NYDFS Issues Pre-Proposed Rules To Implement New Commercial Financing Disclosure Law – Finance and Banking

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NYDFS publishes pre-proposed rules to implement the new Trade Finance Disclosure Act

September 28, 2021

Mayer Braun

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The New York Department of Finance (NYDFS) has issued “pre-proposed” rules under the New York Commercial Finance Disclosure Act, which went into effect in late 2020. The pre-proposed rules are 45 pages long and were posted on the NYDFS website on September 21st. Comments on the pre-proposed rules are due by October 1. There will be a longer comment period once a proposed regulation is published in the State Register. NYDFS aims to finalize the rules before the law comes into effect on January 1, 2022.

The pre-proposed rules formalize the Commercial Finance Disclosure Law (CFDL) under the state’s Commercial Finance Disclosure Law, colloquially known as “NY TILA”. The rules proposed in advance also define terms and contain detailed requirements for the content and formatting of the disclosures required by the CFDL. The proposed definitions closely follow, but do not exactly reflect, the proposed rules of the California Department of Financial Protection and Innovation (DPFI) to implement its own commercial finance disclosure law. The lack of uniformity between the rules of the two states will make compliance more difficult for commercial financiers who are subject to both laws. Where the NYDFS rules rely most heavily on the California rules, the NYDFS tends to revert to the previous version of those rules before the second round of amendments to the DFPI was issued on August 9, 2021. This begs the question of whether the NYDFS will adopt the latest California rules changes when the NYDFS issues the next version of their proposed rules.

Like the pending California regulations, the New York Proposals would include information in three columns, one for (i) the name of the term to be disclosed, (ii) the value (amount, rate, etc.) of the term to be disclosed, and (iii) a description of the term Term in prescribed language. The content of several of the required details varies depending on the type of contract (e.g. closed, open, sales-based, etc.). Like the California Rules, the New York Rules would have requirements for font and column width, including providing a 3: 3: 7 “safe harbor” ratio for the latter. The information that must be disclosed on each line of the disclosure form under the pre-proposed New York Rules would not exactly match the information required by law, so a financier who started preparing disclosure templates based on the law text have to revise them according to the rules.

Strikingly, the proposed NYDFS rules lack Safe Harbor template forms to ease the compliance burden on the industry. Since the NYDFS (like the DFPI) has not issued any sample forms based on Appendix H of Regulation Z, every commercial financier would have to formulate his own forms independently and hope that the NYDFS considers them to be compliant. There is also no clarification of the New York Nexus with the recipient of the financing required to trigger the CFDL, which has been requested by industry participants and trading groups. While the DFPI has suggested helpful wording that clarifies that funding is only subject to California law if the recipient’s business is “primarily directed or administered from California” (and allowing the financier to refer to the business address or written To leave representation of the recipient), the NYDFS Proposed Rules do not provide further guidance.

In addition to the content and formatting of the disclosure, the pre-proposed rules clarify the NYDFS’s expectations regarding allowable tolerances on APR disclosed, recipient electronic signatures, calculation of the $ 2.5 million threshold to determine whether to fund the CFDL is subject to additional assumptions for factoring transactions, duties of commercial financiers and brokers when a broker is employed, annual reporting requirements for a financer who has used the “opt-in” method to calculate the estimated APR, and other requirements . If accepted, the rules will be codified in a new part 600 of the NDYFS regulations.

While the pre-proposed rules are a step in the right direction, more guidance will be needed in the near future if the industry is expected to meet the requirements of the CFDL by the effective date of January 1, 2022.

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