New York Proposes Disclosure Regulations For Small Business Financing

September 22, 2021 at 9:33 am Leave a comment

New York’s Department of Financial Services yesterday issued proposed regulations outlining disclosure requirements for non-bank entities that provide financing of up to $2.5M for businesses. The regulations are the final step in a two year effort by the Legislature designed in part to regulate the activities of third-party lending platforms.

The legislation generally mandates that providers of commercial credit provide TILA like disclosures when offering commercial financing. It applies to a broad range of financing activity including factoring as well as traditional open-ended lines of credit and close-end loans. The mandated disclosure requirements must be provided by the Providers of these loans. So the key to understanding its reach starts with understanding what a Provider is. The legislation defines a Provider as:

“…a person who extends a specific offer of commercial financing to a recipient. Unless otherwise exempt, “provider” also includes a person who solicits and presents specific offers of commercial financing on behalf of a third party. For the avoidance of doubt the extension of a specific offer or provision of disclosures for a commercial financing, in and of itself, shall not be construed to mean that a provider is originating, making, funding or providing  commercial  financing.”

Crucially, for our purposes, the legislation specifically excludes credit unions and banks from the definition of a Provider. Nevertheless, those credit unions that work with lending platforms will see the impact of this new requirement. Many credit unions are already working with internet based platforms that connect businesses and lenders but don’t actually make loans. As explained in this analysis of the bill in the Banking Law journal ”even if the entity that makes a commercial loan or other commercial financing transaction is exempt from the New York Law’s requirements, a typical online lending platform would still have to comply. As such, fintech companies operating commercial lending platforms are required to comply with the new law even if they rely on a bank partner arrangement and the bank is exempt”.

We will be reading the proposed regulations in the coming days, to make sure that they don’t impose any additional requirements on credit unions and we will keep you posted on what we find.

Entry filed under: New York State, Regulatory, technology. Tags: , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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