N.Y. law requires nonbanks to disclose loan terms to small businesses

New York has passed a law requiring nonbank lenders to provide greater transparency around the credit they extend to small-business customers.

Signed by Democratic Gov. Andrew Cuomo on Wednesday, the new law mandates that fintech lenders and other nonbanks disclose annual percentage rates and other costs to the borrower upfront. The law is intended to make it easier for small-business borrowers to compare multiple offers, amid complaints that the fine print is often hard to understand or misleading.

Gov. Andrew Cuomo, a Democrat, signed the New York State Small Business Truth in Lending Act into law late Wednesday.


Such disclosures are commonplace in consumer lending, but New York is just the second state in the nation to require lenders to clearly disclose terms to borrowers seeking small-business loans.

“A lack of uniform disclosures has led to a confusing and complex environment for business owners accessing commercial financing,” the bill’s author, Assemblyman Ken Zebrowski, a Democrat, said in a statement to American Banker. “This legislation will provide clarity through a simple and easily understood disclosure that provides information on the true costs and hidden fees of an offer. A simple and understandable disclosure will level the playing field and ensure business owners are making an informed decision that is best for their business.”

The New York State Small Business Truth in Lending Act covers various types of small-business financing that became popular in the wake of the Great Recession, after many banks scaled back their lending to small businesses.

The bill has garnered broad support among small-business advocates and industry groups alike. The Innovative Lending Platform Association, whose members include fintechs like Kabbage, OnDeck and Funding Circle, backed the bill. The Responsible Business Lending Coalition, which also supported the measure, estimated that it would save small-business borrowers between $369 million and $1.76 billion annually.

“Gov. Cuomo signing the New York State Small Business Truth in Lending Act into law today is a monumental victory for small-business owners throughout the state,” Ryan Metcalfe, the head of regulatory affairs at Funding Circle U.S. and spokesperson for the Responsible Business Lending Coalition, said in a news release late Wednesday. “Not only does the legislation bring novel, common-sense transparency standards to small business financing in New York, it marks the strongest commercial lending disclosure law in the nation.

California passed similar legislation in 2018. One major distinction between the two is that New York requires those financial services companies to disclose a formal APR, while California requires only an annualized metric. Proponents hope that California, as well as other states, will follow suit in requiring APR disclosures for small- business credit.

Factoring companies and merchant cash advance firms, which are also covered under the bill, would have to follow a particular formula to give borrowers an approximate APR.

The new rule exempts banks, credit unions, lenders regulated under the Farm Credit Act, anyone who makes five or fewer commercial financial transactions in the state within a 12-month period, or any individual transaction exceeding $500,000.


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