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NYS Small Business Truth In Lending Act

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Public Comment Period #2 - Expires October 31, 2022
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Letter to NYS DFS from NYS CDFI Coalition

(download PDF)

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October 25, 2022

 

Mr. George Bogdan

NYS Department of Financial Services
1 State Street
New York, New York 10004

george.bogdan@dfs.ny.gov

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VIA ELECTRONIC TRANSMISSION

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RE: Proposed 23 NYCRR 600, Disclosure Requirements for Certain Providers of Commercial Financing Transactions
 

Dear Mr. Bogdan:

 

We write to offer our strong support for moving forward with the Small Business Truth in Lending regulations implementing S5470B.

 

The NYS CDFI Coalition helped lead the charge to pass this law. We joined forces with the Responsible Business Lending Coalition, small business groups, advocacy organizations, and for-profit lenders to champion the Small Business Truth in Lending Act because truth in lending is a vital building block of economic opportunity in the state of New York.

 

The NYS CDFI Coalition represents more than 80 CDFIs in New York State.  We provide financial services and education for low-income New Yorkers; leverage federal and private dollars for economic development; create market-based solutions that provide capital to chronically underserved communities across the state; and promote responsible alternatives to predatory loans.

 

Today, too many entrepreneurs are victims of predatory lending, and overpay for credit because of a lack of transparent price disclosure in small business financing. Consumers have long enjoyed basic truth-in-lending standards, but these common-sense protections have not been available to small business borrowers until recently. New York is finally correcting that regulatory gap with the above-referenced measure: the strongest small business lending disclosure regulations in the country.

 

We focus on underserved communities, including communities of color. Studies show these communities are disproportionately affected by predatory lending. In some cases, high-cost and non-transparent lending can trap borrowers in cycles of debt and even lead to the failure of small businesses. Transparent disclosures will help the overall commercial financing marketplace because transparent price disclosure is the foundation of price competition.

 

We urge you to release the final rule as soon as possible and refer you to the Responsible Business Lending Coalition’s comment letter for additional recommendations.

 

Sincerely,

 

/signed/

 

Linda MacFarlane
Chair
NYS CDFI Coalition

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We urge our Coalition partners and supporters to join us in commenting in favor of efforts to protect consumers from predatory lending. 

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In 1968, President Lyndon Johnson signed the Federal Truth in Lending Act (TILA) to provide greater transparency regarding credit terms and fees. This helped consumers compare their options when shopping for a loan. The TILA did not apply to business loans, as business owners were thought to have higher financial literacy. 

But the recent explosion of the availability of easy, online loans has showed that entrepreneurs need protection from predatory lenders, too. 

The NYS CDFI Coalition was a member of the Responsible Business Lending Coalition (RBLC) and helped lead the advocacy effort around this important consumer protection effort. 

The first Public Comment Period on this rulemaking was late last year. It yielded 18 comments, including one from the Coalition and one from the RBLC. According to NYS DFS: 

Some commenters are opposed to the basic purpose of the Commercial Finance Disclosure Law (“CFDL”), Financial Services Law (“FSL”) sections 801-811, and accordingly are opposed to the regulation. Most commenters acknowledge the need for the rule to implement the CFDL and made comments intended to improve the regulation from their perspective. Small business advocates generally praised the Department’s original proposal and sought incremental changes. Providers generally wanted more extensive revisions, particularly in sections relevant to their business niches. Most commenters addressed multiple provisions of the proposed rule and suggested numerous detailed changes.  

 
Follow these links to review recently-released documents:

Date Filed with the Secretary of State: August 26, 2022

Date Published in the State Register: September 14, 2022

Public comment period expires: October 31, 2022
 

Proposed New 23 NYCRR 600

Notice of Proposed Rule Making

Assessment of Public Comments

SAPA

Executive Order No. 17

Guidance Regarding Effective Date

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History

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Sample Text for Comment Letter (2021)

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Please choose from among the bullets below, and feel free to insert any experience your institution has had with consumers falling victim to predatory lenders where indicated. Some examples from CDFI Coalition members can be found by scrolling to the bottom of this presentation. 

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Department of Financial Services
George Bogdan
1 State St
New York, New York 10004

george.bogdan@dfs.ny.gov

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VIA ELECTRONIC TRANSMISSION

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RE: Proposed 23 NYCRR 600, Disclosure Requirements for Certain Providers of Commercial Financing Transactions
 

Dear Mr. Bogdan:

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  • Since long before the pandemic, small business owners have had to struggle with unfamiliar rates and terms to secure financing.

  • Hard-working entrepreneurs, particularly people of color, are misled into taking on financial products that drain the life out of their business.

  • The COVID-19 pandemic has made small business owners desperate for funds to stay afloat, leaving them vulnerable to predatory lenders.
     

  • Fortunately, in 2020 the New York State legislature passed the Small Business Truth in Lending Act (SB5470B, now Article 8 of the Financial Services Law), bringing sunshine to the commercial financing marketplace.

  • On October 20, 2021, the New York State Department of Financial Services (“Department” or “DFS”) published a thoughtful and comprehensive draft rule that enables New York to set a strong national standard for small business truth-in-lending disclosures.

  • DFS’ regulations will empower entrepreneurs with the standardized, transparent disclosures they need to compare financing options and select the best product for their business.

 

  • Thank you for publishing a strong proposed rule that included thoughtful revisions to the pre-proposed outreach draft.

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INSERT YOUR EXPERIENCE HERE IF APPLICABLE 

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  • We recommend two additional changes intended to further strengthen small business borrower protections and enable interstate harmonization.

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Recommendation 1: Incorporate October 12, 2021 California regulatory updates to enable interstate harmonization and innovation.
 

  • We commend the Department for incorporating provisions of the California Department of Financial Protection and Innovation’s (“DFPI”) draft commercial financing regulations published on August 9, 2021. We also thank the Department for including our recommended change to ensure that borrowers receive disclosures for any offer they consider when presented with multiple offers, rather than only for the single offer the small business selects to move forward with. These changes strengthened the Department’s draft rule and will enable interstate harmonization.

  • We encourage the Department to adopt this language and other changes made in DFPI’s third modification published October 12, 2021, to ensure continued interstate harmonization and support innovations in small business financing delivery systems.
     

Recommendation 2: Include S5470B’s requirement to disclose APR any time price or amount are stated, even outside of the required disclosure.
 

  • We urge the Department to implement an important financial protection for small businesses that is included in Article 8, Section 810 of the Financial Services Law. Section 810 requires APR to be disclosed throughout the application process at any time the price or financing amount are stated, including outside of the required disclosure:

  • “§ 810… WHEN A PROVIDER STATES A RATE OF FINANCE CHARGE OR A FINANCING AMOUNT TO A RECIPIENT DURING AN APPLICATION PROCESS FOR COMMERCIAL FINANCING, THE PROVIDER SHALL ALSO STATE THE RATE AS AN "ANNUAL PERCENTAGE RATE", USING THAT TERM OR THE ABBREVIATION "APR".”

  • By addressing Section 810 in the rules, the Department will help ensure that small business borrowers are able to make apples-to-apples price comparisons using APR throughout the application process, including outside of when the full form disclosure is presented to them

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Small businesses represent the dreams and labor of millions of New Yorkers. Overall, we are very pleased with the Department’s draft rule to protect business owners from deceptive lending practices. We hope the above comments are helpful as DFS proceeds with this rulemaking. We thank DFS for leading the nation with strong commercial financing regulations that will protect small business borrowers and enable interstate harmonization.

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Sincerely,

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