N.Y. Comp. Codes R. & Regs. tit. 23 § 600.9

Current through Register Vol. 46, No. 43, October 23, 2024

Section 600.9 - Sales-based financing-opt-in method

(a) This section shall apply only to sales-based financing utilizing the opt-in method as described in Financial Services Law section 803.

(b) With respect to any assumptions about a recipient's future sales, income or receipts, and as an alternative to the methods described in section 600.8 of this Part for calculating disclosures required by this Part, a provider may elect to calculate the required disclosures in accordance with this section.

(c) A provider shall calculate the disclosures using an internal estimated sales projection through the particular payment channel or mechanism designated in the contract.

(d) The internal estimated sales projection through the particular payment channel or mechanism shall be calculated using the best information reasonably available to the provider.

(e) Once every twelve months, a provider who makes disclosures based upon internal estimated sales projections shall conduct an internal audit of its commercial financings. The audit shall cover all sales-based financings paid off during the previous twelve-month period where the provider made disclosures based upon internal estimated sales projections, including transactions with contractually required true-up payments, but excluding transactions where:

(1) the provider or financer initiated legal action against the recipient in court or arbitration for breach of the contract or to collect amounts due under the contract;

(2) the provider or financer stopped collection of amounts due under a contract after determining that the recipient had violated the terms of the contract; or

(3) the provider modified the contract terms pursuant to an agreement with a recipient.

(f) The provider shall calculate the retrospective annual percentage rate for each sales-based financing in the audit. With respect to financing where a lump sum payment is used to pay off the financing faster than required by the contract, a provider may calculate the retrospective annual percentage rate by ignoring the lump sum payment and assuming that the contract would have been repaid in periodic payments that are an average of the past periodic payments under the contract.

(g) The provider shall calculate the percentage of the difference between the disclosed annual percentage rate and the retrospective annual percentage rate for each sales-based financing in the audit. The provider shall subtract the disclosed annual percentage rate from the retrospective annual percentage rate for each sales-based financing in the audit, divide the resulting amount by the disclosed annual percentage rate, and multiply that number by 100. The percentage resulting from this calculation shall be called the "APR spread."

(h) The provider shall find the median APR spread for all sales-based financings in the audit. The median shall be called the "audited APR spread."

(i) After completing its audit, the provider shall calculate the weighted average of the audited APR spreads for the last three audits, the last five audits, and the last seven audits using the total number of transactions used to calculate the audited APR spreads for each audit period. A provider is not required to calculate a weighted average for the last three audits if the provider has not conducted three audits, the weighted average for the last five audits if the provider has not conducted five audits, or the weighted average for the last seven audits if the provider has not conducted seven audits.

(1) If the weighted average for the last three audits is greater than 15 percent, the provider shall not utilize the method described in this subdivision (i) to calculate the required disclosure terms for 24 months, but shall instead employ the methods described in section 600.8 unless the provider determines that the method described in section 600.8 would have yielded a higher weighted average.

(2) If the weighted average for the last five audits is greater than 10 percent, the provider shall not utilize the method described in this subdivision to calculate the required disclosure terms for 24 months, but shall instead employ the method described in section 600.8 unless the provider determines that the method described in section 600.8 would have yielded a higher weighted average.

(3) If the weighted average for the last seven audits is greater than five percent, the provider shall not utilize the method described in this subdivision to calculate the required disclosure terms for 24 months, but shall instead employ the method described in section 600.8 unless the provider determines that the method described in section 600.8 would have yielded a higher weighted average.

(j) Following the end of the 24-month period described in subdivision (i) of this section, the provider may begin calculating estimated payments, and term and annual percentage rates in accordance with this section only if the provider has made a good-faith effort to modify its method for calculating internal estimated sales projections to make its disclosures more accurate.

(k) If a provider must make additional estimates or assumptions other than an estimate of a recipient's future sales, income or receipts in order to provide disclosures required by this Part, the provider shall:

(1) base those estimates or assumptions on the best information reasonably available to the provider at the time of the disclosure;

(2) state clearly that any disclosure based upon an estimate or assumption is an estimate by adding the word "estimate" to the descriptive language of any required disclosure under this Part; and

(3) state clearly any assumptions or estimates used as the basis for the disclosure in any description associated with the disclosure.

N.Y. Comp. Codes R. & Regs. Tit. 23 § 600.9

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