Bill Text: NY S05470 | 2019-2020 | General Assembly | Introduced


Bill Title: Establishes certain disclosure requirements relating to commercial financing products including rates, repayment amounts and fees.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced) 2019-05-01 - REFERRED TO BANKS [S05470 Detail]

Download: New_York-2019-S05470-Introduced.html


                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;

        S. 5470                             4
     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:

        S. 5470                             5
     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.
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