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Industry Letters

Sales Finance Companies: Licensing Requirements for Secondary Holders

June 27, 2007

TO: Sales Finance Companies and All Other Affected Entities


The purpose of this letter is to set forth the current position of the New York State Banking Department (the “Department”) with regard to the licensing requirement for secondary holders of instalment sale contracts in light of the Department’s recently revised position on the licensing requirements for sales finance companies with no physical presence in this State.  The Department’s recently revised position, set forth in a staff interpretation dated November 23, 2006, indicated that such an entity, which purchases or otherwise acquires retail instalment contracts, obligations or credit agreements, collectively referred to herein as “Contracts,” must first obtain a license under Article XI-B, Section 492 of the Banking Law as a sales finance company prior to being involved in such transactions, regardless of  whether such entity is located within or outside of New York State.  This revised position has created some concerns among certain secondary market participants. 

For purposes of this letter, “Secondary Holders” are natural persons or other legal entities that (i) acquire Contracts, or interests therein, from persons who are not retail sellers with respect to such Contracts; (ii) are not themselves retail sellers with respect to such Contracts; and (iii) do not service such Contracts, or in the ordinary course have any contact with the obligors under such Contracts; provided, however, that any contact between a Secondary Holder and an obligor shall be initiated solely by the obligor.

The Department is currently reviewing the effects of its recently revised position to ensure that its impact on secondary market participants is consistent with the intent and purposes of Article XI-B.  While this review is being undertaken, and until further notice to the contrary, the Department hereby declares a moratorium on the application of the licensing requirement of Article XI-B to Secondary Holders.  Specifically, Secondary Holders, whether located within or outside of New York State, will not be required to obtain a license under Article XI-B during the moratorium period.  Should the Department eventually determine that Secondary Holders are required to obtain a license under Article XI-B, the Department will provide advance notice and a reasonable period of time for Secondary Holders to obtain the requisite licenses.

Should you have any questions regarding this letter, please contact Assistant Counsel Harry C. Goberdhan at (212) 709-1669.

Very truly yours,

Richard H. Neiman
Superintendent of Banks