New York Department of Financial Services Implementing Trade Finance

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On September 21, 2021, the New York State Department of Financial Services (DFS) released draft regulations that will implement the legal requirements for trade finance disclosures for certain types of trade finance transactions (the proposal NY DFS or the proposal).1 The proposal implements New York’s Commercial Finance Disclosure Act, which was originally enacted in late 2020 and then amended by law in early 2021. This amendment included an increase in the requirements of the law for certain covered trade finance transactions from $ 500,000 to $ 2,500,000, thus increasing its reach by fivefold.

Once finalized, it is expected that the information to be provided to these “little ones”2 commercial borrowers under a final rule will allow those borrowers to both better understand and compare the cost of credit in much the same way that federal law regulates such disclosures for consumers.3 As of the date of this alert, while some federal agencies have taken the position that the authority of these agencies extends to certain aspects of the provision of trade credit, there is no federal law that directly regulates the provision or delivery of trade credit. content of credit related information to business customers.4

Much like the proposed rules still under development by the State of California Department of Financial Protection and Innovation (CA DFPI) implementing that state’s laws relating to commercial disclosures,5 the NY DFS proposal will require relevant commercial lenders to provide specific information in a prescribed format to commercial borrowers at the time a specific financing offer is made to the credit applicant. The proposal contains a detailed section on “definitions” setting out the proposed interpretations for all the terms considered.

Types of credit covered

The NY DFS proposal covers the following types of commercial credit products6:

Penalties

The penalties for non-compliance are significant. A civil penalty of up to $ 2,000 for each individual violation may be imposed and a penalty of up to $ 10,000 may be imposed for each individual violation if the commercial creditor willfully violated the law. The NY DFS Superintendent is also authorized to impose additional measures, including an injunction.

Hourly

The NY DFS proposal states that the proposal is open for a 60-day comment period after posting to the state registry. The NY DFS statement regarding the publication of the proposal states that “the DFS is issuing the proposed settlement now to facilitate the implementation of the CFDL in time for the January 1, 2022 deadline.”7

Take away food

The NY DFS proposal includes a number of requirements that are circular, inconsistent, and highly problematic for trade finance companies attempting to develop software solutions to deliver information in the required format. For example, the Proposal requires that the “Amount Financed” be calculated in accordance with Annex J of Federal Regulation Z (applicable to consumer credit)8; however, the proposed definition of the term “amount financed” does not match the current definition of the term in Regulation Z. by this agency).

In addition, it appears that the date of legal entry into force of January 1, 2022 is unnecessarily aggressive and will not be applicable from an implementation point of view. Assuming the comment period on the NY DFS proposal ends in late November (60 days after the proposal was released in late September), it will take a long time for the agency to process and assess the comments it will likely receive. It seems highly unlikely that a final rule could be published within 30 days of that date. Even if it were possible, this contemplates a final rule release date close to December 25 (this assumes the NY DFS is able to issue a final rule and does not have to post another draft proposal for it. other public comment, as has always been the case with the DFPI CA, as it has published numerous proposals for public comment in an effort to implement that state’s lower dollar commercial loan disclosure requirements).

Even the most serious commercial lenders with successful APR consultants and programmers cannot program software and rework loan origination policies and procedures to comply with a final rule (and then adequately test what has been developed. ) in less than four to six months. Given the extremely short window between the likely adoption of the final rule and its effective date of January 1, 2022, it seems certain that this current ‘misalignment’ will lead to one of two outcomes: ( a) the NY DFS will need to ignore the law’s required effective date and delay the final rule implementation date, or (b) an affected creditor (or trade association) will likely sue the agency for seek injunction to delay implementation based on numerous theories related to the impossibility of the stated effective date created for compliance.

Commercial lenders affected by the proposal should immediately begin testing the relevant parts of its origination process to determine both where to insert this information and, more importantly, to determine the calculations required to create the disclosure documents required by the proposal. law.


1 https: //www.dfs.ny.gov/system/files/documents/2021/09/pre_proposed_fs_se …. Note that some creditors, including banks and other insured depository institutions, are exempt from the proposed requirements.

2 The NY DFS proposal typically includes a trade credit of up to $ 2,500,000, calculated as “the total amount that a beneficiary may receive under a trade finance agreement and not the amount of an advance particular under such an agreement ”. Identifier.

3 Regulation Z, which implements the Federal Law on Lending Truth, provides that non-mortgage credit granted for personal, family or household use over $ 58,300 is not subject to Regulation Z because it does not meet the threshold requirement of the regulation. See https: //www.consumerfinance.gov/rules-policy/final-rules/truth-lending-r …

4 The FTC has publicly stated that its power to regulate unfair and deceptive conduct in the marketplace extends to commercial transactions on the basis of its power under Section 5 of the Federal Trade Commission Act. For example, a former director of the director of the Bureau of Consumer Protection Division of the FTC publicly described this authority as follows: “Unlike other federal regulators, we are not limited by whether the transaction is for personal gain. , family law or our organic law, the FTC law, allows us to fight against unfair and deceptive practices, even towards companies. “https://www.ftc.gov/system/files/documents/videos/ strictly-business-ftc -…

5 https://dfpi.ca.gov/regulations-legislation-opinions-releases/

6 Each term is defined separately in the Proposal.

7 https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202109211

8 https://www.consumerfinance.gov/rules-policy/regulations/1026/j/


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