions; closed-end commercial financing transactions; open-end commercial financing transactions; factoring transactions; and “other forms of financing” transactions.
Potentially Required Disclosures
While the nuances for disclosures vary by transaction, they each generally require disclosure of the total amount of financing; the total disbursement amount (after all fees deducted or withheld); the finance charge; the actual or estimated annual percentage rates; the total repayment amount; the estimated or actual term; the amount of payments and frequency of payments; all fees and potential fees; and descriptions of collateral and security requirements.
Exemptions from the Disclosure Requirements
The law does not apply to “financial institutions”; lenders under the Federal Farm Credit Act; commercial finance transactions secured by real property; leasing transactions; persons or providers that make no more than five commercial financing transactions in New York in any 12-month period; transactions where the amount delivered is over $500,000; and technology service providers to other exempt entities, provided that the technology provider has no interest in the exempt entity’s commercial finance programs, products and transactions.
Other Key Points
The form of the disclosures shall be prescribed by the Superintendent of New York’s Department of Financial Services, while compliance will be supervised by the Superintendent of New York’s Department of Financial Services. The law also authorizes and empowers the Superintendent of New York’s Department of Financial Services to promulgate rules and regulations consistent with the law, and the Superintendent of New York’s Department of Financial Services to levy monetary fines and require additional relief for alleged violations of the disclosure law.
The law will require some degree of communication with the Superintendent of New York’s Department of Financial Services for companies offering sales-based financing.