STATE OF NEW YORK
________________________________________________________________________
5470
2019-2020 Regular Sessions
IN SENATE
May 1, 2019
___________
Introduced by Sen. THOMAS -- read twice and ordered printed, and when
printed to be committed to the Committee on Banks
AN ACT to amend the financial services law, in relation to commercial
financing disclosures
The People of the State of New York, represented in Senate and Assem-
bly, do enact as follows:
1 Section 1. The financial services law is amended by adding a new arti-
2 cle 7 to read as follows:
3 ARTICLE 7
4 COMMERCIAL FINANCING
5 Section 701. Definitions.
6 702. Exemptions.
7 703. Purchase and sale disclosure requirements.
8 704. Closed-end commercial financing disclosure requirements.
9 705. Open-end commercial financing disclosure requirements.
10 706. Additional information.
11 707. Estimates.
12 708. Penalties.
13 § 701. Definitions. For the purposes of this article:
14 (a) "Accounts receivable purchase" means a purchase and sale trans-
15 action in which one or more designated accounts are assigned to the
16 purchaser by the seller at a specified discount rate. For purposes of
17 this article, "account" shall have the meaning assigned to that term in
18 paragraph two of subsection (a) of section 9-102 of the Uniform Commer-
19 cial Code. An accounts receivable purchase includes, but is not limited
20 to, a factoring transaction.
21 (b) "Commercial financing" means an accounts receivable purchase,
22 future receivables purchase, commercial line of credit or commercial
23 loan, the proceeds of which the recipient does not intend to use prima-
24 rily for personal, family or household purposes. For purposes of deter-
25 mining whether a financing is a commercial financing, the provider may
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD11387-01-9
S. 5470 2
1 rely on any statement of intended purposes by the recipient. The state-
2 ment may be a separate statement signed by the recipient; may be
3 contained in the financing application, financing agreement or other
4 document signed or consented to by the recipient; or may be provided
5 orally by the recipient so long as it is documented in the recipient's
6 application file by the provider. Electronic signatures and consents are
7 valid for purposes of the foregoing sentence. The provider shall not be
8 required to ascertain that the proceeds of a commercial financing are
9 used in accordance with the recipient's statement of intended purposes.
10 (c) "Commercial line of credit" means an agreement for one or more
11 extensions of open-end credit, secured or unsecured, the proceeds of
12 which the recipient does not intend to use primarily for personal, fami-
13 ly or household purposes. A "commercial line of credit" includes credit
14 extended by a creditor under a plan in which (i) the creditor reasonably
15 contemplates repeated transactions, (ii) the creditor may impose a
16 finance charge from time to time on an outstanding unpaid balance, and
17 (iii) the amount of credit that may be extended to the recipient during
18 the term of the plan (up to any limit set by the creditor) is generally
19 made available to the extent that any outstanding balance is repaid.
20 (d) "Commercial loan" means a closed-end extension of credit, secured
21 or unsecured, the proceeds of which the recipient does not intend to use
22 primarily for personal, family or household purposes.
23 (e) "Creditor" means the person to which the financing obligation
24 under a commercial line of credit or commercial loan is initially owed.
25 For purposes of this article, a creditor may also be a provider.
26 (f) "Financial institution" means any of the following: (i) a bank,
27 trust company, or industrial loan company doing business under the
28 authority of, or in accordance with, a license, certificate or charter
29 issued by the United States, this state or any other state, district,
30 territory, or commonwealth of the United States that is authorized to
31 transact business in this state; (ii) a federally chartered savings and
32 loan association, federal savings bank or federal credit union that is
33 authorized to transact business in this state; or (iii) a savings and
34 loan association, savings bank or credit union organized under the laws
35 of this or any other state that is authorized to transact business in
36 this state.
37 (g) "Future receivables purchase" means a purchase and sale trans-
38 action in which the purchaser acquires the right to receive all or a
39 portion of future accounts generated by a seller at a specified discount
40 rate. For purposes of this article, "account" shall have the meaning
41 assigned to that term in paragraph two of subsection (a) of section
42 9-102 of the Uniform Commercial Code. A future receivables purchase
43 includes, but is not limited to, a merchant cash advance transaction.
44 (h)"Offer" means the specific terms of a commercial financing agree-
45 ment which, if accepted by a recipient, shall be binding on the creditor
46 or purchaser, as applicable, subject to any specific requirements stated
47 in such terms.
48 (i) "Person" means an individual, corporation, partnership, limited
49 liability company, joint venture, association, joint stock company,
50 trust or unincorporated organization including, but not limited to, a
51 sole proprietorship.
52 (j) "Provider" means a person who extends an offer of commercial
53 financing to a recipient. A provider may include a creditor or purchas-
54 er. Unless otherwise exempt, "provider" also includes a person that is
55 not a creditor or purchaser but who solicits and offers commercial
56 financing on behalf of a third party. For the avoidance of doubt, the
S. 5470 3
1 extension of an offer or providing disclosures for a commercial financ-
2 ing, in and of itself, shall not be construed to mean that a provider is
3 originating, making, funding or providing commercial financing.
4 (k) "Purchaser" means the person that initially acquires the right to
5 receive payments on current or future receivables from the seller in an
6 accounts receivable purchase or future receivables purchase transaction.
7 For purposes of this act, a purchaser may also be a provider.
8 (l) "Recipient" means a person who is presented an offer of commercial
9 financing by a provider. A recipient may be a borrower or seller (or
10 its authorized representative).
11 § 702. Exemptions. This article shall not apply to, and shall not
12 place any additional requirements or obligations upon, any of the
13 following:
14 (a) a financial institution;
15 (b) a person acting in its capacity as a technology services provider,
16 such as licensing software and providing support services, to an entity
17 exempt under this section for use as part of the exempt entity's commer-
18 cial financing program;
19 (c) a lender regulated under the federal Farm Credit Act (12 U.S.C.
20 Sec. 2001 et seq.);
21 (d) a commercial financing transaction secured by real property; or
22 (e) any person who makes no more than one commercial financing trans-
23 action in this state in a twelve-month period; or any person who makes
24 commercial financing transactions in this state that are incidental to
25 the business of the person relying upon the exemption.
26 § 703. Purchase and sale disclosure requirements. A provider subject
27 to this article shall provide the following disclosures to a recipient
28 at the time of extending an offer in an accounts receivable purchase or
29 future receivables purchase transaction:
30 (a) The purchase price;
31 (b) The disbursement amount, after any fees deducted or withheld at
32 disbursement;
33 (c) The total amount of current or future receivables sold, which is
34 the disbursement amount plus the total cost of the financing;
35 (d) The total cost of the financing, expressed as a dollar cost,
36 including any and all fees, expenses and charges that are to be paid by
37 the recipient and that cannot be avoided by the recipient;
38 (e) The estimated annual percentage rate:
39 (i) when calculating repayment costs dependent on the recipient's
40 receivables, whether currently owed or projected, the estimated annual
41 percentage rate, calculated with all fees and charges included, provided
42 as a range, with at least three different repayment times provided and a
43 narrative explanation of how each rate was derived. Any estimated annual
44 percentage rate provided pursuant to this subparagraph shall be (A)
45 calculated using the value of purchased accounts receivable or the
46 projected volume of future receivables based on the recipient's average
47 historical sales, or the sales projections relied on by the provider in
48 underwriting; and (B) accompanied by a disclosure stating that the esti-
49 mated annual percentage rate is intended as a good faith estimate, and
50 may not be accurate if the recipient repays more quickly or slowly than
51 the estimated term; or
52 (ii) when calculating repayment costs as a fixed payment, the annual
53 percentage rate, expressed as a nominal yearly rate, inclusive of any
54 fees and finance charges, and calculated in accordance with the federal
55 Truth in Lending Act, Regulation Z, 12 C.F.R. § 1026.22;
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1 (f) The factor rate, expressed as a decimal, and the factoring commis-
2 sion rate, expressed as a percentage of sales or claims, including any
3 minimum or maximum payment amounts;
4 (g) The term or the estimated term of the financing. An estimated term
5 provided pursuant to this subsection shall be the term relied on by the
6 provider in underwriting;
7 (h) The payment amounts:
8 (i) for payment amounts that are fixed, the payment amounts and
9 frequency (e.g., daily, weekly, monthly), and the average monthly
10 payment amount; or
11 (ii) for payment amounts that are variable, a payment schedule or a
12 description of the method used to calculate the amounts and frequency of
13 payments, and the estimated average monthly payment amount;
14 (i) A description of all other potential fees and charges that can be
15 avoided by the recipient, including, but not limited to, draw fees, late
16 payment fees, and returned payment fees;
17 (j) Prepayment charges, or a description of any fees, expenses or
18 charges due when purchase price is paid in full; and
19 (k) A description of the current or future receivables purchased.
20 § 704. Closed-end commercial financing disclosure requirements. A
21 provider subject to this article shall provide the following disclosures
22 to a recipient at the time of extending an offer of a commercial loan:
23 (a) The amount financed (e.g., the principal amount);
24 (b) The disbursement amount, after any fees deducted or withheld at
25 disbursement;
26 (c) The total repayment amount, which is the disbursement amount plus
27 the total cost of the financing;
28 (d) The total cost of the financing, expressed as a dollar cost,
29 including any and all fees, expenses and charges that are to be paid by
30 the recipient and that cannot be avoided by the recipient, including any
31 interest expense. The total cost of financing shall assume the recipient
32 repays the commercial financing in its entirety according to the agreed
33 upon original payment schedule;
34 (e) The annual percentage rate, expressed as a nominal yearly rate,
35 inclusive of any fees and finance charges, and calculated in accordance
36 with the federal Truth in Lending Act, Regulation Z, 12 C.F.R. §
37 1026.22;
38 (f) The term of the financing;
39 (g) The payment amounts:
40 (i) for payment amounts that are fixed, the payment amounts and
41 frequency (e.g., daily, weekly, monthly), and the average monthly
42 payment amount; or
43 (ii) for payment amounts that are variable, a payment schedule or a
44 description of the method used to calculate the amounts and frequency of
45 payments, and the estimated average monthly payment amount;
46 (h) A description of all other potential fees and charges that can be
47 avoided by the recipient, including, but not limited to, late payment
48 fees and returned payment fees;
49 (i) Prepayment charges, or a description of any fees, expenses or
50 charges due when the financing amount is paid in full; and
51 (j) A description of any collateral requirements or security inter-
52 ests.
53 § 705. Open-end commercial financing disclosure requirements. A
54 provider subject to this article shall provide the following disclosures
55 to a recipient at the time of extending an offer of a commercial line of
56 credit:
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1 (a) The maximum amount of credit available to the recipient (e.g., the
2 credit line amount);
3 (b) The amount scheduled to be drawn by the recipient at the time the
4 offer is extended, if any, less any fees deducted or withheld at
5 disbursement;
6 (c) The total repayment amount, which is the draw amount, less any
7 fees deducted or withheld at disbursement, plus the total cost of the
8 financing. The total repayment amount shall assume the amount scheduled
9 to be drawn by the recipient at the time the offer is extended, or if no
10 amount is scheduled to be drawn at such time, the maximum amount of
11 credit available to the recipient, in each case, if drawn and held for
12 the duration of the term or draw period;
13 (d) The total cost of the financing, expressed as a dollar cost,
14 including all required periodic and non-periodic fees and charges that
15 cannot be avoided by a recipient, including any interest expense. The
16 total cost of financing shall assume the amount scheduled to be drawn by
17 the recipient at the time the offer is extended, or if no amount is
18 scheduled to be drawn at such time, the maximum amount of credit avail-
19 able to the recipient, in each case, if drawn and held for the duration
20 of the term or draw period;
21 (e) The annual percentage rate, expressed as a nominal yearly rate,
22 inclusive of any fees and finance charges, and calculated in accordance
23 with the federal Truth in Lending Act, Regulation Z, 12 C.F.R. §
24 1026.14;
25 (f) The term of the plan, if applicable, or the period over which a
26 draw is amortized;
27 (g) The payment amounts:
28 (i) for payment amounts that are fixed, the payment amounts and
29 frequency (e.g., daily, weekly, monthly), and the average monthly
30 payment amount; or
31 (ii) for payment amounts that are variable, a payment schedule or a
32 description of the method used to calculate the amounts and frequency of
33 payments, and the estimated average monthly payment amount;
34 (h) A description of all other potential fees and charges that can be
35 avoided by the recipient, including, but not limited to, draw fees, late
36 payment fees, and returned payment fees;
37 (i) Prepayment charges, or a description of any fees, expenses or
38 charges due when the draw amount is paid in full or the line is closed;
39 and
40 (j) A description of any collateral requirements or security inter-
41 ests.
42 § 706. Additional information. Nothing in this article shall prevent a
43 provider from providing or disclosing additional information on a
44 commercial financing being offered to a recipient.
45 § 707. Estimates. If any information necessary for an accurate disclo-
46 sure is unknown to the provider at the time of a commercial financing
47 offer, the provider shall make the required disclosure based on the best
48 information reasonably available at the time the disclosure is provided
49 and shall state clearly that the disclosure is an estimate. If the
50 provider is required to make any assumptions to provide the required
51 disclosure, such assumptions shall be clearly and conspicuously
52 described to the recipient in writing at the time of the offer.
53 § 708. Penalties. (a) A provider that knowingly violates any provision
54 of this article, as determined by the superintendent, shall be liable
55 for an aggregate civil penalty of not more than ten thousand dollars for
56 such violation, regardless of the number of recipients affected by the
S. 5470 6
1 violation. The penalty shall be collected by the superintendent in the
2 name of the state pursuant to existing authority available to the super-
3 intendent under state law.
4 (b) In addition to any penalty imposed pursuant to subsection (a) of
5 this section, upon a finding by the superintendent that a provider has
6 knowingly violated this act, the superintendent may order additional
7 relief, including, but not limited to, a permanent or preliminary
8 injunction on behalf of any recipient affected by the violation.
9 § 2. This act shall take effect immediately.