Regulation

And Now Florida Has Introduced a Commercial Financing Disclosure Bill

March 16, 2023
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Flag of FloridaFlorida has joined the chorus of states introducing commercial financing disclosure bills. While Florida’s bill looks more like Utah’s than it does California’s or New York’s, it seems to make a point about brokers using potentially deceptive business practices. Brokers take note, especially the last paragraph.

A broker may not:

Assess, collect, or solicit an advance fee from a business to provide services as a broker. However, this subsection does not preclude a broker from soliciting a business to pay for, or preclude a business from paying for, actual services necessary to apply for a commercial financing product, including, but not limited to, a credit check or an appraisal of security, if such payment is made by check or money order payable to a party independent of the broker;

Make or use any false or misleading representation or omit any material fact in the offer or sale of the services of a broker or engage, directly or indirectly, in any act that operates or would operate as fraud or deception upon any person in connection with the offer or sale of the services of a broker, notwithstanding the absence of reliance by the business;

Make or use any false or deceptive representation in its business dealings; or

Offer the services of a broker by making, publishing, disseminating, circulating, or placing before the public within the state an advertisement in a newspaper or other publication or an advertisement in the form of a book, notice, handbill, poster, sign, billboard, bill, circular, pamphlet, letter, photograph, or motion picture or an advertisement circulated by radio, loudspeaker, telephone, television, telegraph, or in any other way, in which the offer or advertisement does not disclose the name, business address, and telephone number of the broker. For purposes of this subsection, the broker shall disclose the actual address and telephone number of the business of the broker in addition to the address and telephone number of any forwarding service that the broker may use.

Both the State Senate and House versions of the bill were introduced by republicans.

New Commercial Financing Disclosure Bills Emerge in Several States

February 24, 2023
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Several states have resumed efforts to pass a commercial financing disclosure bill this year, following successes that have already taken place in other states. Below are three on the table so far:

Illinois Introduces Small Business Truth in Lending Bill

February 23, 2023
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Illinois Capitol BuildingIllinois introduced a Small Business Truth in Lending bill last week, which one would correctly infer is about… disclosures. The language is similar to the law recently enacted in California and includes an APR requirement.

The full language of the bill can be viewed here.

Think you know APR? Think Again.

February 16, 2023

It has been just over two months since the California financing disclosure law was enacted. With New York on the heels of California, getting APR disclosure correct is a legal requirement, let alone a competitive one.

At Austin LLP, we developed a simple and versatile APR calculator as part of our California disclosure law guide. However, while training and using this calculator with our clients, we learned just how tricky an APR calculation could be. Having an accurate APR calculation method or software tool is just the beginning. Below we discuss one pitfall we have observed when calculating an APR for an MCA funding deal. In future articles, we will highlight other scenarios where calculations may not be as straightforward as one may think.

MCA Funding APRs Change Depending on the Day of Disbursement

When disclosing a daily (Monday-Friday) MCA financing offer in California or New York, it is essential to understand that the “APR,” which funders are required to disclose, will change depending on the day of the week the funding is disbursed. For example, the APR you calculate with a Monday disbursement will have a different APR if that same deal is funded on a Tuesday. This difference in APR is because MCA funders take payments only Monday through Friday, resulting in a different payment schedule as the week progresses, because later disbursement equals fewer payments before the weekend.

We’ve seen APRs for the exact same financing deal change as much as 8-10%, based solely on the day of the week the funding is disbursed. Therefore, funders, underwriters, and brokers must be aware of how an APR calculation changes based on the day of the week.

APRs Decrease as the Week Progresses

Using our MCA-APR calculator, we found that as the week progressed, the APR of the deal decreases. For example, the APR calculated using a Monday disbursement and a Tuesday first payment will be higher than the same deal disbursed on a Tuesday with a first payment on a Wednesday. This trend continues for the entire week, with a Friday disbursement and a Monday first payment having the lowest APR.

California and New York disclosure laws allow for the disclosure of a higher APR. Therefore, as long as the funds are disbursed in the same week as the disclosure, the actual APR will be lower than the APR that was disclosed to the merchant. However, a disclosure made on a Thursday or Friday of one week that does not disburse until the following week will have a higher actual APR than was disclosed.

Should it always be Monday?

For these reasons, no matter which APR calculator you use, ensure you input the expected disbursement day and first payment day. And for any disclosure offer made that is not disbursed by Friday, remember to re-calculate the APR and re-disclose on the following Monday.

Some of our clients are adopting an “every day is Monday” approach to avoid an accidental under-disclosure of an APR. The APR disclosure regulations are tricky and have many pitfalls. With a regulatory tolerance of less than one eighth of one percent, accuracy matters, specifically when considering the potential for regulatory oversight and downstream litigation.

This article has been provided as general guidance and should not be considered legal advice. Feel free to reach out to us at mca@austinllp.com for any specific questions you may have. We are happy to be of service.

New York Commercial Disclosure Regulations Approved

February 7, 2023
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With permission to be republished from Leasing News
Ken Greene is an attorney and Editor of Leasing News. To contact Ken, email: ken@kengreenelaw.com.


On February 1, 2023, the New York State Department of Financial Services (“DFS”) adopted final regulations related to its new Commercial Finance Disclosure Law (“CFDL”) found in Article 8, Sections 801-811 of the New York Financial Services Law.

As a reminder, here are the major provisions of the CFDL:

  • The law only applies to transactions which are less than $2.5 million;
  • Banks and similar financial institutions are exempt;
  • True (operating) leases are exempt;
  • Commercial transactions secured by real property are exempt;
  • Anyone who makes no more than 5 transactions in New York 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; and
  • Generally, the disclosures must include the amount of financing, APR, repayment amounts, term, finance charge, and description of collateral, if any.

Pursuant to the 53 pages of regulation, the CFDL:

  • Applies only to transactions where the recipient is in New York;
  • Exemptions extend to all majority owned subsidiaries of banks (because they are subject to consolidated oversight);
  • Does not require disclosure of broker compensation in the disclosure forms, but still requires disclosure of broker fees in writing;
  • Requires that APR be calculated in accordance with either the United States Rule or Appendix J of Reg Z;
  • Allows for a digital signature by the recipient on the disclosure forms;
  • Has font, rows and column requirements virtually identical to California law;
  • Limits the duties of brokers to transmittal of disclosures and providing financer with evidence of transmission. There does not appear to be a document retention requirement like the one in California.

The New York regulations are quite similar to the California rules.

One important difference between the two is the $2.5 million threshold for New York versus the $500k threshold in California. Another major distinction between the two is the express inclusion of bank subsidiaries in the New York law, whereas the California regulations are unclear on this issue.

The compliance date for these regulations is six months after publication of the Notice of Adoption in the State Register. That appears to have happened already, so prepare for compliance on or before August 1, 2023.

This article is presented by the Law Office of Kenneth Charles Greene. All copyrightable text, the selection, arrangement, and presentation of all materials (including information in the public domain), and the overall design of this presentation are the property of the Law Office of Kenneth Charles Greene. All rights reserved. Permission is granted to download and reprint materials from this article for the purpose of viewing, reading, and retaining for reference. Any other copying, distribution, retransmission, or modification of information or materials from this article, whether in electronic or hard copy form, without the express prior written permission of Kenneth C. Greene, is strictly prohibited. The materials available from this article are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to these materials does not create an attorney-client relationship between the Law Office of Kenneth Charles Greene and the user or viewer. The opinions expressed herein are the opinions of the individual author.

The FTC Proposes to Ban Employment Non-Compete Clauses

February 6, 2023
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As also published in Leasing News

To welcome in the new year in its inimitable way, the Federal Trade Commission (“FTC”) proposed new rules that would ban employers from imposing non-compete on their employees. If passed, the new rule would provide that it is an “unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with an employee, to maintain a worker with a non-compete clause, or, under certain circumstances, to represent to a worker that the worker is subject to a non-compete clause.”

Per the FTC, a non-compete clause is a “contractual term between an employer and a worker that typically blocks the worker from working for a competing employer, or starting a competing business, within a certain geographic area and period of time after the worker’s employment ends.” As such, these clauses have historically been considered appropriate subjects for scrutiny under the nation’s antitrust laws such as the Sherman Act.

The prospective change in federal law was prompted by what the FTC calls “natural experiments” by virtue of new legislation in several states that limit or ban non-competes.  Non-competes are either entirely or largely unenforceable as against public policy in California, North Dakota, the District of Columbia, and Oklahoma. Maine, Maryland, New Hampshire, Rhode Island, Washington and most recently, Colorado, have severe limitations on non-competes. The “experiments” in these states apparently prompted President Biden, in July of 2021, to issue his “Promoting Competition in the American Economy Order”, a broad Executive Order that purports to encourage innovation and competition in the American workplace. The Order asks the FTC to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” Here is what the Executive Order looks like:
https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/

The FTC has sought public comments to the proposed rule. The comment period ends on March 6, 2023. Thereafter, the new law may take effect as soon as 180 days following the comment period. Instructions for sending comments are found in the Notice of Proposed Rulemaking.
https://www.ftc.gov/system/files/ftc_gov/pdf/p201000noncompetenprm.pdf

One of the upsides of a non-compete is that it helps protect trade secrets and IP, but this can be achieved through a confidentiality or non-disclosure provision. It also keeps former employees from taking your business model and creating a competitive business, which may be difficult to achieve otherwise. However, do you really want to retain an employee who wants to leave simply because he signed an agreement that says he or she cannot compete with you?

The downside of non-competes is that, to some, they violate public policy by restricting the mobility of workers. They are also limited in scope, and expensive to enforce.

What does it mean to you? The general consensus is that the new law will be challenged in court. If it is not, and it becomes law, not only will you no longer be able to legally use non-competes with your employees, but you will have to rescind existing non-competes and inform your employees that the clauses are no longer in effect.

Stay tuned for updates.

This article is presented by the Law Office of Kenneth Charles Greene. All copyrightable text, the selection, arrangement, and presentation of all materials (including information in the public domain), and the overall design of this presentation are the property of the Law Office of Kenneth Charles Greene. All rights reserved. Permission is granted to download and reprint materials from this article for the purpose of viewing, reading, and retaining for reference. Any other copying, distribution, retransmission, or modification of information or materials from this article, whether in electronic or hard copy form, without the express prior written permission of Kenneth C. Greene, is strictly prohibited. The materials available from this article are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to these materials does not create an attorney-client relationship between the Law Office of Kenneth Charles Greene and the user or viewer. The opinions expressed herein are the opinions of the individual author.

New York Finalizes its Commercial Financing Disclosure Rules

February 1, 2023
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New York CityThat’s all folks. New York State’s Department of Financial Services has finalized its rules on commercial financing disclosures. The Fifty-three page rulebook dictates what covered parties will be required to do.

“The New York State Department of Financial Services received 21 comments on proposed revised rule 23 NYCRR 600,” a note accompanying the finalized rules said. “The Department has considered every comment received and has made several revisions…”

Those expecting years of possible back-and-forth commentary like what happened in California may be surprised to find that this is the final version. The effective date of the rule is the date the notice is published in the State Register, but compliance with the rules themselves is slated to take effect six months from that date (please consult with attorney to confirm).

“Clear and easy-to-compare disclosures are paramount as entrepreneurs and small businesses evaluate financing,” said DFS Superintendent Adrienne A. Harris in an official press release.

White House Reiterates Support for Lifting the SBLC Moratorium

January 26, 2023
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white houseNow that the opportunity to comment on the SBA’s proposal to lift the moratorium on new SBLCs has passed, the Biden administration has reiterated its support for the initiative. It convened a roundtable with leaders across the small business space on Tuesday “to discuss its commitment to ensuring small businesses have the access to the capital, technical assistance, and support they need to thrive.”

The administration said that if the moratorium is lifted, the “SBA would plan to add three licenses in the initial extension” and that “it would open a path for the Community Advantage program to become permanent.”

The SBA received 169 official comments on the proposal, some in support and some against.