New York Proposes New Loan Reporting Requirements

The New York and have proposed twin bills that would require certain “covered lenders” to report information on “covered loans” to the New York Department of Financial Services (“DFS”) within 30 days of originating, acquiring or refinancing a covered loan.

Among other data points, covered lenders would be required to identify the borrower of each covered loan, indicate whether the covered loan was issued for consumer or commercial use and provide information on the amount, cost (including the annual percentage rate) and terms of the covered loan. DFS would be required to use the data provided by covered lenders to publish an annual report containing aggregated information on covered loans reported in the prior year. 

The statement of purpose for the Senate bill states that it is intended to establish “a reporting and transparency framework for certain nontraditional, lightly regulated, or evasive lending arrangements.” Based on the terms of the bills, two types of companies that appear to be in the crosshairs are providers of alternative financing products such as merchant cash advances (“MCA”) and companies engaged in lending partnerships with banks. 

The term “covered loan” would:

• Apply to any extension of money or credit in an amount greater than $25,000 made to a New York resident, subject to certain exclusions.
• Include both consumer and commercial financing products, including any financing meeting the definition of “commercial financing” under New York’s existing commercial financing disclosure law. Notably, this definition extends to certain non-loan products such as MCAs and factoring.
• Exclude credit cards subject to the Truth in Lending Act and Regulation Z, mortgage loans and “any other extension of credit that is subject to a charter, license, or regulatory regime under [the New York Financial Services Law] or other provisions of New York state law that provides for ongoing supervision, examination, and enforcement authority by the superintendent, as determined by [the Superintendent of DFS] pursuant to rules and regulations.”

While not an exhaustive list, the bill defines “covered lender” to include generally any person that:

• Offers or makes a covered loan.
• Purchases or acquires a whole or partial interest in a covered loan or any receivable arising from a covered loan.
• Arranges, brokers or facilitates a covered loan for a third party. 

However, “covered lender” is defined to exclude certain “exempt financial institutions,” including banks and persons licensed or authorized under certain state statutes, including licensed lenders, mortgage lenders and buy now pay later lenders.

While banks are exempt from the reporting requirements, the bill includes certain provisions seemingly intended to target parties engaged in lending partnerships with banks or other exempt entities. Specifically, the bill in essence provides that a person is a “covered lender” despite the person purporting to act as an agent of or service provider for an exempt entity if:

• the person holds, acquires or maintains the predominant economic interest in a covered loan;
• the person markets, brokers, arranges or facilitates a covered loan and holds the right, requirement or first right of refusal to purchase a covered loan or any interest in a covered loan; or
• the totality of the circumstances indicates that the person is a covered lender and that the covered loan is structured to evade the requirements of the law.

The bill may be a response to the Consumer Financial Protection Bureau’s (“CFPB”) narrowing of its rule implementing Section 1071 of the Dodd-Frank Act, which requires financial institutions to collect and report data to the CFPB on credit applications by women-owned, minority-owned and small businesses. While the Biden CFPB proposed an expansive version of the rule in 2023, the current CFPB recently finalized that significantly narrows the scope and coverage of the rule. The bill accordingly may be an attempt by New York to “fill the gap” left by the narrowed CFPB rule.

If enacted, the law would impose significant compliance burdens on covered lenders.  Specifically, covered lenders would need to build systems to collect the required data and report that data to DFS on a frequent, ongoing basis. While the required data is somewhat similar to the data required under the existing annual reporting regime applicable to licensed lenders under the California Financing Law and the separate annual reporting requirements applicable to commercial financing companies offering financing to California businesses, such reports require aggregated data and annual reporting rather than requiring loan-level data and ongoing reporting like the New York bill.

If you have questions, please contact any of the authors or the Manatt professional with whom you work.