United States: New York Enacts TILA-Like Disclosure Law For Business Loans And Purchases Of Receivables

The authors provide an overview of a new law in New York and the entities and transactions to which it applies, and discuss the legislation's disclosure and signature requirements, the exemptions provided, and how the law will be enforced.

New York Governor Andrew M. Cuomo has signed S.B. 5470¹ into law, which will impose a range of Truth in Lending Act-like disclosure requirements on providers of a broad range of commercial financing arrangements.

S.B. 5470 was quickly followed by S.B. 898,² which amends the law's scope, exemptions, and other provisions.

Under the new "New York Law," which now takes effect January 1, 2022, non-exempt "providers" of "commercial financing" in amounts of $2.5 million or less must disclose key transaction terms to borrowers and obtain a borrower's signature prior to consummating a transaction.³

The New York Law follows in the footsteps of a similar law enacted in California in 2018.⁴

Both state laws impose disclosure requirements on commercial purpose loans similar to those that the federal Truth in Lending Act ("TILA") and Regulation Z impose on consumer (e.g., personal, family, or household purpose) loans. This article provides an overview of the New York Law and the entities and transactions to which it applies and discusses the legislation's disclosure and signature requirements, the exemptions provided, and how the law will be enforced.

OVERVIEW AND APPLICABILITY

In signing the original bill, S.B. 5470, Governor Cuomo noted in the memorandum filed with the bill that he had "secured an agreement with the legislature to make certain technical changes to this bill to better provide clarity and align to existing requirements under federal laws, including the Truth in Lending Act."⁵ Accordingly, S.B. 5470 was amended by the enactment of S.B. 898, resulting in changes to the law's scope, exemptions, penalties, and other provisions. Of particular interest, the coverage for individual transactions was raised from $500,000 to $2.5 million.

The New York Law requires providers of commercial financing to provide certain disclosures to recipients at the time of extending a specific offer of commercial financing in a format to be prescribed by the New York State Department of Financial Services ("DFS"). It will have a significant impact on providers beyond traditional commercial lenders, as it broadly defines "com- mercial financing" to include the providers, and third-party solicitors, of sales-based financing,⁶ closed-end commercial financing,⁷ open-end commer- cial financing,⁸ factoring transactions,⁹ and other forms of commercial financ- ing as the DFS may provide by rulemaking.

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Footnotes

* Krista Cooley is a partner in Mayer Brown and a member of the firm's Financial Services Regulatory & Enforcement practice. Jeffrey P. Taft is a partner in the firm's Financial Services Regulatory & Enforcement group and the firm's Cybersecurity and Data Privacy practice. Daniel B. Pearson is an associate at the firm and a member of the Financial Services Regulatory & Enforcement practice. Resident in the firm's office in Washington, D.C., the authors may be contacted at kcooley@mayerbrown.com, jtaft@mayerbrown.com, and dpearson@mayerbrown.com, respectively.

1 https://www.nysenate.gov/legislation/bills/2019/s5470.

2 https://www.nysenate.gov/legislation/bills/2021/S898.

3 The New York Law was slated to take effect June 21, 2021 before S.B. 898 pushed back the effective date.

4 https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB1235. Since the enactment, California has undertaken several proposed rulemakings to clarify the law and implement the disclosure requirements. Comments on the most recently proposed rules were due on October 28, 2020, and a public hearing was held on November 9, 2020.

5 Memorandum #65 (Dec. 23, 2020), https://www.sfnet.com/docs/default-source/tsl-tslexpress/ tslexpress_ny19rsb05470app.pdf?sfvrsn=7ac96eab_2.

6 "Sales-based financing" means "a transaction that is repaid by the recipient to the provider, over time, as a percentage of sales or revenue, in which the payment amount may increase or decrease according to the volume of sales made or revenue received by the recipient. Sales-based financing also includes a true-up mechanism where the financing is repaid as a fixed payment but provides for a reconciliation process that adjusts the payment to an amount that is a percentage of sales or revenue." N.Y. Fin. Serv. § 801(j).

7 "Closed-end financing" means "a closed-end extension of credit, secured or unsecured, including equipment financing that does not meet the definition of a lease under section 2-A-103 of the uniform commercial code, the proceeds of which the recipient does not intend to use primarily for personal, family or household purposes. 'Closed-end financing' includes financing with an established principal amount and duration." Id. Section 801(d).

8 "Open-end financing" means "an agreement for one or more extensions of open-end credit, secured or unsecured, the proceeds of which the recipient does not intend to use primarily for personal, family or household purposes. 'Open-end financing' includes credit extended by a provider under a plan in which: (i) the provider reasonably contemplates repeated transactions; (ii) the provider may impose a finance charge from time to time on an outstanding unpaid balance; and (iii) the amount of credit that may be extended to the recipient during the term of the plan (up to any limit set by the provider) is generally made available to the extent that any outstanding balance is repaid." Id. Section 801(c).

9 "Factoring transaction" means "an accounts receivable purchase transaction that includes an agreement to purchase, transfer, or sell a legally enforceable claim for payment held by a recipient for goods the recipient has supplied or services the recipient has rendered that have been ordered but for which payment has not yet been made." Id. Section 801(a).

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