ELFA Advocates on State Disclosure Regs

ELFA Achieves Wins in New York, Files Comments in California

ELFA, powered by our Legislative and Regulatory Subcommittee and State Disclosure Workgroup, achieved major wins on Wednesday, Oct. 20, after only being given nine days to educate the New York Department of Financial Services (DFS) regarding their proposed disclosure regulations. FIRST among those wins: ELFA fought hard for a stay on compliance until six months after final adoption and publication of the regulations. 

In what was an unusual request, the DFS sought input from stakeholders prior to proposing their draft disclosure regulations. ELFA used this opening to educate the DFS of our concerns. Those draft regulations can be found here: 2021 NY DFS Draft Regulations 10.20.21. ELFA is currently reviewing the draft regulations carefully and will file additional comments as deemed appropriate in the 60 days permitted.

In addition to the draft regulations linked above, the NY DFS issued a Regulatory Impact Statement. That Impact Statement include a statement on changes made based on comments from certain groups. The items highlighted below are all items that ELFA advocated for, and in some cases was the only group that did so for the benefit of all financers.

From the Statement:
8. Alternatives: There are no viable alternatives to this regulation. The Department is promulgating Part 600 to comply with an expressed statutory mandate in FSL Article 8. The Department posted a draft text of this regulation on its website for 10 days to solicit comment from small businesses that might be affected. The Department received 8 comments. One commenter representing small businesses praised the proposed text and suggested additional protections for small business. Seven other comments requested revisions mainly for the benefit of financiers. One commenter representing small businesses pointed out that FSL section 808 requires a special disclosure concerning “double dipping.” “Double dipping” refers to a common practice used by financiers when doing renewals and refinancing. Lenders charge borrowers for fixed fees still outstanding and due under a prior financing when they do a renewal financing or a refinancing; they then charge fixed fees for the new financing. The Department responded to this comment by amending its disclosure formats. Industry representatives objected to the term “double dipping,” but FSL section 808 uses this terminology and requires its use in disclosure forms. All commenters believe a transition period for compliance is necessary after Part 600 is adopted. Financiers and brokers must see the final regulation before they can adjust their computer systems, compliance procedures, and contracts with other parties. They must train their employees on the new law. Several commenters requested a six-month period for compliance. The Department has heeded this request. Affected parties will only be required to fully conform to the disclosure requirements of Part 600 six months after the final adoption and publication of the regulation. The Department made other changes based on comments from lending industry representatives. First, the Department modified the definition of when a specific offer is made that triggers the requirement to provide a disclosure. This change should allow for some negotiations between borrowers and lenders before disclosures are required. Second, commentors suggested the Department include the Secured Overnight Financing Rate (SOFR) as one of the acceptable rate indexes to be used in adjustable-rate financings. The Department feels this change is appropriate because the London Inter-Bank Offered Rate (LIBOR) is being phased out as a benchmark. Third, the Department clarified the definition of a “broker;” the term “broker” is now defined in terms of the substantive services they perform during the underwriting process. Finally, the Department has modified the allowed tolerances in the calculation of APRs required under Part 600.04. For most transactions, the tolerance threshold will remain 1/8 of a percent; for irregular transactions, the Department proposes a larger tolerance of 1/4 of a percent. The Department did not feel it was wise to make additional revisions to Part 600 at this time. Some comments requested changes that were inconsistent with the letter and spirit of FSL Article 8. Other comments require further deliberation by the Department and consideration of additional comments during a full 60-day comment period.

In addition, the DFS adopted ELFA’s changes with respect to the definition of “lease financing” to remove any suggestion that true leases and finance leases were not exempt from the disclosure.

ELFA Meets with California DFPI and Files Additional Comments Re: Third Modification of Proposed Rules

ELFA met with the California Department of Financial Protection and Innovation (DFPI) on Oct. 26, and taking into account those discussions filed an Oct. 28 cover letter and comments addressing the Department’s Third Modification of the proposed regulations for SB 1235. Below please note the following overarching themes covered by the ELFA comments and the highlighted impacts on equipment finance companies in particular:

Timing and Frequency of Disclosures – The fluidity of commercial leasing negotiations, inclusive of the frequent back-and-forth between and among the provider, financer, broker, and recipient, will make the timing and frequency of the disclosures set forth in the regulations especially challenging. Contrary to our understanding of the primary intent of the statute to provide timely, accurate information in writing prior to consummation of a commercial financing, we fear this type of repeated disclosure during the course of negotiations is likely to be more confusing to customers than helpful. In that vein, we have provided a few suggested edits to the revised/new definitions of “at the time of extending a specific commercial financing offer” and “specific commercial financing offer” presented in the latest draft of the regulations. These suggested edits are designed to simplify and clarify the proposed regulations for the benefit of finance companies and their customers.

Clarification of Broker and Financer Responsibilities and Definitions – In light of the recent updates to Section 952 of the regulations related responsibilities of financers and brokers, we have sought to further avoid the potential for overlapping definitions and responsibilities given the discrete roles each party plays in a typical commercial financing transaction. To that end, we are also suggesting clarifications in the definition of “broker” to avoid the potential application of disclosure obligations to various third parties involved in these types of transactions, such as attorneys and document preparation and delivery companies. 

System Updates and Enforcement – Although ELFA members have been preparing for the implementation of this disclosure for many months, they will need time to update their systems to reflect the precise requirements set forth in the regulations. In order to avoid foot faults while companies do their best to implement these disclosures where applicable, we would appreciate if the DFPI would issue guidance indicating that enforcement will be tolled for a minimum of six months to allow companies to update their systems to account for the disclosures. We note that the New York Department of Financial Services has similarly indicated that there would be a six-month grace period after the regulations are final prior to enforcement for California transactions.


The DFPI is only legally required to consider those comments considered responsive to changes last made (in the third modification). ELFA’s latest comments are intended to serve two functions: first and most importantly, to relate our concerns to the latest changes and secondly to put on the record concerns that may be the basis of future requested interpretive opinions. 

ELFA again thanks our Chair Moorari Shah of Shepard Mullin and the members of the ELFA State Legislative and Regulatory Subcommittee for their continued analysis and guidance. While the regulation process continues in California and New York, your ELFA will stand guard and endeavor to protect our industry at every step. While also on the front line in New Jersey, ELFA is positioned to educate state policy makers anywhere in America.