NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A979
SPONSOR: Zebrowski TITLE OF BILL:
An act to amend the financial services law, in relation to exempting
certain commercial financing transactions from certain disclosure
requirements; and to amend a chapter of the laws of 2020 amending the
financial services law relating to requiring certain providers that
extend specific terms of commercial financing to a recipient to disclose
certain information about the offer to the recipient, as proposed in
legislative bills numbers S.5470-B and A.10118-A, in relation to the
effectiveness thereof
PURPOSE:
The purpose of this bill is to amend chapter 264 of the laws of 2020.
SUMMARY OF PROVISIONS:
This bill would:
*clarify that the requirement to disclose the annual percentage rate,
which is defined in the bill as calculated in accordance with the feder-
al Truth in Lending Act and Regulation Z, applies throughout this bill
regardless of whether such act or regulation would require such a calcu-
lation;
*clarify that a commercial financing transaction in which the recipi-
ent is a dealer as defined in the Vehicle and Traffic Law, or an affil-
iate of such a dealer, or a rental car company as defined in the General
Business Law, or an affiliate of such company pursuant to a commercial
financing agreement or commercial open-end credit plan of at least
$50,000, including any commercial loan made pursuant to such a commer-
cial financing transaction, is exempt from coverage under this bill;
*provide that the superintendent may order restitution upon a finding
that a provider has knowingly violated this article;
*provide that nothing in this act shall authorize transactions in
this state which are otherwise illegal or allow an entity or individual
to operate in this state without a license where a license would other-
wise be required; and,
*provide that this act would take effect on January 15t, 2022, but
effective immediately, the addition, amendment and/or repeal of any rule
or regulation necessary for the implementation of this act on its effec-
tive date are authorized to be made and completed by the superintendent
of financial services on or before such effective date.
JUSTIFICATION:
Currently, commercial financing providers are not required to disclose
key financing terms in any standard format. This bill would require
providers to disclose critical information regarding the cost of financ-
ing and other terms to borrowers prior to accepting the financing. It is
imperative that business owners are afforded as much transparency as
possible on how a commercial financing product will impact their busi-
ness. This comprehensive disclosure will provide business owners with
the necessary information to make an informed, financially responsible
decision. It will also allow borrowers to compare the pricing and costs
of a commercial financing across several providers; ensuring that they
are able to choose the best product.
LEGISLATIVE HISTORY:
New bill.
FISCAL IMPLICATIONS:
None.
EFFECTIVE DATE:
Immediately; provided, however, that the amendments to sections 802,
803, 804, 805, 806, 807 and 812 of the financial services law made by
section 1 of this act shall take effect on the same date and in the same
manner as a chapter of the laws of 2020 amending the financial services
law relating to requiring certain providers that extend specific terms
of commercial financing to a recipient to disclose certain information
about the offer to the recipient, as proposed in legislative bills
numbers S.5470-B and A.10118-A.
STATE OF NEW YORK
________________________________________________________________________
979
2021-2022 Regular Sessions
IN ASSEMBLY
January 6, 2021
___________
Introduced by M. of A. ZEBROWSKI -- read once and referred to the
Committee on Banks
AN ACT to amend the financial services law, in relation to exempting
certain commercial financing transactions from certain disclosure
requirements; and to amend a chapter of the laws of 2020 amending the
financial services law relating to requiring certain providers that
extend specific terms of commercial financing to a recipient to
disclose certain information about the offer to the recipient, as
proposed in legislative bills numbers S.5470-B and A.10118-A, in
relation to the effectiveness thereof
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Sections 802, 803, 804, 805, 806, 807 and 812 of the finan-
2 cial services law, as added by a chapter of the laws of 2020 amending
3 the financial services law relating to requiring certain providers that
4 extend specific terms of commercial financing to a recipient to disclose
5 certain information about the offer to the recipient, as proposed in
6 legislative bills numbers S.5470-B and A.10118-A, are amended to read as
7 follows:
8 § 802. Exemptions. This article shall not apply to, and shall not
9 place any additional requirements or obligations upon, any of the
10 following:
11 (a) a financial institution;
12 (b) a person acting in its capacity as a technology services provider,
13 such as licensing software and providing support services, to an entity
14 exempt under this section for use as part of the exempt entity's commer-
15 cial financing program, provided such person has no interest, or
16 arrangement or agreement to purchase any interest in the commercial
17 financing extended by the exempt entity in connection with such program;
18 (c) a lender regulated under the federal Farm Credit Act (12 U.S.C.
19 Sec. 2001 et seq.);
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD07200-01-1
A. 979 2
1 (d) a commercial financing transaction secured by real property;
2 (e) a lease as defined in section 2-A-103 of the uniform commercial
3 code;
4 (f) any person or provider who makes no more than five commercial
5 financing transactions in this state in a twelve-month period; [or]
6 (g) an individual commercial financing transaction in an amount over
7 two million five hundred thousand dollars[.]; or
8 (h) a commercial financing transaction in which the recipient is a
9 dealer as defined in section four hundred fifteen of the vehicle and
10 traffic law, or an affiliate of such a dealer, or a rental vehicle
11 company as defined in section three hundred ninety-six-z of the general
12 business law, or an affiliate of such a company pursuant to a commercial
13 financing agreement or commercial open-end credit plan of at least fifty
14 thousand dollars, including any commercial loan made pursuant to such a
15 commercial financing transaction.
16 § 803. Sales-based financing disclosure requirements. A provider
17 subject to this article shall provide the following disclosures to a
18 recipient at the time of extending a specific offer of sales-based
19 financing according to formatting prescribed by the superintendent:
20 (a) The total amount of the commercial financing, and the disbursement
21 amount, if different from the financing amount, after any fees deducted
22 or withheld at disbursement.
23 (b) The finance charge.
24 (c) The estimated annual percentage rate, using the words annual
25 percentage rate or the abbreviation "APR", expressed as a yearly rate,
26 inclusive of any fees and finance charges, and calculated in accordance
27 with the federal Truth in Lending Act, Regulation Z, 12 C.F.R. §
28 1026.22, based on the estimated term of repayment and the projected
29 periodic payment amounts, regardless of whether such act or such regu-
30 lation would require such a calculation. The estimated term of repayment
31 and the projected periodic payment amounts shall be calculated based on
32 the projection of the recipient's sales, called the projected sales
33 volume. The projected sales volume may be calculated using the histor-
34 ical method or the opt-in method. The provider shall provide notice to
35 the superintendent on which method they intend to use across all
36 instances of sales-based financing offered in calculating estimated
37 annual percentage rate pursuant to this section.
38 (i) The provider using the historical method shall use an average
39 historical volume of sales or revenue by which the financing's payment
40 amounts are based and the estimated annual percentage rate is calcu-
41 lated. The provider shall fix the historical time period used to calcu-
42 late the average historical volume and use such period for all disclo-
43 sure purposes for all sales-based financing products offered. The fixed
44 historical time period shall either be the preceding time period from
45 the specific offer or, alternatively, the provider may use average sales
46 for the same number of months with the highest sales volume within the
47 past twelve months. The fixed historical time period shall be no less
48 than one month and not exceed twelve months.
49 (ii) The provider using the opt-in method shall determine the esti-
50 mated annual percentage rate, the estimated term, and the projected
51 payments, using a projected sales volume that the provider elects for
52 each disclosure, provided, that they participate in a review process
53 prescribed by the superintendent. A provider shall, on an annual basis,
54 report data to the superintendent of estimated annual percentage rates
55 disclosed to the recipient and actual retrospective annual percentage
56 rates of completed transactions. The report shall contain such informa-
A. 979 3
1 tion as the superintendent, by rule or regulation, may prescribe as
2 necessary or appropriate for the purpose of making a determination of
3 whether the deviation between the estimated annual percentage rate and
4 actual retrospective annual percentage rates of completed transactions
5 was reasonable. The superintendent shall establish the method of report-
6 ing and may, upon a finding that the use of projected sales volume by
7 the provider has resulted in an unacceptable deviation between estimated
8 and actual annual percentage rate, require the provider to use the
9 historical method. The superintendent may consider unusual and extraor-
10 dinary circumstances impacting the provider's deviation between esti-
11 mated and actual annual percentage rate in the determination of such
12 finding.
13 (d) The total repayment amount, which is the disbursement amount plus
14 the finance charge.
15 (e) The estimated term is the period of time required for the periodic
16 payments, based on the projected sales volume, to equal the total amount
17 required to be repaid.
18 (f) The payment amounts, based on the projected sales volume:
19 (i) for payment amounts that are fixed, the payment amounts and
20 frequency (e.g., daily, weekly, monthly), and, if the payment frequency
21 is other than monthly, the amount of the average projected payments per
22 month; or
23 (ii) for payment amounts that are variable, a payment schedule or a
24 description of the method used to calculate the amounts and frequency of
25 payments, and the amount of the average projected payments per month.
26 (g) A description of all other potential fees and charges not included
27 in the finance charge, including, but not limited to, draw fees, late
28 payment fees, and returned payment fees.
29 (h) Were the recipient to elect to pay off or refinance the commercial
30 financing prior to full repayment, the provider must disclose:
31 (i) whether the recipient would be required to pay any finance charges
32 other than interest accrued since their last payment. If so, disclosure
33 of the percentage of any unpaid portion of the finance charge and maxi-
34 mum dollar amount the recipient could be required to pay; and
35 (ii) whether the recipient would be required to pay any additional
36 fees not already included in the finance charge.
37 (i) A description of collateral requirements or security interests, if
38 any.
39 § 804. Closed-end commercial financing disclosure requirements. A
40 provider, subject to this article, shall provide the following disclo-
41 sures to a recipient at the time of extending a specific offer for
42 closed-end financing according to formatting prescribed by the super-
43 intendent:
44 (a) The total amount of the commercial financing, and the disbursement
45 amount, if different from the financing amount, after any fees deducted
46 or withheld at disbursement.
47 (b) The finance charge.
48 (c) The annual percentage rate, using only the words annual percentage
49 rate or the abbreviation "APR", expressed as a yearly rate, inclusive of
50 any fees and finance charges that cannot be avoided by a recipient, and
51 calculated in accordance with the federal Truth in Lending Act, Regu-
52 lation Z, 12 C.F.R. § 1026.22, regardless of whether such act or such
53 regulation would require such a calculation.
54 (d) The total repayment amount, which is the disbursement amount plus
55 the finance charge.
56 (e) The term of the financing.
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1 (f) The payment amounts:
2 (i) for payment amounts that are fixed, the payment amounts and
3 frequency (e.g., daily, weekly, monthly), and, if the term is longer
4 than one month, the average monthly payment amount; or
5 (ii) for payment amounts that are variable, a full payment schedule or
6 a description of the method used to calculate the amounts and frequency
7 of payments, and, if the term is longer than one month, the estimated
8 average monthly payment amount.
9 (g) A description of all other potential fees and charges that can be
10 avoided by the recipient, including, but not limited to, late payment
11 fees and returned payment fees.
12 (h) Were the recipient to elect to pay off or refinance the commercial
13 financing prior to full repayment, the provider must disclose:
14 (i) whether the recipient would be required to pay any finance charges
15 other than interest accrued since their last payment. If so, disclosure
16 of the percentage of any unpaid portion of the finance charge and maxi-
17 mum dollar amount the recipient could be required to pay; and
18 (ii) whether the recipient would be required to pay any additional
19 fees not already included in the finance charge.
20 (i) A description of collateral requirements or security interests, if
21 any.
22 § 805. Open-end commercial financing disclosure requirements. A
23 provider, subject to this article, shall provide the following disclo-
24 sures to a recipient at the time of extending a specific offer for open-
25 end financing according to formatting prescribed by the superintendent:
26 (a) The maximum amount of credit available to the recipient (e.g., the
27 credit line amount), and the amount scheduled to be drawn by the recipi-
28 ent at the time the offer is extended, if any, less any fees deducted or
29 withheld at disbursement.
30 (b) The finance charge.
31 (c) The annual percentage rate, using only the words annual percentage
32 rate or the abbreviation "APR", expressed as a nominal yearly rate,
33 inclusive of any fees and finance charges that cannot be avoided by a
34 recipient, and calculated in accordance with the federal Truth in Lend-
35 ing Act, Regulation Z, 12 C.F.R. § 1026.22 and based on the maximum
36 amount of credit available to the recipient and the term resulting from
37 making the minimum required payments term as disclosed, regardless of
38 whether such act or such regulation would require such a calculation.
39 (d) The total repayment amount, which is the draw amount, less any
40 fees deducted or withheld at disbursement, plus the finance charge. The
41 total repayment amount shall assume a draw amount equal to the maximum
42 amount of credit available to the recipient if drawn and held for the
43 duration of the term or draw period.
44 (e) The term of the plan, if applicable, or the period over which a
45 draw is amortized.
46 (f) The payment frequency and amounts, based on the assumptions used
47 in the calculation of the annual percentage rate, including a
48 description of payment amount requirements such as a minimum payment
49 amount, and if the payment frequency is other than monthly, the amount
50 of the average projected payments per month. For payment amounts that
51 are variable, the provider should include a payment schedule, or a
52 description of the method used to calculate the amounts and frequency of
53 payments, and the estimated average monthly payment amount.
54 (g) A description of all other potential fees and charges that can be
55 avoided by the recipient, including, but not limited to, draw fees, late
56 payment fees, and returned payment fees.
A. 979 5
1 (h) Were the recipient to elect to pay off or refinance the commercial
2 financing prior to full repayment, the provider must disclose:
3 (i) whether the recipient would be required to pay any finance charges
4 other than interest accrued since their last payment. If so, disclosure
5 of the percentage of any unpaid portion of the finance charge and maxi-
6 mum dollar amount the recipient could be required to pay; and
7 (ii) whether the recipient would be required to pay any additional
8 fees not already included in the finance charge.
9 (i) A description of collateral requirements or security interests, if
10 any.
11 § 806. Factoring transaction disclosure requirements. A provider,
12 subject to this article, shall provide the following disclosures to a
13 recipient at the time of extending a specific offer for a factoring
14 transaction according to formatting prescribed by the superintendent:
15 (a) The amount of the receivables purchase price paid to the recipient
16 and, if different from the purchase price, the amount disbursed to the
17 recipient after any fees deducted or withheld at disbursement.
18 (b) The finance charge.
19 (c) The estimated annual percentage rate, using that term, calculated
20 according to the federal Truth in Lending Act, Regulation Z, 12 C.F.R. §
21 1026 Appendix J, as a "single advance, single payment transaction",
22 regardless of whether such act or such regulation would require such a
23 calculation. To calculate the estimated annual percentage rate, the
24 purchase amount is considered the financing amount, the purchase amount
25 minus the finance charge is considered the payment amount, and the term
26 is established by the payment due date of the receivables. As an alter-
27 nate method of establishing the term, the provider may estimate the term
28 for a factoring transaction as the average payment period, its histor-
29 ical data over a period not to exceed the previous twelve months,
30 concerning payment invoices paid by the party owing the accounts receiv-
31 able in question.
32 (d) The total payment amount, which is the purchase amount plus the
33 finance charge.
34 (e) A description of all other potential fees and charges that can be
35 avoided by the recipient.
36 (f) A description of the receivables purchased and any additional
37 collateral requirements or security interests.
38 § 807. Other forms of financing disclosure requirements. The super-
39 intendent may require disclosure by a provider extending a specific
40 offer of commercial financing which is not open-end financing, closed-
41 end financing, sales-based financing, or factoring transaction but
42 otherwise meets the definition of commercial financing as provided in
43 this article. Subject to such rules and regulations by the superinten-
44 dent, a provider subject to this article shall provide the following
45 disclosures to a recipient at the time of extending a specific offer of
46 other forms of financing according to formatting prescribed by the
47 superintendent:
48 (a) The total amount of the commercial financing, and the disbursement
49 amount, if different from the financing amount, after any fees deducted
50 or withheld at disbursement.
51 (b) The finance charge.
52 (c) The annual percentage rate, using only the words annual percentage
53 rate or the abbreviation "APR", expressed as a yearly rate, inclusive of
54 any fees and finance charges, and calculated in accordance with the
55 relevant sections of the federal Truth in Lending Act, Regulation Z or
A. 979 6
1 this article, regardless of whether such act or such regulation would
2 require such a calculation.
3 (d) The total repayment amount which is the disbursement amount plus
4 the finance charge.
5 (e) The term of the financing.
6 (f) The payment amounts:
7 (i) for payment amounts that are fixed, the payment amounts and
8 frequency (e.g., daily, weekly, monthly), and the average monthly
9 payment amount; or
10 (ii) for payment amounts that are variable, a payment schedule or a
11 description of the method used to calculate the amounts and frequency of
12 payments, and the estimated average monthly payment amount.
13 (g) A description of all other potential fees and charges that can be
14 avoided by the recipient, including, but not limited to, late payment
15 fees and returned payment fees.
16 (h) Were the recipient to elect to pay off or refinance the commercial
17 financing prior to full repayment, the provider must disclose:
18 (i) whether the recipient would be required to pay any finance charges
19 other than interest accrued since their last payment. If so, disclosure
20 of the percentage of any unpaid portion of the finance charge and maxi-
21 mum dollar amount the recipient could be required to pay; and
22 (ii) whether the recipient would be required to pay any additional
23 fees not already included in the finance charge.
24 (i) A description of collateral requirements or security interests, if
25 any.
26 § 812. Penalties. (a) Upon a finding by the superintendent that a
27 provider has violated the provisions of this article or the rules or
28 regulations promulgated hereunder, the provider shall be ordered to pay
29 to the people of this state a civil penalty for each violation of this
30 article or any regulation or policy promulgated hereunder a sum not to
31 exceed two thousand dollars for each violation or where such violation
32 is willful ten thousand dollars for each violation.
33 (b) In addition to any penalty imposed pursuant to subdivision (a) of
34 this section, upon a finding by the superintendent that a provider has
35 knowingly violated this article, the superintendent may order additional
36 relief, including, but not limited to, restitution or a permanent or
37 preliminary injunction on behalf of any recipient affected by the
38 violation.
39 § 2. Section 2 of a chapter of the laws of 2020, amending the finan-
40 cial services law relating to requiring certain providers that extend
41 specific terms of commercial financing to a recipient to disclose
42 certain information about the offer to the recipient, as proposed in
43 legislative bills numbers S.5470-B and A.10118-A, is amended to read as
44 follows:
45 § 2. Nothing in this act shall authorize transactions in this state
46 which are otherwise illegal or allow an entity or individual to operate
47 in this state without a license where a license would otherwise be
48 required.
49 § 3. This act shall take effect [on the one hundred eightieth day
50 after it shall have become a law] January 1, 2022. Effective immediate-
51 ly, the addition, amendment and/or repeal of any rule or regulation,
52 necessary for the implementation of this act on its effective date are
53 authorized to be made and completed by the superintendent of financial
54 services on or before such effective date.
55 § 3. This act shall take effect immediately; provided, however, that
56 the amendments to sections 802, 803, 804, 805, 806, 807 and 812 of the
A. 979 7
1 financial services law made by section 1 of this act shall take effect
2 on the same date and in the same manner as a chapter of the laws of 2020
3 amending the financial services law relating to requiring certain
4 providers that extend specific terms of commercial financing to a recip-
5 ient to disclose certain information about the offer to the recipient,
6 as proposed in legislative bills numbers S.5470-B and A.10118-A.
