Bill Text: NY A10118 | 2019-2020 | General Assembly | Amended
Bill Title: Requires certain providers that extend specific terms of commercial financing to a recipient to disclose certain information about the offer to the recipient, including information concerning the financing amount, finance charges, the annual percentage rate, the total repayment amount, the term, payment amounts, other potential fees, any prepayment costs and a description of any collateral requirements.
Spectrum: Partisan Bill (Democrat 30-0)
Status: (Passed) 2020-12-23 - APPROVAL MEMO.65 [A10118 Detail]
Download: New_York-2019-A10118-Amended.html
STATE OF NEW YORK ________________________________________________________________________ 10118--A IN ASSEMBLY March 12, 2020 ___________ Introduced by M. of A. ZEBROWSKI, MOSLEY, STERN, GALEF, D'URSO, GRIFFIN, JAFFEE, THIELE, GOTTFRIED, COLTON, SEAWRIGHT, SIMON, O'DONNELL, McMA- HON, ENGLEBRIGHT, CAHILL, BRONSON, OTIS, BUTTENSCHON, McDONALD, FAHY, DICKENS, DARLING, ORTIZ, LIFTON -- read once and referred to the Committee on Banks -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee AN ACT to amend the financial services law, in relation to requiring certain providers that extend specific terms of commercial financing to a recipient to disclose certain information about the offer to the recipient 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 8 to read as follows: 3 ARTICLE 8 4 COMMERCIAL FINANCING 5 Section 801. Definitions. 6 802. Exemptions. 7 803. Sales-based financing disclosure requirements. 8 804. Closed-end commercial financing disclosure requirements. 9 805. Open-end commercial financing disclosure requirements. 10 806. Factoring transaction disclosure requirements. 11 807. Other forms of financing disclosure requirements. 12 808. Disclosure requirements for renewal financing. 13 809. Required signature. 14 810. Additional information. 15 811. Rules and regulations. 16 812. Penalties. 17 § 801. Definitions. For the purposes of this article: 18 (a) "Factoring transaction" means an accounts receivable purchase 19 transaction that includes an agreement to purchase, transfer, or sell a 20 legally enforceable claim for payment held by a recipient for goods the 21 recipient has supplied or services the recipient has rendered that have 22 been ordered but for which payment has not yet been made. EXPLANATION--Matter in italics (underscored) is new; matter in brackets [] is old law to be omitted. LBD15642-05-0A. 10118--A 2 1 (b) "Commercial financing" means open-end financing, closed-end 2 financing, sales-based financing, factoring transaction, or other form 3 of financing, the proceeds of which the recipient does not intend to use 4 primarily for personal, family or household purposes. For purposes of 5 determining whether a financing is a commercial financing, the provider 6 may rely on any statement of intended purposes by the recipient. The 7 statement may be a separate statement signed by the recipient; may be 8 contained in the financing application, financing agreement, or other 9 document signed or consented to by the recipient; or may be provided 10 orally by the recipient so long as it is documented in the recipient's 11 application file by the provider. Electronic signatures and consents are 12 valid for purposes of the foregoing sentence. The provider shall not be 13 required to ascertain that the proceeds of a commercial financing are 14 used in accordance with the recipient's statement of intended purposes. 15 (c) "Open-end financing" means an agreement for one or more extensions 16 of open-end credit, secured or unsecured, the proceeds of which the 17 recipient does not intend to use primarily for personal, family or 18 household purposes. "Open-end financing" includes credit extended by a 19 provider under a plan in which: (i) the provider reasonably contemplates 20 repeated transactions; (ii) the provider may impose a finance charge 21 from time to time on an outstanding unpaid balance; and (iii) the amount 22 of credit that may be extended to the recipient during the term of the 23 plan (up to any limit set by the provider) is generally made available 24 to the extent that any outstanding balance is repaid. 25 (d) "Closed-end financing" means a closed-end extension of credit, 26 secured or unsecured, including equipment financing that does not meet 27 the definition of a lease under section 2-A-103 of the uniform commer- 28 cial code, the proceeds of which the recipient does not intend to use 29 primarily for personal, family or household purposes. "Closed-end 30 financing" includes financing with an established principal amount and 31 duration. 32 (e) "Finance charge" means the cost of financing as a dollar amount. 33 It includes any charge payable directly or indirectly by the recipient 34 and imposed directly or indirectly by the provider as an incident to or 35 a condition of the extension of financing. It includes all charges that 36 would be included under 12 C.F.R. part 1026.4 as if the transaction were 37 subject to 12 C.F.R. part 1026.4. In addition, the finance charge shall 38 include any charges as determined by the superintendent. For the 39 purposes of an open-end financing, the finance charge shall assume the 40 maximum amount of credit available to the recipient, in each case, is 41 drawn and held for the duration of the term or draw period. For the 42 purposes of a factoring transaction, the finance charge includes the 43 discount taken on the face value of the accounts receivable. 44 (f) "Financial institution" means any of the following: (i) a bank, 45 trust company, or industrial loan company doing business under the 46 authority of, or in accordance with, a license, certificate or charter 47 issued by the United States, this state or any other state, district, 48 territory, or commonwealth of the United States that is authorized to 49 transact business in this state; (ii) a federally chartered savings and 50 loan association, federal savings bank or federal credit union that is 51 authorized to transact business in this state; or (iii) a savings and 52 loan association, savings bank or credit union organized under the laws 53 of this or any other state that is authorized to transact business in 54 this state. 55 (g) "Person" means an individual, corporation, partnership, limited 56 liability company, joint venture, association, joint stock company,A. 10118--A 3 1 trust or unincorporated organization including, but not limited to, a 2 sole proprietorship. 3 (h) "Provider" means a person who extends a specific offer of commer- 4 cial financing to a recipient. Unless otherwise exempt, "provider" also 5 includes a person who solicits and presents specific offers of commer- 6 cial financing on behalf of a third party. For the avoidance of doubt, 7 the extension of a specific offer or provision of disclosures for a 8 commercial financing, in and of itself, shall not be construed to mean 9 that a provider is originating, making, funding or providing commercial 10 financing. 11 (i) "Recipient" means a person who applies for commercial financing 12 and is made a specific offer of commercial financing by a provider. A 13 recipient may also be an authorized representative of such person. A 14 person acting as a broker cannot be a recipient. 15 (j) "Sales-based financing" means a transaction that is repaid by the 16 recipient to the provider, over time, as a percentage of sales or reven- 17 ue, in which the payment amount may increase or decrease according to 18 the volume of sales made or revenue received by the recipient. Sales- 19 based financing also includes a true-up mechanism where the financing is 20 repaid as a fixed payment but provides for a reconciliation process that 21 adjusts the payment to an amount that is a percentage of sales or reven- 22 ue. 23 (k) "Specific offer" means the specific terms of commercial financing, 24 including price or amount, that is quoted to a recipient, based on 25 information obtained from, or about the recipient, which, if accepted by 26 a recipient, shall be binding on the provider, as applicable, subject to 27 any specific requirements stated in such terms. 28 § 802. Exemptions. This article shall not apply to, and shall not 29 place any additional requirements or obligations upon, any of the 30 following: 31 (a) a financial institution; 32 (b) a person acting in its capacity as a technology services provider, 33 such as licensing software and providing support services, to an entity 34 exempt under this section for use as part of the exempt entity's commer- 35 cial financing program, provided such person has no interest, or 36 arrangement or agreement to purchase any interest in the commercial 37 financing extended by the exempt entity in connection with such program; 38 (c) a lender regulated under the federal Farm Credit Act (12 U.S.C. 39 Sec. 2001 et seq.); 40 (d) a commercial financing transaction secured by real property; 41 (e) a lease as defined in section 2-A-103 of the uniform commercial 42 code; 43 (f) any person or provider who makes no more than five commercial 44 financing transactions in this state in a twelve-month period; or 45 (g) an individual commercial financing transaction in an amount over 46 five hundred thousand dollars. 47 § 803. Sales-based financing disclosure requirements. A provider 48 subject to this article shall provide the following disclosures to a 49 recipient at the time of extending a specific offer of sales-based 50 financing according to formatting prescribed by the superintendent: 51 (a) The total amount of the commercial financing, and the disbursement 52 amount, if different from the financing amount, after any fees deducted 53 or withheld at disbursement. 54 (b) The finance charge. 55 (c) The estimated annual percentage rate, using the words annual 56 percentage rate or the abbreviation "APR", expressed as a yearly rate,A. 10118--A 4 1 inclusive of any fees and finance charges, and calculated in accordance 2 with the federal Truth in Lending Act, Regulation Z, 12 C.F.R. § 3 1026.22, based on the estimated term of repayment and the projected 4 periodic payment amounts. The estimated term of repayment and the 5 projected periodic payment amounts shall be calculated based on the 6 projection of the recipient's sales, called the projected sales volume. 7 The projected sales volume may be calculated using the historical method 8 or the opt-in method. The provider shall provide notice to the super- 9 intendent on which method they intend to use across all instances of 10 sales-based financing offered in calculating estimated annual percentage 11 rate pursuant to this section. 12 (i) The provider using the historical method shall use an average 13 historical volume of sales or revenue by which the financing's payment 14 amounts are based and the estimated annual percentage rate is calcu- 15 lated. The provider shall fix the historical time period used to calcu- 16 late the average historical volume and use such period for all disclo- 17 sure purposes for all sales-based financing products offered. The fixed 18 historical time period shall either be the preceding time period from 19 the specific offer or, alternatively, the provider may use average sales 20 for the same number of months with the highest sales volume within the 21 past twelve months. The fixed historical time period shall be no less 22 than one month and not exceed twelve months. 23 (ii) The provider using the opt-in method shall determine the esti- 24 mated annual percentage rate, the estimated term, and the projected 25 payments, using a projected sales volume that the provider elects for 26 each disclosure, provided, that they participate in a review process 27 prescribed by the superintendent. A provider shall, on an annual basis, 28 report data to the superintendent of estimated annual percentage rates 29 disclosed to the recipient and actual retrospective annual percentage 30 rates of completed transactions. The report shall contain such informa- 31 tion as the superintendent, by rule or regulation, may prescribe as 32 necessary or appropriate for the purpose of making a determination of 33 whether the deviation between the estimated annual percentage rate and 34 actual retrospective annual percentage rates of completed transactions 35 was reasonable. The superintendent shall establish the method of report- 36 ing and may, upon a finding that the use of projected sales volume by 37 the provider has resulted in an unacceptable deviation between estimated 38 and actual annual percentage rate, require the provider to use the 39 historical method. The superintendent may consider unusual and extraor- 40 dinary circumstances impacting the provider's deviation between esti- 41 mated and actual annual percentage rate in the determination of such 42 finding. 43 (d) The total repayment amount, which is the disbursement amount plus 44 the finance charge. 45 (e) The estimated term is the period of time required for the periodic 46 payments, based on the projected sales volume, to equal the total amount 47 required to be repaid. 48 (f) The payment amounts, based on the projected sales volume: 49 (i) for payment amounts that are fixed, the payment amounts and 50 frequency (e.g., daily, weekly, monthly), and, if the payment frequency 51 is other than monthly, the amount of the average projected payments per 52 month; or 53 (ii) for payment amounts that are variable, a payment schedule or a 54 description of the method used to calculate the amounts and frequency of 55 payments, and the amount of the average projected payments per month.A. 10118--A 5 1 (g) A description of all other potential fees and charges not included 2 in the finance charge, including, but not limited to, draw fees, late 3 payment fees, and returned payment fees. 4 (h) Were the recipient to elect to pay off or refinance the commercial 5 financing prior to full repayment, the provider must disclose: 6 (i) whether the recipient would be required to pay any finance charges 7 other than interest accrued since their last payment. If so, disclosure 8 of the percentage of any unpaid portion of the finance charge and maxi- 9 mum dollar amount the recipient could be required to pay; and 10 (ii) whether the recipient would be required to pay any additional 11 fees not already included in the finance charge. 12 (i) A description of collateral requirements or security interests, if 13 any. 14 § 804. Closed-end commercial financing disclosure requirements. A 15 provider, subject to this article, shall provide the following disclo- 16 sures to a recipient at the time of extending a specific offer for 17 closed-end financing according to formatting prescribed by the super- 18 intendent: 19 (a) The total amount of the commercial financing, and the disbursement 20 amount, if different from the financing amount, after any fees deducted 21 or withheld at disbursement. 22 (b) The finance charge. 23 (c) The annual percentage rate, using only the words annual percentage 24 rate or the abbreviation "APR", expressed as a yearly rate, inclusive of 25 any fees and finance charges that cannot be avoided by a recipient, and 26 calculated in accordance with the federal Truth in Lending Act, Regu- 27 lation Z, 12 C.F.R. § 1026.22. 28 (d) The total repayment amount, which is the disbursement amount plus 29 the finance charge. 30 (e) The term of the financing. 31 (f) The payment amounts: 32 (i) for payment amounts that are fixed, the payment amounts and 33 frequency (e.g., daily, weekly, monthly), and, if the term is longer 34 than one month, the average monthly payment amount; or 35 (ii) for payment amounts that are variable, a full payment schedule or 36 a description of the method used to calculate the amounts and frequency 37 of payments, and, if the term is longer than one month, the estimated 38 average monthly payment amount. 39 (g) A description of all other potential fees and charges that can be 40 avoided by the recipient, including, but not limited to, late payment 41 fees and returned payment fees. 42 (h) Were the recipient to elect to pay off or refinance the commercial 43 financing prior to full repayment, the provider must disclose: 44 (i) whether the recipient would be required to pay any finance charges 45 other than interest accrued since their last payment. If so, disclosure 46 of the percentage of any unpaid portion of the finance charge and maxi- 47 mum dollar amount the recipient could be required to pay; and 48 (ii) whether the recipient would be required to pay any additional 49 fees not already included in the finance charge. 50 (i) A description of collateral requirements or security interests, if 51 any. 52 § 805. Open-end commercial financing disclosure requirements. A 53 provider, subject to this article, shall provide the following disclo- 54 sures to a recipient at the time of extending a specific offer for open- 55 end financing according to formatting prescribed by the superintendent:A. 10118--A 6 1 (a) The maximum amount of credit available to the recipient (e.g., the 2 credit line amount), and the amount scheduled to be drawn by the recipi- 3 ent at the time the offer is extended, if any, less any fees deducted or 4 withheld at disbursement. 5 (b) The finance charge. 6 (c) The annual percentage rate, using only the words annual percentage 7 rate or the abbreviation "APR", expressed as a nominal yearly rate, 8 inclusive of any fees and finance charges that cannot be avoided by a 9 recipient, and calculated in accordance with the federal Truth in Lend- 10 ing Act, Regulation Z, 12 C.F.R. § 1026.22 and based on the maximum 11 amount of credit available to the recipient and the term resulting from 12 making the minimum required payments term as disclosed. 13 (d) The total repayment amount, which is the draw amount, less any 14 fees deducted or withheld at disbursement, plus the finance charge. The 15 total repayment amount shall assume a draw amount equal to the maximum 16 amount of credit available to the recipient if drawn and held for the 17 duration of the term or draw period. 18 (e) The term of the plan, if applicable, or the period over which a 19 draw is amortized. 20 (f) The payment frequency and amounts, based on the assumptions used 21 in the calculation of the annual percentage rate, including a 22 description of payment amount requirements such as a minimum payment 23 amount, and if the payment frequency is other than monthly, the amount 24 of the average projected payments per month. For payment amounts that 25 are variable, the provider should include a payment schedule, or a 26 description of the method used to calculate the amounts and frequency of 27 payments, and the estimated average monthly payment amount. 28 (g) A description of all other potential fees and charges that can be 29 avoided by the recipient, including, but not limited to, draw fees, late 30 payment fees, and returned payment fees. 31 (h) Were the recipient to elect to pay off or refinance the commercial 32 financing prior to full repayment, the provider must disclose: 33 (i) whether the recipient would be required to pay any finance charges 34 other than interest accrued since their last payment. If so, disclosure 35 of the percentage of any unpaid portion of the finance charge and maxi- 36 mum dollar amount the recipient could be required to pay; and 37 (ii) whether the recipient would be required to pay any additional 38 fees not already included in the finance charge. 39 (i) A description of collateral requirements or security interests, if 40 any. 41 § 806. Factoring transaction disclosure requirements. A provider, 42 subject to this article, shall provide the following disclosures to a 43 recipient at the time of extending a specific offer for a factoring 44 transaction according to formatting prescribed by the superintendent: 45 (a) The amount of the receivables purchase price paid to the recipient 46 and, if different from the purchase price, the amount disbursed to the 47 recipient after any fees deducted or withheld at disbursement. 48 (b) The finance charge. 49 (c) The estimated annual percentage rate, using that term, calculated 50 according to the federal Truth in Lending Act, Regulation Z, 12 C.F.R. § 51 1026 Appendix J, as a "single advance, single payment transaction". To 52 calculate the estimated annual percentage rate, the purchase amount is 53 considered the financing amount, the purchase amount minus the finance 54 charge is considered the payment amount, and the term is established by 55 the payment due date of the receivables. As an alternate method of 56 establishing the term, the provider may estimate the term for a factor-A. 10118--A 7 1 ing transaction as the average payment period, its historical data over 2 a period not to exceed the previous twelve months, concerning payment 3 invoices paid by the party owing the accounts receivable in question. 4 (d) The total payment amount, which is the purchase amount plus the 5 finance charge. 6 (e) A description of all other potential fees and charges that can be 7 avoided by the recipient. 8 (f) A description of the receivables purchased and any additional 9 collateral requirements or security interests. 10 § 807. Other forms of financing disclosure requirements. The super- 11 intendent may require disclosure by a provider extending a specific 12 offer of commercial financing which is not open-end financing, closed- 13 end financing, sales-based financing, or factoring transaction but 14 otherwise meets the definition of commercial financing as provided in 15 this article. Subject to such rules and regulations by the superinten- 16 dent, a provider subject to this article shall provide the following 17 disclosures to a recipient at the time of extending a specific offer of 18 other forms of financing according to formatting prescribed by the 19 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 annual percentage rate, using only the words annual percentage 25 rate or the abbreviation "APR", expressed as a yearly rate, inclusive of 26 any fees and finance charges, and calculated in accordance with the 27 relevant sections of the federal Truth in Lending Act, Regulation Z or 28 this article. 29 (d) The total repayment amount which is the disbursement amount plus 30 the finance charge. 31 (e) The term of the financing. 32 (f) The payment amounts: 33 (i) for payment amounts that are fixed, the payment amounts and 34 frequency (e.g., daily, weekly, monthly), and the average monthly 35 payment amount; or 36 (ii) for payment amounts that are variable, a payment schedule or a 37 description of the method used to calculate the amounts and frequency of 38 payments, and the estimated average monthly payment amount. 39 (g) A description of all other potential fees and charges that can be 40 avoided by the recipient, including, but not limited to, late payment 41 fees and returned payment fees. 42 (h) Were the recipient to elect to pay off or refinance the commercial 43 financing prior to full repayment, the provider must disclose: 44 (i) whether the recipient would be required to pay any finance charges 45 other than interest accrued since their last payment. If so, disclosure 46 of the percentage of any unpaid portion of the finance charge and maxi- 47 mum dollar amount the recipient could be required to pay; and 48 (ii) whether the recipient would be required to pay any additional 49 fees not already included in the finance charge. 50 (i) A description of collateral requirements or security interests, if 51 any. 52 § 808. Disclosure requirements for renewal financing. If, as a condi- 53 tion of obtaining the commercial financing, the provider requires the 54 recipient to pay off the balance of an existing commercial financing 55 from the same provider, the provider must disclose:A. 10118--A 8 1 (a) The amount of the new commercial financing that is used to pay off 2 the portion of the existing commercial financing that consists of 3 prepayment charges required to be paid and any unpaid interest expense 4 that was not forgiven at the time of renewal. For financing for which 5 the total repayment amount is calculated as a fixed amount, the prepay- 6 ment charge is equal to the original finance charge multiplied by the 7 amount of the renewal used to pay off existing financing as a percentage 8 of the total repayment amount, minus any portion of the total repayment 9 amount forgiven by the provider at the time of prepayment. If the amount 10 is more than zero, such amount shall be the answer to the following 11 question: 12 "Does the renewal financing include any amount that is used to pay 13 unpaid finance charge or fees, also known as double dipping? Yes, {enter 14 amount}. If the amount is zero, the answer would be No." 15 (b) If the disbursement amount will be reduced to pay down any unpaid 16 portion of the outstanding balance, the actual dollar amount by which 17 such disbursement amount will be reduced. 18 § 809. Required signature. The provider shall obtain the recipient's 19 signature, which may be fulfilled by an electronic signature, on all 20 disclosures required to be presented to the recipient by this article 21 before authorizing the recipient to proceed further with the commercial 22 financing transaction application. 23 § 810. Additional information. Nothing in this article shall prevent a 24 provider from providing or disclosing additional information on a 25 commercial financing being offered to a recipient, provided however, 26 that such additional information shall not be disclosed as part of the 27 disclosure required by this article. If other metrics of financing cost 28 are disclosed or used in the application process of a commercial financ- 29 ing, these metrics shall not be presented as a "rate" if they are not 30 the annual interest rate or the annual percentage rate. The term "inter- 31 est", when used to describe a percentage rate, shall only be used to 32 describe annualized percentage rates, such as the annual interest rate. 33 When a provider states a rate of finance charge or a financing amount to 34 a recipient during an application process for commercial financing, the 35 provider shall also state the rate as an "annual percentage rate", using 36 that term or the abbreviation "APR". 37 § 811. Rules and regulations. The superintendent is hereby authorized 38 and empowered to promulgate such rules and regulations as may in the 39 judgment of the superintendent be consistent with the purposes of this 40 article, or appropriate for the effective administration of this arti- 41 cle, including, but not limited to: 42 (a) Such rules and regulations in connection with the calculation or 43 determination of any metric required to be disclosed to a recipient. 44 (b) Such rules and regulations as necessary to develop and prescribe 45 disclosure formatting to be used by providers that allows for recipients 46 to easily compare financing options in a clear and conspicuous manner. 47 Such rules and regulations shall include the designation and method for 48 disclosing the information required in this article, or approving 49 adequate forms and methods already used by providers. 50 (c) Such rules and regulations as may define the terms used in this 51 article and as may be necessary and appropriate to interpret and imple- 52 ment the provisions of this article. 53 (d) Such rules and regulations as may be necessary for the enforcement 54 of this article. 55 § 812. Penalties. (a) Upon a finding by the superintendent that a 56 provider has violated the provisions of this article or the rules orA. 10118--A 9 1 regulations promulgated hereunder, the provider shall be ordered to pay 2 to the people of this state a civil penalty for each violation of this 3 article or any regulation or policy promulgated hereunder a sum not to 4 exceed two thousand dollars for each violation or where such violation 5 is willful ten thousand dollars for each violation. 6 (b) In addition to any penalty imposed pursuant to subdivision (a) of 7 this section, upon a finding by the superintendent that a provider has 8 knowingly violated this article, the superintendent may order additional 9 relief, including, but not limited to, a permanent or preliminary 10 injunction on behalf of any recipient affected by the violation. 11 § 2. This act shall take effect on the one hundred eightieth day after 12 it shall have become a law.