NYDFS Issues Notice of Proposed Settlement for Trade Finance Disclosures | Man’s pepper with trout


On October 20, the New York Department of Financial Services (NYDFS) released a opinion in the New York State Registry announcing that it has published a draft regulation to implement 5470-B, which requires disclosure of trade finance transactions of $ 2.5 million or less under a trade finance agreement.

The notice allows public comment for 60 days. The bill comes into force on January 1, 2022, but compliance with the rule will not be mandatory until six months after final publication.

The regulation seeks to parallel the Truth in Lending Act (TILA) disclosures for small business financing, so that business owners are given “the information they need to make an informed and financially responsible decision.” Standardized disclosures will also allow borrowers to compare the prices and costs of trade finance between multiple vendors. The law specifies four types of financing involved – sales-based, closed, open and factoring – as well as the information required for each.

Notably, the definition of “sales-based financing” in the bill encompasses the practices of many providers of cash advances to merchants. Indeed, a “sales-based” financing means “a transaction that is reimbursed by the beneficiary to the supplier, over time, as a percentage of sales or revenue, the payment amount of which may increase or decrease depending on the volume. sales made or income received by the beneficiary. The term also includes “an adjustment mechanism in which funding is repaid as a fixed payment but provides for a reconciliation process that adjusts the payment to an amount corresponding to a percentage of sales or income”.

The law specifically exempts: (1) financial institutions, (2) lenders regulated under the Farm Credit Act, (3) commercial financing secured by real estate, (4) technology service providers who do not provide software and support services only, (5) lenders who do not complete more than five applicable New York transactions in a 12 month period, (6) individual financings in excess of $ 2.5 million, and ( 7) automobile financing.

Our catch. While this regulation should not impose a heavy burden on most businesses, it will take time to create the right information and train staff. As New York joined California By enacting legislation requiring consumer-type disclosures for trade finance transactions, we do not expect to see widespread enactment of similar state laws.

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