N.Y. Comp. Codes R. & Regs. tit. 23 § 600.1

Current through Register Vol. 46, No. 36, September 4, 2024

Section 600.1 - Definitions

For purposes of this Part, the following definitions apply:

(a)Amount financed means, with respect to:

(1) sales-based financing, the amount of funds to be provided by the financer to the recipient or on the recipient's behalf, minus any prepaid finance charge;

(2) a closed-end financing, the principal amount, plus any other amounts that are financed by the financer and are not part of the finance charge, minus any prepaid finance charge;

(3) a commercial open-end financing, the approved credit limit, minus any prepaid finance charge;

(4) a factoring transaction disclosure made pursuant to Financial Services Law section 806, the receivables purchase price, minus any prepaid finance charge;

(5) an asset-based lending transaction, the approved credit limit; and

(6) a lease financing transaction, if the financer:

(i) does not select, manufacture or supply the goods to be leased, the net cost to the financer to acquire the property to be leased, including any related costs and charges financed as a part of such transaction, which may include installation charges, delivery costs, software license fees, sales and use taxes, minus any prepaid finance charge; or

(ii) selects, manufactures or supplies the goods to be leased, the price that the financer would sell the goods in a cash transaction, including any related costs and charges financed as a part of such transaction, which may include installation charges, delivery costs, software license fees, sales and use taxes, minus any prepaid finance charge and any down payment or other deposit to be paid by the recipient.

(iii) In either case, if the recipient is approved for a lease financing in a stated dollar amount that may be funded over multiple leases or lease schedules, then the aggregate net cost or price for the goods under such approval may be used to determine the amount financed.

(b)An individual commercial financing transaction in an amount over two million five hundred thousand dollars, as such term appears in Financial Services Law section 802(g), means the aggregate amount that a recipient may receive under a commercial financing agreement and not the amount of any particular advance under such agreement.

(c)Approved advance limit means the maximum advance that a financer may provide to a recipient or on the recipient's behalf in exchange for assignment of outstanding, unpaid legally enforceable claims under a factoring agreement, not including any previous distributions advanced to a recipient or on the recipient's behalf under a factoring agreement, to the extent those distributions have been repaid. The approved advance limit does not include reserve amounts or any other amount not advanced to the recipient at the time of assignment. If a factoring agreement provides that the financer pays different maximum advances for different types of legally enforceable claims, then approved advance limit means the total maximum advance that a financer may provide to a recipient or on a recipient's behalf in exchange for assignment of the different types of legally enforceable claims, not including any previous distributions advanced to a recipient or on the recipient's behalf under the agreement, to the extent those distributions have been repaid.

(d)Approved credit limit means the maximum advance that a financer may provide to a recipient or on the recipient's behalf under the open-end commercial financing agreement, a lease financing agreement, or asset- based lending transaction agreement, not including any previous distributions advanced to a recipient or on a recipient's behalf under the agreement, to the extent those distributions have been repaid. Where the commercial open-ended financing agreement or asset-based lending transaction agreement requires the financer to pay different maximum advances for different categories of advance (such as advances secured by inventory, accounts receivable, or others), approved credit limit means the total maximum advance that a financer may provide to a recipient for all categories of advance, not including any previous distributions advanced to a recipient or on the recipient's behalf under the agreement, to the extent those distributions have been repaid.

(e)Asset-based lending transaction means a transaction in which advances are made from time to time contingent on a recipient forwarding payments (defined in subdivision (s) of this section) received from one or more third parties for goods that the recipient has supplied or services the recipient has rendered to that third party or parties.

(f)At the time of extending a specific offer for financing under the CFDL means:

(1) any time a specific commercial financing offer is quoted to a recipient. If a provider simultaneously presents multiple periodic payment amounts, irregular payment amounts, or financing amounts, and rates, prices, or costs of financing (including, without limitation, any total repayment amounts) to the recipient representing differing specific commercial financing offers and allows the recipient to select from among those options, then at the time of extending a specific offer occurs at the time that the recipient selects an option. The requirement of Section 810 of the CFDL that "other metrics of financing cost are disclosed or used in the application process of a commercial financing, these metrics shall not be presented as a rate' if they are not the annual interest rate or the annual percentage rate" shall apply at all times during the application process.; however, the requirement of Section 810 of the CDFL that "hen a provider states a rate of finance charge or a financing amount to a recipient during an application for commercial financing, the provider shall also state the rate as an annual percentage rate', using that term or the abbreviation APR', shall be in effect only upon the quotation of a specific commercial financing offer;

(2) any time when a specific offer is quoted in writing to a recipient to change the terms of an existing consummated commercial financing contract, prior to the recipient agreeing to the changes, if the resulting changes to the contract would result in an increase to the finance charge or annual percentage rate, regardless of whether those terms were previously disclosed to the recipient (this requirement does not apply to proposed terms for resolving a recipient's default on a financing contract); or

(3) notwithstanding paragraphs (1) and (2) of this subdivision, any time a specific offer of commercial financing is quoted to a recipient in writing in connection with each draw on an open-end financing agreement if:

(i) draws occur at the time that a recipient purchases products or services from a retailer or supplier;

(ii) the rate or price varies based upon the retailer or supplier the recipient selects, or the products or services the recipient purchases; and

(iii) the provider chooses to provide disclosures under Section 600.10 rather than a disclosure under Section 600.11 of this Part.

(4) Notwithstanding paragraphs (1) through (3) of this subdivision, where a provider allows a recipient to select from multiple offer options or customize a financing offer, a provider must only provide the disclosure(s) for the specific offer of commercial financing that the recipient elects to pursue.

(g)Average means the arithmetic mean unless otherwise stated in this Part.

(h)Average monthly cost means the average total amount paid by the recipient (periodic and irregular payments) over the term of the contract, divided by the number of months in the term of the contract. To calculate the number of months in the contract term, a provider may divide the number of days in the contract term by 30.4.

(i)Benchmark rate means a rate index (such as the Prime Rate, Wall Street Journal Prime Rate, 1, 3, or 5 year Treasury Constant Maturity, Secured Overnight Financing Rate (SOFR), etc.), based upon general market conditions, that is commonly used to calculate the interest rate in adjustable-rate transactions in the credit industry.

(j)Broker means 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 other than to refer the recipient, gathers financing application documentation or delivers the documentation to the financer; communicates financing decisions or inquiries from the financer to the recipient; or obtains the recipient's signature on financing documents.

(k)Closed-end financing, as that term is used in Financial Services Law section 801(d), means a transaction in which credit is extended only once over a specific term, including contracts that include an option in which the recipient may extend the term, and is repaid:

(1) in regular predetermined payments of a specified amount over a fixed period of time; or

(2) in the case of sales-based financing, in payments calculated as a percentage of sales or income but with a minimum required payment or payments such that the recipient is eventually required to repay the amount advanced regardless of the sales or income the recipient collects.

(l)Commercial Finance Disclosure Law (CFDL) means Financial Services Law sections 801, 802, 803, 804, 805, 806, 807, 808, 809, 810, and 811.

(m)Commercial Financing, as defined in Financial Services Law section 801(b) does not include any transaction that is subject to the Truth in Lending Act, 15 U.S.C. § 1601et seq., for which a disclosure is provided that is compliant with such Act.

(n)During an application process for commercial financing, as that term is used in Financial Services Law section 810, means after the provider has received information about the recipient. Information about the recipient includes information about the recipient that informs the provider's quote to the recipient, such as the recipient's financial or credit information, but not the recipient's name, address, or general interest in financing.

(o)Draw period means the length of time during which a recipient may make draws under an open-end financing or general factoring or asset-based lending transaction.

(p)Estimated monthly cost means the estimated average total amount paid by the recipient (periodic and irregular payments) over the estimated term of the contract, divided by the number of months in the estimated term of the contract. To calculate the number of months in the estimated term, a provider may divide the number of days in the estimated contract term by 30.4.

(q)Financer means the person who provides or will provide the commercial financing to the recipient.

(r)Financial institution, as defined in Financial Services Law section 801(f), includes any corporation, limited liability company, partnership, joint venture, trust or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by a financial institution.

(s)Forwarding payments includes:

(1) arrangements in which a recipient and financer create an account wherein third party obligors deposit payments;

(2) arrangements in which a recipient repays advances with the proceeds the recipient collects from the sale or disposition of goods or services financed with such advances; or

(3) arrangements in which the recipient directs third party obligors to make payments directly to the financer.

(t)Initial interest rate means, in a credit transaction with an interest rate that changes over time and that cannot be calculated in advance for the entire term of the transaction, the rate that would be in effect at the time a disclosure is made, assuming the recipient accepted the financing offer.

(u)Interest rate means the periodic rate at which interest accrues on the outstanding principal balance and (if interest is compounded) on accrued but unpaid interest in a commercial financing. The term "interest," when used by brokers or providers to describe a percentage rate, shall only be used to described annualized percentage rates, such as the annual interest rate.

(v)Irregular payment means any payment made to the financer that is not a periodic payment.

(w)Lease financing means providing a lease for goods if the lease creates a security interest in the goods leased. Lease financing does not include a "lease" as defined in Uniform Commercial Code section 2-A-103.

(x)Margin means, in a commercial financing with an adjustable interest rate, the adjustment amount added to or subtracted from the benchmark rate used to calculate the interest rate.

(y)Maximum non-interest finance charge means, for:

(1) all commercial financing except factoring, the maximum amount of the finance charge other than interest accrued and unpaid that a recipient may be required to pay if the recipient chooses to prepay the outstanding balance due under a commercial financing agreement; and

(2) factoring, the maximum amount of the finance charge, other than interest accrued and unpaid since the time the financer purchased the legally enforceable claim, that the recipient may be required to pay if the recipient repurchases the account receivable before the account receivable is due for payment by the account debtor.

(z)Particular payment channel or mechanism means, with respect to sales-based financing, the payment channel(s) or mechanism(s) that will be used to determine the amount of a recipient's payment or a true-up. This may include, for example, income flowing through a deposit account or accounts, or payments received through a recipient's payment processor.

(aa)Periodic payment means any payment scheduled to be made to the financer at regular intervals.

(ab) Person who applies for commercial financing means the expected primary borrower or borrowers on a commercial financing transaction, open-ended financing, or asset-based lending transaction; sellers in accounts receivable purchase transactions, including factoring; and lessees in lease financing transactions.

(ac)Prepaid finance charge means any finance charge paid separately to the financer in cash, check, or electronic funds transfer before or at consummation of a transaction, or withheld from the proceeds of the financing at any time.

(ad)Provider has the meaning ascribed in Financial Services Law section 801(h) and includes a financer who communicates a specific offer of commercial financing, either directly to a recipient or to a recipient's agent or broker, with the expectation that the information will be shared with a recipient.

(ae)Recipient means, pursuant to Financial Services Law section 801(i), a person who applies for commercial financing and is made a specific offer of commercial financing by a provider. A recipient may also be an authorized representative of such person. A person acting as a broker cannot be a recipient. A recipient, for the purpose of a single specific offer of commercial financing, includes all other recipients that control, are controlled by, or are subject to the common control of the recipient, if all such recipients receive the single offer of commercial financing simultaneously. Simultaneously means that the single offer of commercial financing is conveyed as part of the same writing, conveyed at the same moment, to the potential recipient. A person who is made a specific offer of commercial financing by a provider means the expected primary borrower on a commercial loan, open-ended credit plan, or asset-based lending transaction, seller in accounts receivable purchase transactions (including factoring), and lessee in lease financing transactions.

(af)Recipient funds means the net amount to be given directly to the recipient in the form of cash, check, or electronic funds transfer to an account the recipient controls. Recipient funds excludes, without limitation, funds paid to third parties (including brokers). Recipient funds also excludes any part of the amount financed used to pay off or pay down other amounts owed by the recipient, if known by the provider at the time the disclosure is provided. For the purpose of calculating recipient funds, where part of the amount financed will be used to pay off other amounts owed by the recipient that may change over time, a provider may assume that the amounts due under the recipient's other obligations are the amounts due at the time the disclosure is provided.

(ag)Retrospective annual percentage rate means the actual annual percentage rate, determined after the specific financing contract has been fully repaid to the financer, when the dates and amounts of all payments and fees are known.

(ah)Sales-based financing has the meaning ascribed in Financial Services Law section 801(j).

(ai)Specific offer of commercial financing or specific commercial financing offer means a written communication to a recipient, based upon information from, or about, the recipient, of a (i) periodic payment amount, irregular payment amount, or financing amount, and (ii) any rate, price, or cost of financing (including, without limitation, any total repayment amount), in connection with a commercial financing, which offer, if accepted by a recipient, shall be binding upon a provider. Information about the recipient includes information about the recipient that informs the provider's quote to the recipient, such as the recipient's financial or credit information, but not the recipient's name, address, or general interest in financing.

(aj)Specified payment amount means the periodic pre-set amount stated in the contract described in subdivision (ap)(1) of this of this section.

(ak)Split rate means, with respect to sales-based financing, the percentage used by the financer to calculate the payment amounts to be paid to the financer or true ups.

(al)Term means, with respect to:

(1) disclosures made pursuant to Financial Services Law section 806, the length of time between when the recipient receives payment from the financer for the legally enforceable claim and the date the legally enforceable claim becomes due and payable, or, if such factoring transaction involves the purchase of more than one legally enforceable claim and the dates the legally enforceable claims become due and payable varies, a sample term reasonably estimated to be within the range of the terms expected to be applicable to legally enforceable claims purchased;

(2) closed-end financing and open-end financing, as those terms are defined in the CFDL, the contracted length of time necessary for the recipient to fulfill its obligations under the financing agreement with respect to a particular financing advance;

(3) asset-based lending disclosures made in accordance with section 600.15 of this Part, the length of time necessary for the recipient to fulfill its obligations under the financing contract based upon the following assumptions:

(i) the recipient maintains a balance equal to the approved credit limit by reborrowing up to the approved credit amount for a time equal to the draw period or one year, whichever is less, and

(ii) at the end of the time equal to the draw period or one year, whichever is less, the financer is repaid according to the terms specified in the contract; and

(4) for all other types of commercial financing, the length of time that it is anticipated will be necessary for the recipient to fulfill its obligations under a financing agreement.

(am)Transactions, as that word is used in Financial Services Law section 801(c)(1), means advances of financing.

(an)True-up means any payment made to a recipient, any charge assessed to a recipient, and any adjustment to a recipient's periodic payments pursuant to a true-up mechanism.

(ao)Reasonably anticipated true-up means any true-up that the financing provider has a reasonable basis to expect will be made during the term of the contract, accounting for past performance of similar contracts (both those made to the recipient and other similar recipients) and the policies and procedures of the financer.

(ap)True-up mechanism means:

(1) with respect to sales-based financing, a contractual arrangement with all the following elements:

(i) the financer receives periodic payments based upon a pre-set amount (or amounts) stated in the contract; and

(ii) the contract allows the recipient to request, or the financer to initiate, adjustments to the payment amount, credits to the recipient, or charges to the recipient after execution of the contract, so that the total amount paid by the recipient more closely reflects a split rate listed in the contract.

(2) with respect to factoring transactions:

(i)Account debtor means the debtor with the primary obligation to pay the legally enforceable claim assigned by the recipient.

(ii)Purchase price means the amount that the financer agrees to pay the recipient for assignment of a legally enforceable claim.

(iii)Factoring fee means any fee charged by the financer to process the transaction plus the difference between the face value of a legally enforceable claim and the purchase price that the financer agrees to pay the recipient for assignment of that legally enforceable claim.

(iv)Original advance amount means the amount that a financer issues to a recipient or on the recipient's behalf upon receipt of a legally enforceable claim for payment.

(v)Reserve amount means, in a reserve factoring transaction, the difference between the purchase price for a legally enforceable claim and the original advance amount that is held in reserve to secure the financer in the event of non-payment of the legally enforceable claim, or to secure the financer in the event of non-payment of other legally enforceable claims assigned or to be assigned by the recipient to the financer.

(vi)Reserve factoring transaction means a factoring transaction where, upon receipt of a legally enforceable claim for payment, a financer pays an original advance amount to the recipient that is less than the purchase price and holds the difference between the original advance amount and the purchase price to secure the financer against deficiencies on amounts paid by the account debtor on the legally enforceable claim or other legally enforceable claims assigned or to be assigned by the recipient to the financer.

N.Y. Comp. Codes R. & Regs. Tit. 23 § 600.1

Adopted New York State Register February 1, 2023/Volume XLV, Issue 05, eff. 2/1/2023