New York Proposes New Regulations: Problem for NY-Based Companies

The Department of Financial Services (DFS) in New York has taken another step in finalizing the rules to implement the disclosure law signed into law in December 2020 by releasing a new round of proposed regulations. The DFS is accepting comments on the proposed rules until October 31st. The law requires commercial finance disclosures, including an APR, in non-bank financing products, very similar to the finalized California law.

One major difference in the proposed rules is a provision that would require NY-based finance providers (including brokers) to provide disclosures to all customers, not just those customers in New York (see below).

Trade associations like the SBFA will continue to work with the DFS on the proposed rules and will file comments by the deadline. Any company with concerns can contact the SBFA directly or file a comment with the regulator. The rules will go into effect 6-months after they are finalized.

Section 600.24 Applicability of the CFDL 

(a) The obligation to provide any disclosures under the CFDL applies if one of the following is true:

(1) the recipient’s business is principally directed or managed from New York, or, in the case of a natural person, is a legal resident of the state of New York; or

(2) the provider is principally directed or managed from New York or negotiated the commercial financing from a location in New York.

(b) If there is a conflict in laws, such that a provider is required to provide a disclosure under the CFDL and another state law also requires that standardized disclosures be made for the commercial financing, the law of the state in which the recipient is principally directed or managed shall govern (as long as a disclosure is actually provided to the recipient pursuant to that other state’s law).

(c) For the purpose of determining whether a recipient’s business is “principally directed or managed from New York,” a provider may rely upon any written representation by the recipient as to whether it is principally directed or managed from New York, or the business address provided by the recipient to the provider in the application for financing or any other financing documents. If the recipient is a natural person, then the provider may rely upon the recipient’s address as shown on recipient’s current driver’s license or other government-issued identification document, or recipient’s written representation as to recipient’s current legal address.