SFNet Advocacy Alert: Governor’s Office Pushing for Amendment to Increase Transaction Threshold

New York State Assembly Bill 10118-A, sponsored by Assemblyman Kenneth Zebrowski (96^th District), and its Senate equivalent S.5470-B sponsored by Senator Thomas (6^th District) were passed by the New York State Assembly and Senate over the summer and delivered to Governor Cuomo for signature last week. It is anticipated that the Governor will sign this legislation by year end. The new statute would require, among other provisions, that all non-regulated commercial finance companies, including ABL lenders and factors, that propose to lend $500,000 or less to New York-based borrowers, to disclose to these potential borrowers immediately prior to entering into a credit or factoring agreement the Annual Percentage Rate (“APR”) of the “loan” (inclusive of all fees and costs), expressed as a dollar amount, to be charged to the prospective borrower so that the borrower, allegedly, has the ability to better understand the lender’s pricing and make comparisons to other offers the prospective borrower may have received.

Over the past year, SFNet, through its Advocacy Committee and with the services of a well-respected lobbyist, has attempted to make these disclosures more rational for our members and, at the same time, responsive to the objectives of the legislation. In July we alerted our non-regulated members, urging you to contact named lawmakers to reinforce our position.  Despite our efforts, the legislation will require a sales-based transaction to nevertheless use an APR metric (which we realize is strictly a term loan measurement) for sales-based financing and as a result will not accurately inform the potential borrower of the true “cost” of these products.

We have written and spoken to both the two legislators and their staffs, the Governor’s office and the NY State Department of Financial Service, urging them to make meaningful changes to the statute, but without success. We are, however, trying to make some minor changes on the eve of the Governor signing this legislation, such as defining the APR to be measured by the lender’s “estimate” of its actual advances rather than the amount of the lender’s maximum credit, dropping from the legislation the prohibition regarding charging pre-payment penalties and specifically providing that “time value of money” be a relevant consideration as a metric in calculating the APR.

This legislation, once implemented by the Governor, will not by its terms go into effect until the New York State Department of Financial Services adopts a series of regulations “interpreting” the legislation and will, therefore, to the best of our knowledge, “push” the effective date of the statute to January of 2022. As SFNet is trying to effect meaningful changes to the statute, this will give SFNet another chance to appeal to the regulators to adopt rules that allow ABL lenders and factors to meaningfully comply with the statute.

In addition, where the passed version of the Bill calls for a threshold of $500,000 per transaction for the provisions to apply, SFNet has learned the governor’s office is already seeking an amendment to change certain other provisions including raising the applicability threshold to transactions under $2 million, thus including a much larger number of deals and affecting a wider class of lenders who previously would have been exempt. SFNet opposes these amendments and will continue to press for acceptable terms.

In the meantime, we invite our members to view the following links to SFNet’s recent Proposed Amendments to the Bill, the text of the Bill pending the Governor’s signature AB 10118 , and the SFNet Opposition letter to the approved statute, and welcome our non-regulated members doing business in New York to contact Michele Ocejo at mocejo@sfnet.com for more information. 

We will, of course, keep you informed.