Please click below to read important updates on proposed NY State legislation as well as a legal case affecting the industry. If you are interested in joining SFNet’s Advocacy Committee, please contact Michele Ocejo mocejo@sfnet.com.

New York State Licensing Bill

New York State Senator James Sanders, Jr. (D-Queens, New York) has introduced a bill (S 6688) in the New York State Senate, which is presently pending before the Senate Committee on Rules.  The bill would require the licensing by the Superintendent of Banking of the New York State Banking Department (“Superintendent”) of persons or entities engaged in the business of making or soliciting commercial financing products to businesses located in New York State.

A summary of the proposed legislation is set forth below and a copy of the proposed legislation (#6688) can be found here:https://www.nysenate.gov/legislation/bills/2019/s6688

1. Who is Affected: For the purposes of this bill “a person or entity shall be considered as engaging in the business of making commercial financing products to businesses located in New York State if it solicits or consummates commercial financing product to any business or commercial enterprise located in New York State.”
2. What is a “Commercial Finance Product”:  The bill broadly defines a commercial finance product to mean “any advance or funds to a commercial or business enterprise made for the purposes of assisting the business with its capital needs.”  This definition is then further defined to include the following:
3. “Loans or lines of credit made to a business or commercial enterprise in a principal amount of five hundred thousand dollars ($500,000) or less, whether secured or unsecured.”
4. “Purchase transactions where an entity purchases accounts, receivables, intangibles, revenue or other actual or perceived assets of the business if any single payment or advance of the purchase price for the purchased accounts, receivables, intangibles, revenue or other actual or perceived assets of the business is in the amount of five hundred thousand dollars ($500,000) or less.”
5. Any leasing transaction where any funds are provided to the business or commercial enterprise by the leasing business or any affiliate of the leasing business in the amount of five hundred thousand dollars ($500,000) or less.”
6. What Entities are Exempt:
7. Any person who makes or solicits five (5) or fewer commercial financing products within any twelve month period.
8. Any banking organization.
9. Any federal credit union.
10. Any insurance company.
11. Any person licensed in accordance with any other applicable law of the State of New York.

    Finally, no licensee shall take any confession of judgment or any power of attorney running to himself or a third party or to appear for a borrower in a judicial proceeding.

    SFNet will be following the progress of this legislation and will provide further updates.  Any member who wishes to become involved in SFNet’s efforts with regard to this proposed legislation should contact Michele Ocejo at: mocejo@sfnet.com.

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    New York Financial Disclosures Bill

    New York State Senator Kevin Thomas (D-Nassau County), the Chair of the Senate Committee on Consumer Protection, has introduced a bill (S5470), which is currently pending before the New York State Senate Committee on Banks seeking to amend the New York state financial services law to provide that immediately prior to entering into various types of commercial lending transactions the potential lender must prepare and send in writing to the potential borrower various financial disclosures as set forth below.

    A brief summary of the proposed legislation is set forth below and a copy of the proposed legislation(#5470) can be found here:https://assembly.state.ny.us/leg/?default_fld=&leg_video=&bn=S05470&term=2019&Summary=Y&Actions=Y&Text=Y.

12. Who is to Receive the Disclosure?  The proposed legislation refers to the party receiving these disclosures as the Recipient (defined as a person who is presented a secured or unsecured Offer for certain types of financing) by a Provider (who is defined as a Creditor or broker) and which Offer, if accepted, would be binding on the Creditor and the Recipient.
13. Who is to Provide the Disclosure?  The Creditor (defined as the party offering one or more types of commercial lending transactions) or, if appropriate under the circumstances, the broker (both known as the “Provider”) who extends the Offer to the Recipient prior to the Offer being accepted.
14. What Types of Commercial Transactions are Subject to Disclosure and the Term of the Disclosure:
15. Accounts Receivable Purchase or Future Receivables Purchase Transactions:
16. The purchase price.
17. The disbursement amount, after any fees deducted or withheld at disbursement.
18. The total amount of the current or future receivables sold.
19. The total cost of financing expressed as a dollar cost including the fees and expenses charged.
20. The term or estimated term of the financing.
21. The estimated annual percentage rate.
22. The prepayment charges, if any.
23. The payment amounts.
24. The factor rate expressed as a decimal.
25. A description of all other potential fees and charges.
26. A description of the current or future receivables purchased.
27. Commercial Loan Transaction:
28. The amount financed principal.
29. The disbursement amount after fees and expenses.
30. The total repayment amount.
31. The total cost of the financing expressed as a dollar cost including fees and expenses and interest.
32. The annual percentage rate expressed as a nominal yearly rate.
33. The term of the financing.
34. The payment amounts
35. A description of all other potential fees and charges.
36. Prepayment charges, if any.
37. A description of the collateral.
38. Commercial Line of Credit Transaction:
39. The maximum amount of credit available to the Recipient.
40. The amount scheduled to be drawn by the Recipient at the time offer is extended less fees and expenses.
41. The total repayment amount which is the draw amount less any fees plus the total cost of funds.
42. The total cost of financing expressed as a dollar cost plus fees including interest.
43. Annual percentage rate expressed as a nominal yearly rate inclusive of fees and calculated in accordance with the federal Truth in Lending Act and its regulations.
44. The term of the plan,
45. The payment amount
46. A description of all other potential fees and charges that can be incurred by the Recipient.
47. Prepayment charges.
48. A description of collateral.
49. Who is Exempt?
50. National and State banks.
51. Federal savings and loan associations or federal or state credit unions.
52. A person acing in its capacity as a technology service provider to an entity exempt under this section for use as part of the exempt entity’s commercial financing program.
53. A lender regulated under the federal Farm Credit Act.
54. A commercial financing transaction secured by real estate.
55. There is no “floor” as to the amount of the commercial transaction that requires these disclosures.
56. There is a modified “safe harbor” if any information necessary for an accurate disclosure is unknown to the Provider at the time of the commercial financing. The Provider shall make the required disclosure based upon the best information available at the time and shall state that the disclosure is provided based upon estimated information.
57. There is a penalty of up to $10,000 for knowingly presenting an inaccurate disclosure, as well as, the additional remedy of enjoining the transaction.

SFNet has engaged a legislative advocate in NY to work on achieving the best possible outcome for SFNet members. We will provide further updates as they occur.  Any member who wishes to become involved in SFNet’s efforts with regard to this proposed legislation should contact Michele Ocejo at:  mocejo@sfnet.com.

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In re 180 Equipment, LLC v. First Midwest Bank

The United States Court of Appeals for the Seventh Circuit, in the recent decision (In re 180 Equipment, LLC v. First Midwest Bank) split with the First Circuit Court of Appeals by holding that it was sufficient for a financing statement to merely reference the security agreement between the lender and the borrower as the sole description of the lenders collateral without any further reference to the collateral and without attaching the security agreement to the financing statement citing to Sections 9-502 and 9-504 (6) of the Uniform Commercial Code.

While the Court’s decision interprets Sections 9-502 and 9-504(6) of the Illinois Uniform Commercial Code, these same sections, albeit, possibly, with different numbering and headings, appear in the Uniform Commercial Code of every other state.  Specifically, the timely filed financing statement described the collateral in the financing statement as “all collateral described in the security agreement”. The Court cited to the prior change to the UCC that no longer requires that a financing statement contain a description of the collateral but merely requires that the financing statement “indicate” the collateral covered by the financing statement.  The Court then concluded that the mere reference to the security agreement in the financing statement met the “sufficiency of description test” set forth at Section 9-504(6) of the UCC, namely, “….any other method, if the identity of the collateral is objectively determined.”

The Seventh Circuit decision does not cite or discuss other decisions that take a contrary view especially the First Circuit’s decision in Altair Global Credit Opportunities Fund (A) LLC v. Financial Oversight and Management Board for Puerto Rico where the First Circuit held that a financing statement is insufficient if it describes collateral by reference to a document not found in the filing office.