Alert

April 11, 2025

Annual Reports on APR Estimates Under "Opt-In" Underwriting Method Due in New York on April 30

The New York State Department of Financial Services has reminded providers of sales-based financing of the reporting requirements for providers who use the "opt-in" method for estimating annual percentage rates or APRs. The reports are due to the DFS on April 30 each year, starting this year. The report due on April 30, 2025, must cover New York transactions from the 2024 calendar year.

New York's Commercial Financing Disclosure Law ("CFDL") requires a provider of sales-based financing to choose between two methods for estimating a merchant's future revenue (which is indirectly related to the estimated APR). The first is known as the historical method. A provider that chooses the historical method must calculate merchant revenue using rigid parameters set by regulations promulgated pursuant to the CFDL. For example, a provider must average a merchant's revenues over a "look-back" period, usually by using bank statements. As general rule, that look-back period must be at least 4 months and at most 12 months and, for each recipient industry or financing amount, must be the same number of months for each transaction financed by the same provider. There are some exceptions to this general rule to deal with situations where using at least 4 months of bank statements is impractical. Another condition of the historical method is that a provider must document in writing the number of months that it uses for the look-back period.

Any provider who does not use the historical method is using the opt-in method. A provider that uses the opt-in method is subject to internal auditing requirements to ensure that the provider's disclosed APRs do not depart significantly from the actual, retrospective APR of completed transactions. Part of this audit process includes filing an annual report with DFS with the following information covering the preceding calendar year:

  • For each transaction, the estimated APRs disclosed to the recipient and actual retrospective APRs of completed transactions.
  • The annual mean of all differences between the estimated APRs disclosed to the recipient and actual retrospective APRs of completed transactions, which mean must be reported both weighted by financing amount, and unweighted.
  • A statement of any unusual and extraordinary circumstances impacting the provider's deviation between estimated and actual APR.

A provider wishing to avoid the extensive internal auditing and regulatory reporting requirements for the opt-in method should ensure that it follows the requirements of the historical method.