As discussed in my last article on this subject, the New York State Department of Financial Services (“DFS”) has finalized the regulations elucidating its new Commercial Finance Disclosure Law (CFDL). The complete text of the CFDL can be found in Article 8, Sections 801-811 of the New York Financial Services Law.

I previously focused on the general parameters of the new regulations as they apply to NY lenders. This article will discuss the issues that concern all you Brooklyn and Bronx brokers (yes, Buffalo, Babylon, Belmont and Baldwin (my hometown) too.

For those of you who find it difficult to fall asleep at night, the 53 pages of Disclosure Requirements might remedy that problem. Sweet dreams!

To quickly recap the key (but not all) provisions of the new rules:

• Disclosures are only required for transactions that are less than $2.5 million;
• Banks and similar depository financial institutions are exempt, and those exemptions extend to all majority owned subsidiaries of banks. Compare California which does not consider bank subsidiaries exempt (a subject for a different day);
• True (operating) leases are exempt;
• Commercial transactions secured by real estate are exempt;
• Anyone who makes no more than five transactions in NY in a 12- month period is exempt;
• Certain vehicle dealers (for transactions which exceed $50k) are exempt;
• Disclosures must be made at the time of extending a specific offer;
• Generally, the disclosures must include the amount of financing, APR (based on the federal Truth in Lending Act), repayment amounts, term, finance charge, and description of collateral, if any; and
• The law applies only to transactions where the recipient is “principally directed or managed from the State of New York,” or in the case of a natural person, the recipient is a legal resident of NY.

Other than worrying about the Yankees never-ending injury list, or whether the Nets will ever sustain a winning team, what, if anything, does a broker bred in Brooklyn (I love alliteration) need to know if brokering a commercial transaction in New York? Here’s a checklist:

• First, New York defines “broker” as “any person other than a financer, recipient, or recipient’s agent, who, for a fee, commission, or other consideration, participates in any financing negotiation; counsels or advises the recipient about financing options; participates in the preparation of any financing documents, including financing applications; or contacts the financer on behalf of the recipient . . . .”
• “Financer” means the entity or person who provides or will provide the commercial financing to the recipient. This is significant. A broker may be a provider, but the financer is the one providing the financing. As simple (confusing?) as this sounds, this means the broker does not have to prepare the disclosures, even if it is the broker communicating the financer’s offer. The financer prepares the offer and either sends it to the broker or the recipient. The broker is then the “provider,” but not the “financer”, upon whom the obligation to prepare disclosures rests.
• The financer must provide a copy of compliant disclosures to a broker whenever the financer provides a broker with a specific commercial financing offer.
• The financer must develop procedures reasonably designed to ensure that recipients receive the disclosures financer provides to the broker (i.e. including the requirement in its broker agreement)
• The broker must transmit the unaltered disclosures received from the financer to the recipient, and retain evidence of the transmission, including the time of transmission.
• The provider must inform the recipient, in writing, of how and by whom the broker will be compensated for the broker’s role in any transaction.
• Brokers are not required to evaluate the accuracy of the disclosures.
• Brokers do not have any liability for inaccurate disclosures.

Licensing in NY is a complicated issue. I will address it in a future article. In the meantime, will someone please send me some cannoli from Ferrara?

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