New York’s Small Business TILA Regulations
New York’s Governor Andrew Cuomo has signed in to law the State’s new “Small Business Truth in Lending Act,” which breaks new ground by imposing disclosure and transparency requirements on loan and funding products provided to small businesses.
This law substantially impacts the FinTech community, and in particular MCA funders, by requiring nearly every alternative finance company to provide TILA-like disclosures in every agreement within the state. It covers a wide range of funding products from standard loans and credit lines as well as several categories of historically less regulated forms of financing such as factoring agreements, sales-based financing, open ended financing, and even has a provision for “other forms of financing” category to allow the law to adapt to new or novel forms of financing.
Under the new law, the purchase and sale of future receivables, or merchant cash advances, are defined as “Sales-Based Financing” and finance companies are required to provide nine disclosures: the total amount of financing and disbursement amount, finance charge, estimated APR, total repayment amount, estimated term, payment amounts, other potential fees, prepayment penalties, and a description of collateral.
The new rules have been in effect since January 1, 2021. Funding companies that serve small businesses in New York should confirm that deals entered with a New York party comply with this new law, as each violation carries a penalty ranging from $2,000 to $10,000.
If you have any questions, please do not hesitate to contact Aubrey Thrasher, LLC for a thorough review of your company’s agreements to ensure compliance with these new rules. Our team specializes in representing alternative finance and FinTech funders.