Fintechs and other non-bank institutions will be required to provide consumer-type information when proposing to expand small business financing in New York City.


  • New York’s Commercial Finance Disclosure Act is primarily aimed at fintech lenders other than banks providing commercial finance.
  • Trade finance providers subject to the new law will be required to provide detailed consumer-type information for transactions of $ 500,000 or less.
  • The new requirements are modeled on the disclosures required for consumer credit in the Loan Truth Act, despite significant differences between the terms of consumer credit and trade credit.

In late December 2020, New York Governor Andrew Cuomo signed Law S5470-B, which imposes consumer-type disclosure requirements for a variety of business finance transactions of $ 500,000 or less, including loans, financing based on sales, including cash advances to merchants (MCA), and factoring transactions. This new Trade Finance Disclosure Law (CFDL) is currently expected to come into effect on June 21, 2021, although legislation is pending to extend the effective date until January 1, 2022.

New York is the second state to require consumer-type information for trade finance, after similar requirements were enacted in California in 2018. However, California law will not come into full force until the California Department of Protection. finance and innovation will not have promulgated the final regulations. Although the CFDL authorizes the New York Department of Financial Services (NYDFS) to promulgate regulations, this will become effective whether or not the NYDFS promulgates regulations. Legislation in New York and California could prompt other states to enact similar laws and could be part of a larger trend to regulate small business finance.

Scope of Covered Trade Finance Providers

The CFDL requires trade finance “providers” to provide information to potential finance recipients at the time a specific financing offer is made to a corporate borrower. The CFDL defines in a broad sense that the service provider includes both the entities which actually grant financing, as well as all the intermediaries who solicit and present specific financing offers on behalf of third parties.

The CFDL will primarily impact fintechs and other non-banks involved in trade finance as it exempts depository financial institutions including federal and state chartered banks, credit unions, trust companies, and corporations. industrial loan. Although the CFDL provides a limited exemption for entities acting as technology service providers for exempt entities, such technology service providers are only exempt if they have no interest, and no arrangement to acquire an interest, in commercial financing granted by the exempt entity. In addition, intermediaries who affirmatively present specific commercial finance offers on behalf of exempt entities are not themselves exempt. Tech companies and fintechs that present financing offers on behalf of third parties should consider consulting a lawyer to assess whether their current operations fall within this limited exception.

The CFDL also exempts lenders regulated under the Federal Farm Credit Act and entities that conduct five or fewer trade finance transactions in New York City in a 12-month period.

Scope of Covered Trade Finance Transactions

The CFDL applies to closed financing, open financing, sales financing including MCA and factoring operations. In addition to individual commercial financing transactions over $ 500,000, transactions secured by real estate and leases as defined in Article 2-A-103 of the UCC are not subject to the requirements of the CFDL .

Disclosures Required

The disclosure requirements of the CFDL are similar to the disclosure requirements for consumer finance in the Truth in Lending Act (TILA) and Regulation Z. Although the disclosures required by the CDFL vary slightly depending on the form of the transaction, providers of trade finance will generally be required to disclose:

  • The total amount financed, and the amount disbursed if it is different from the total amount financed;
  • The financial burden;
  • The APR (or the estimated APR for sales-based financing and factoring transactions), calculated in accordance with TILA and Regulation Z;
  • The total amount of the reimbursement;
  • The duration (or estimated duration for sales-based financing) of the financing;
  • Periodic payment amounts;
  • Prepayment charges;
  • All other fees and charges not otherwise disclosed; and
  • Any guarantee or surety requirement.

Although TILA and Regulation Z have long required information similar to that described above for consumer credit products, many of these concepts do not clearly translate into business transactions such as credit-based finance transactions. sales and factoring which may not have fixed terms or easily quantifiable periodic payment amounts. . The CFDL attempts to meet this challenge by requiring providers of sales-based finance and factoring transactions to disclose estimated rather than actual numbers in several situations, including the APR.

Sales-based finance providers must select one of two options to calculate an estimated APR: the “historical” method, which is based on average historical sales volume, or the “opt in” method, which is based on on the projected sales volume. Suppliers must notify the NYDFS of their choice, and if they choose the method of enrollment, they must report the data to the NYDFS for an annual review of the accuracy of their estimated APRs. Factoring service providers must calculate the estimated APR as “one-off advance, one-off payment transaction” as set out in Annex J of Regulation Z.

Administrative and enforcement provisions

The CFDL authorizes NYDFS to promulgate regulations regarding the calculations required by the CFDL, the formatting of the required declarations, the terms defined in the CFDL and the execution. If NYDFS finds that a vendor has violated the CFDL, it can impose penalties of up to $ 2,000 per violation and up to $ 10,000 per intentional violation. NYDFS can also order an injunction if it finds that a supplier has knowingly violated the CFDL.

New York State Legislature Passes Bills to Amend CFDL

In his December 23, 2020 signing memorandum, Governor Cuomo said he had secured an agreement with the legislature to make technical changes to S5470-B to provide more clarity and more closely align his requirements with TILA. . The New York State Senate and Assembly then introduced “identical to” bills to amend the CFDL. The Senate passed its bill on January 19, 2021 and the Assembly passed its bill on February 10, 2021. More specifically, these bills increase the dollar amount of covered transactions from $ 500,000 or less to 2 , $ 5 million or less, and delay the CFDL’s effective date to January 1, 2022. The bills would also clarify when vendors must perform APR calculations, immediately allow NYDFS to enact regulations, and create a new exemption for vehicle dealers in certain circumstances.

CFDL comes at a time when trade finance products are increasingly available through new online platforms and from new market entrants. Along with similar California law, the CFDL is an important step towards enforcing additional regulatory requirements on trade finance, which was previously subject to much less regulatory oversight than consumer credit and indicates a broader trend towards imposing a regulatory oversight over small business finance. . The COVID-19 pandemic has also drawn additional attention from federal and state regulators to lending and other issues impacting small businesses. Trade finance providers should be aware of and prepare to comply with these new requirements and should expect the federal and state governments to continue to be active in this area.