To date, licensing and disclosure requirements for lenders and commercial loan brokers (including commercial mortgages and commercial or commercial loans unsecured by real estate) have not received the attention of the Commission. Most state legislators or regulators. Few states impose a licensing requirement to make any type of commercial loan1 and there are no state laws that impose significant disclosure requirements for the granting of commercial loans, but that could change in 2021. As California and New York lead the way in the licensing and regulation of some commercial lending and brokerage activities, legislators and regulators in other states are beginning to take notice and propose legislative solutions that apply to the granting or brokering of commercial loans. With this Customer Alert, we’re taking a look at New York’s commercial loan licensing and disclosure obligations.
Under the New York Approved Lenders Act, lenders providing business loans of $ 50,000 or less, with an annual interest rate greater than 16 percent, must be licensed. Due to the low dollar amount of the Approved Lenders Act and high annual interest rate thresholds, few entities providing commercial loans in New York are licensed. While there have been no recent changes, legislation is currently being discussed in Albany that would increase the dollar amount of commercial loans that would require a permit in New York. We will continue to monitor these developments and issue a follow-up client alert if there is a material change in New York’s commercial loan license requirements.
Late last year, New York City passed Senate Bill 5470-B imposing certain disclosure requirements on those who make or negotiate certain business loans of $ 500,000 or less. This new commercial loan disclosure law comes into effect on June 21, 2021. Although regulations are being drafted, none have yet been formally proposed. We have reached out to regulators in New York to verify the status of any proposed regulations, and once we obtain additional regulatory guidance, we will issue a follow-up client alert on this new commercial loan disclosure law. If you would like us to seek advice on a separate issue for you, please email us and we will look into the matter with regulators in New York.
SB 5470-B outlines and defines six forms of trade finance for which certain information would be required: (i) sale-based finance, (ii) closed-end trade finance, (iii) open trade finance, (iv ) factoring transactions, (v) renewal financing and (vi) a catch-all category for “other forms” of commercial financing, which the NYDFS Superintendent is authorized to determine in accordance with the statutory definition of “financing commercial”. See SB 5470-B § 801 (b). “Commercial financing” does not include financing the proceeds of which are intended to be used by the recipient for personal, family or household purposes. See identifier. § 801 (b). In addition, the new Commercial Loan Disclosure Act does not apply to commercial finance secured by real estate. See id. § 802 (d).
SB 5470-B provides a de minimus exemption, “for any person or supplier who does not carry out more than five commercial financing transactions in [New York] within a twelve month period. ” Identifier. § 802 (f). “Financial institutions,” that term including banks and certain other licensed deposit-taking institutions licensed to do business in New York City, are also exempt from the new Commercial Loan Disclosure Act, but subsidiaries or affiliates of such institutions Exempt financials are not exempt, if otherwise subject to the new law on the disclosure of commercial loans. See id. § 802 (a) and 801 (f).
The obligation to provide the required information extends to a “provider of such trade finance”, a term defined to include not only a person or entity that makes a specific offer of trade finance to a recipient, but also “a person who solicits and presents specific offers of commercial financing on behalf of a third party. ” See id. § 801 (h). Given this definition, it would appear that those who “negotiate” commercial loans regulated by SB 5470-B would also be required to provide the required information to beneficiaries. SB 5470-B does not indicate whether (i) the “creditor” and the “broker” must provide information for the same commercial financing, (ii) the information provided by the “broker” exempts the “creditor” from providing the disclosures for the same commercial financing, (iii) the obligation of the “broker” to provide the commercial disclosures may be delegated to the “creditor”, or (vi) the disclosures provided by the “creditor” exempt the “broker” from providing the disclosures for the same commercial financing.
The disclosures imposed by SB 5470-B are modeled after the consumer finance disclosures contained in the Truth About Lending Act. Although the information required for each form of trade finance differs, there are some common elements that should be disclosed for each form of trade finance. Some of these common elements include:
- the total amount of the particular trade financing, or the maximum credit available if it is open-end commercial financing, or the purchase price of the receivables if it is factoring;
- the financial burden;
- the estimated annual percentage rate,
- the total reimbursement amount, which is the disbursement amount plus the finance charge; or if it is open, the amount of the draw, less fees, plus finance charges; or, in the case of factoring, the purchase amount plus finance charges; and
- the amounts and / or frequency of payments.
The supplier is required to obtain the recipient’s signature on all disclosures that must be presented to the recipient to go ahead with the request for commercial financing. This signature obligation can be fulfilled by the use of an electronic signature. Identifier. § 809.
For a fuller and more complete understanding of the disclosures for each form of trade finance regulated by this new disclosure law, SB 5470-B should be reviewed. In the meantime, we will continue to seek clarification from NYDFS regulators on certain disclosure requirements. We will monitor the release of the proposed regulations to implement this Trade Finance Disclosure Act and post an update to this Customer Alert. If you would like to submit comments once the rules have been proposed, we will be happy to help.
1 States that license and broker business involving commercial mortgages include Arizona, California, Florida, Minnesota, Nevada, New York, North Dakota, South Dakota, and Vermont. In some of these states, (i) the licensing requirement may arise to make commercial mortgages of any amount or amount in dollars or less, or (ii) may arise under certain limited conditions. Fewer states allow lenders to make commercial or commercial loans unsecured by real estate. Some states may allow commercial loan brokerage, but not commercial loan issuance. Regulators in a few other states say their licensing laws apply to the licenses of those who make commercial loans of $ 25,000 or less, but given the dollar amount of commercial loans that could give rise to a liability obligation. license, these licenses are rare to find. obligations applicable to most commercial lenders.
Opinions and conclusions in this article are solely those of the author, unless otherwise stated. The information contained in this blog is of a general nature and is not offered and can not be considered as legal advice for any particular situation. The author has provided the links referenced above for informational purposes only and, in doing so, does not adopt or incorporate the content. Any federal tax advice provided in this communication is not intended or written by the author for use, and may not be used by the recipient, for the purpose of avoiding penalties that may be imposed on the recipient by the recipient. IRS. Please contact the author if you would like to receive written advice in a format that complies with IRS rules and can be relied on to avoid penalties.[View source.]