The New York State Department of Financial Services has introduced new rules requiring commercial financing providers to disclose specific information to customers when making financing offers. These rules apply to several types of financing, including sales-based funding like merchant cash advances (MCAs).
Stricter regulations
The new rules add more requirements for MCA providers to continue their operations. They include:
- Presenting required disclosures in a specific table format, with rows for funding provided, estimated APR (annual percentage rate), finance charge, total payment amount, estimated payment, payment terms, estimated term, prepayment and collateral requirements.
- The opt-in method is used to calculate estimated payments and APR, considering specified payment amounts, changes to the split rate, minimum payment amounts and any other finance charges.
- Conducting an annual internal audit of commercial financings paid off during the previous twelve months and reporting the estimated and actual APRs to regulators.
- Ensuring customers receive the required disclosures when a broker offers commercial financing. Keeping records of disclosures and evidence of transmission for at least four years.
These terms ensure that consumers are well-informed about the terms and costs associated with merchant cash advances, protecting them from predatory practices.
How this can help you
These new rules aim to make financing more transparent and protect small businesses from predatory financing practices. They help you better understand the actual cost of the financing you are getting. If you believe you received MCA financing that did not follow these rules, you may seek legal relief and consult legal counsel regarding your specific financing agreement.