To: Principal Examiner Martin Leibowitz
From: Assistant Counsel Sam L. Abram
Date: March 8, 2004
Subject: Request for Legal Opinion re [ ]Credit Corp.
Whether a licensed sales finance company may finance a fee which the customer pays to a referring broker as part of a motor vehicle installment sale.
Nothing in Banking Law Article XI-B appears to prohibit or restrict such a transaction. However, it appears that a fee paid to a referring broker is not a permissible element of the cash sale price of a motor vehicle under the Motor Vehicle Installment Sales Act and cannot otherwise be financed as part of a retail installment contract under that Act.
[ ]Credit Corp.[ ], a licensed sales finance company under Article XI-B of the Banking Law, is in the business of financing used car sales. It shares premises with [ ] Auto Sales Corp. [ ]. While [ ] and [ ] have some commonality of ownership and management, they are represented to be legally and factually separate corporations.
[ ] acts as a broker of used car financing on behalf of purchasers with various lenders, including but by no means limited to [ ]. [ ] intends to start charging all its customers a flat fee for its services, whether they obtain financing from [ ] or elsewhere.
In the form of retail installment sales contract submitted by [ ] counsel, this fee is separately itemized as an "application/inspection fee" "payable to a third party" and included in the total amount being financed.
Nothing in the Banking Law prohibits a licensed sales finance company from obtaining loans through a loan broker or requires such a broker to be licensed.
Based on the representation of separateness between [ ] and [ ] it does not seem that [ ] is subject to licensure on the grounds that it is "indirectly" engaging in business as a sales finance company. The Banking Department has ample authority to confirm the continuing separateness of these entities, since it may investigate not only the licensee,[ ], but also [ ] or any other person to determine whether Article XI-B has been violated. Banking Law Section 497(1).
Retail installment sales contracts for non-commercial motor vehicles are governed by the Motor Vehicle Installment Sales Act, Article 9 of the Personal Property Law (MVISA).
Section 303(1) authorizes a retail seller to collect the credit service charge authorized by the MVISA. However, it makes clear that the credit service charge authorized to be collected is to be computed on amount equal to the total of (a) the difference between (1) the cash sale price of the motor vehicle, and (2) the buyer's down payment, (b) the amount of official fees and (c ) the amount included in the contract for insurance. There is no provision for other costs and charges, such as broker's fees, to be included in the amount being financed
The MVISA defines the cash sale price as the cash price at which the seller would sell to the buyer. The cash sale price "may include any taxes, registration, license and other fees and charges for insurance, for accessories and their installation and for delivering, servicing, repairing or improving the motor vehicle and for other services incidental to the agreement." MVISA Section 301(6). It is the view of the Department that, notwithstanding the noted language, the cash price may not include fees for credit related services. (In any case, the broker's fee in this instance appears in the contract not as part of the cash price of the vehicle, but as a separate line item.)
Thus, the broker's fee may not be included in the amount being financed.
Section 305(5) of the MVISA requires all charges incident to the investigating and making of the contract to be included in the credit service charge and prohibits, with certain irrelevant exceptions, any fee, expense or other charge whatsoever in addition to the credit service charge from being taken, received, reserved for or contracted. While there may be some question about whether fees unrelated to the extension of credit may be contracted for in a motor vehicle installment sales agreement, the broker's fee at issue here are clearly part of the cost to the buyer to obtain the sale as a time sale.
Thus, a charge for financing the broker's fee may not be imposed in addition to the credit service charge.