On February 1, NY DFS announced the adoption of the final regulation implementing the New York State Commercial Finance Disclosure Law (CFDL) (N.Y. Fin. Serv. Law §§ 801 to 812). The regulations require companies that offer commercial financing less than or equal to $2.5 million (providers) to make standardized disclosures about the commercial financing’s credit terms to recipients of the commercial financing (recipients). The final regulations were effective February 1, 2023, and the compliance date for the final regulation is August 1, 2023 (see our previous post on the regulations here).

Notably, the final regulations clarified that the definition of “financial institution” exempts subsidiaries and affiliates of exempted banks and credit unions. In response to industry comments for clarification, the DFS responded that the change in the definition of financial institution is consistent with the legislative intent because banks and their subsidiaries are subject to consolidated oversight. Among the changes in the final regulation, it eliminates the following from the 2022 proposed CFDL regulation: CFDL applicability if the provider is principally managed or directed from New York or negotiated the commercial financing from a New York location. Under the final CFDL regulation, the CFDL only applies if: (i) the recipient’s business is principally directed or managed from New York; or (ii) the recipient is a legal resident of New York (if a natural person).

Putting It Into Practice: In contrast to New York, the California DFPI has confirmed that it will not read an exemption for subsidiaries and affiliates of “depository institutions” into the new commercial finance law. Impacted companies offering applicable commercial financing in New York and California should note this distinction and prepare accordingly.