With the economic downturn taking a toll on lenders and borrowers alike, more borrowers have turned to non-bank options for their funding. However, on the opposite side of this dilemma sits the federal agencies overseeing the activities of these lenders. The urgency to better regulate the industry has led to legislation that leaves lenders with unanswered questions.
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New York State’s new law affecting lenders, the Small Business Finance Disclosure Law, passed last week in a matter of several days. The law mandates that lenders disclose APR, among other uniform disclosures, on their contracts for commercial financing. It also puts New York’s Department of Financial Services in charge of overseeing these changes and implementing punishments for those found violating the law.
The issue comes down to this: Some of these requirements are simply not possible to fulfill. For instance, the section requiring disclosure of the APR applies even to contracts that are not for loans and have no set time-frame. How do you disclose an APR if there is none involved? Also, in the case of California (who passed a similar law), regulators could not come to an agreement on how to disclose, or even come up with an APR for contracts that do not inherently involve one.
While the law still hasn’t been formally signed by the governor, alternative lenders and MCA providers should consult with a lawyer to make sure they are as compliant as possible with the upcoming regulations. For now, businesses are hoping that the New York Department of Financial Services issues their own formula to calculate APR when the law is enacted.
With the economic landscape being foggy at best, how can you prepare your business for the coming events? Take a look at which factors you can still depend on to plan for the future.
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