New York enacts TILA-style disclosure law for business loans and receivables purchases – Finance and Banking

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The authors provide an overview of a new law in New York and the entities and transactions to which it applies, and discuss the disclosure and signing requirements of the legislation, the exemptions provided, and how the law will be enforced.

New York Governor Andrew M. Cuomo signed SB 54701 in law, which will impose a series of disclosure requirements similar to the loan law on providers of a wide range of trade finance agreements.

SB 5470 was quickly followed by SB 898,2 which changes the scope, exemptions and other provisions of the law.

Under the new “New York Law”, which now comes into effect on January 1, 2022, “suppliers” not exempt from “trade finance” in the amount of $ 2.5 million or less must disclose the terms. keys of the transaction to borrowers and obtain the signature of a borrower before carrying out a transaction.3

The New York law follows in the footsteps of a similar law enacted in California in 2018.4

Both state laws impose disclosure requirements on business loans similar to those that the Federal Loan Truth Act (“TILA”) and Regulation Z place on consumer (e.g., personal) loans. , family or domestic). This article provides an overview of New York law and the entities and transactions to which it applies and discusses the disclosure and signing requirements of the legislation, the exemptions provided, and how the law will be applied.

OVERVIEW AND APPLICABILITY

In signing the original bill, SB 5470, Governor Cuomo noted in the memorandum filed with the bill that he had “obtained an agreement with the legislature to make certain technical changes to this bill in order to better clarify and align with existing requirements under federal law, including the Truth in Lending Act. “5 As a result, SB 5470 was amended with the adoption of SB 898, resulting in changes to the scope, exemptions, penalties and other provisions of the law. Of particular interest, the coverage of individual transactions increased from $ 500,000 to $ 2.5 million.

New York law requires trade finance providers to provide certain information to recipients when extending a specific trade finance offer in a format to be prescribed by the New York State Department of Financial Services. (“DFS”). It will have a significant impact on vendors beyond traditional commercial lenders, as it broadly defines “commercial finance” to include vendors, and third party lawyers, of sales-based financing,6closed commercial financing,7 open commercial financing,8 factoring operations,9 and other forms of trade finance that the DFS can provide through rule making.

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Footnotes

* Krista Cooley is a partner at Mayer Brown and a member of the firm’s financial services regulatory and enforcement practice. Jeffrey P. Taft is a partner in the Firm’s Financial Services Regulation and Enforcement group and the firm’s Cybersecurity and Data Privacy practice. Daniel B. Pearson is an associate at the firm and a member of the Financial Services Regulatory & Enforcement practice. Residents of the firm’s office in Washington, DC, the authors can be contacted at [email protected], [email protected], and [email protected], respectively.

1 https://www.nysenate.gov/legislation/bills/2019/s5470.

2 https://www.nysenate.gov/legislation/bills/2021/S898.

3 New York law was scheduled to come into force on June 21, 2021 before SB 898 postponed the effective date.

4 https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB1235. Since enactment, California has undertaken several regulatory proposals to clarify the law and implement disclosure requirements. Comments on the most recently proposed rules were scheduled to take place on October 28, 2020 and a public hearing was held on November 9, 2020.

5 Memorandum # 65 (December 23, 2020), https://www.sfnet.com/docs/default-source/tsl-tslexpress/tslexpress_ny19rsb05470app.pdf?sfvrsn=7ac96eab_2.

6 “Sales-based financing” means “a transaction that is reimbursed by the beneficiary to the supplier, over time, as a percentage of sales or revenue, in which the payment amount may increase or decrease depending on the volume of sales. realized or income received by the beneficiary. Sales-based financing also includes an adjustment mechanism where the financing is repaid as a fixed payment, but provides for a reconciliation process that adjusts the payment to an amount which is a percentage of sales or revenue. NY End. Serv. § 801 (j).

7 “Closed financing” means “a closed credit extension, guaranteed or not, including the financing of equipment that does not meet the definition of a rental contract according to article 2-A-103 of the French Commercial Code. uniform, the product of which the recipient does not intend to use primarily for personal, family or household purposes. “Closed funding” includes funding with an established capital amount and term. ”Identifier. Section 801 (d).

8 “Open-ended financing” means “an agreement for one or more extensions of open-ended credit, guaranteed or not, the product of which is not intended to be used primarily for personal, family or household purposes. “Financing” includes credit extended by a supplier under a plan in which: (i) the supplier reasonably envisages repeat transactions; (ii) the Supplier may impose finance charges from time to time on an outstanding balance; and (iii) the amount of credit that may be extended to the beneficiary during the life of the plan (up to any limit set by the provider) is generally available to the extent that any outstanding balance is repaid. Identifier. Section 801 (c).

9 “Factoring transaction” means “an accounts receivable purchase transaction that includes an agreement to buy, transfer or sell a legally enforceable receivable held by a beneficiary for goods that the beneficiary has supplied or services rendered by the beneficiary which have been ordered but for which payment has not yet been made. Identifier. Section 801 (a).

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© Copyright 2020. The Practices of Mayer Brown. All rights reserved.

This article by Mayer Brown provides information and commentary on legal issues and developments of interest. The foregoing does not constitute a complete treatment of the matter at hand and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action on the matters discussed in this document.


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