Small Business

Acting Superintendent of Financial Services Adrienne A. Harris Announces New Proposed Regulation Promoting Transparency in Lending to Small Businesses

Acting Superintendent of Financial Services Adrienne A. Harris Announces New Proposed Regulation Promoting Transparency in Lending to Small Businesses

Proposed Regulation Ensures Small Businesses Have Adequate Information to Make Informed Decisions about Credit Offers

Proposed Rule Implements New York State’s Commercial Finance Disclosure Law

Acting Superintendent of Financial Services Adrienne A. Harris today announced a new proposed regulation that will improve transparency for small businesses seeking commercial financing. The new proposed regulation requires companies that offer commercial financing in amounts under $2.5 million to make standardized disclosures about the terms of credit. These standardized disclosures will help businesses and individuals understand and compare the terms of different commercial financing offers. These disclosures are especially important as small businesses, hit hard by the pandemic, fight to regain their footing.  

“Small businesses are the lifeblood of New York’s economy and the engines of the recovery; they need transparent access to capital now more than ever,” said Acting Superintendent of Financial Services Adrienne A. Harris. “This proposed regulation helps to ensure Main Street small businesses have the ability to obtain clear and detailed information in terms of credit financing opportunities, helping small employers make informed financial decisions to grow their businesses.”  

There is no standardized federal framework for how lenders provide information about offers of commercial financing. This is in contrast to the federal laws and regulations that prescribe how lenders make disclosures about loans to individuals for personal or household purposes. As small businesses work to recover from the financial crisis caused the pandemic, increased transparency can help them make better decisions. 

To address the lack of standardized disclosures in the commercial context, the New York State legislature passed a law earlier this year, codified at Article 8 of the New York Financial Services Law (the “Commercial Finance Disclosure Law” or “CFDL”), mandating disclosures for commercial financing effective January 1, 2022. The New York State Department of Financial Services’ (DFS) proposed regulation implements the CFDL.

As statutorily required, DFS is issuing the proposed regulation now in order to facilitate implementation of the CFDL in time for the January 1, 2022 deadline.  

The proposed regulation provides specific instructions to commercial financing providers on how to comply with the CFDL.  

Among its provisions, the regulation:  

  • Provides detailed definitions for terms used in the CFDL, and in the regulation itself;  
  • Explains how providers should calculate the finance charge and annual percentage rate; 
  • Sets forth formatting requirements for disclosures required by the CFDL, both generally and specifically for the following types of financing:  
  • Sales-based financing;  
  • Closed-end financing;   
  • Open-end financing;  
  • Factoring transaction financing;  
  • Lease financing; and  
  • General asset-based financing;  
  • Describes how the CFDL’s disclosure threshold of $2,500,000 is calculated;  
  • Details certain duties of financers and brokers involved in commercial financing; and  
  • Prescribes a process under which certain providers calculating estimated annual percentage rates will report data to the Superintendent relating to the actual retrospective annual percentage rates of completed transactions, in order to facilitate accurate estimates for future transactions.  

The proposed regulation is subject to a 60-day comment period following publication in the State Register, which is forthcoming. The Department of Financial Services will then review all received comments and issue a final regulation.  

In the interim, a copy of the proposed regulation can be found on the DFS website.


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