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Banking Interpretations

NYSBL 340 and 491 and 492 and 555

January 3, 2005
[ ]

Re: Licensed Lender Status

Dear [ ]:

Your inquiry to the New York State Banking Department ("the Department), regarding your client's need to be licensed as a lender in New York, has been referred to me for response.

You state in your letter that you have a client who owns a number of car service companies. You also state that your client would like to lend his potential drivers the money to buy their cars and to pay their insurance premiums on these vehicles. In your letter, you requested information from the Department as to what, if any, licenses issued by the Department your client would need in order to provide these loans. You inquired specifically as to three different possible licenses that you felt might be necessary.

In your letter, you requested an opinion from the Department on whether your client would need to apply for a license to become a sales finance company. Your client does not need a license to become a sales finance company in order to provide the loans as described in your letter. Section 492 of the Banking Law requires that any person engaged in the
business of a "sales finance company", (specific exceptions listed within the statute), must be licensed by the Department. A "sales finance company" as defined in Section 491(7), is "a person engaged, in whole or in part, directly or indirectly, in the business of purchasing or otherwise acquiring retail installment contracts, obligations or credit agreements made by and between other parties, or any interest therein." You state in your letter that your client is the primary source of these loans; that they are directly issued to the potential drivers; and that your client is not purchasing these loans from any other source. As such, there will be no retail contracts or other documentation indicative of a sales finance business utilized by your client and your client will not be a "sales finance company", as defined in section 491(7) and does not need to apply for a license as a sales finance company.

You also requested an opinion from the Department on whether your client would need to apply for a license issued by the Department to become a licensed lender. Your client will not need to be a licensed lender in order to offer these loans if the loans will not exceed the maximum rate of interest of sixteen per centum per annum.

Section 340 of the New York State Banking Law provides that "No person or other entity shall engage in the business of making loans in the principal amount of twenty-five thousand dollars or less for any loan to an individual for personal, family, household, or investment purposes... and charge, contract for, or receive a greater rate of interest than the lender would be permitted by law to charge if he were not a licensee hereunder except as authorized by this article and without first obtaining a license from the superintendent."

Section 14-a of the New York State Banking Law provides that the maximum rate of interest shall be sixteen per centum per annum. Therefore, as long as the loans that your client will be providing do not exceed the maximum interest rate of sixteen per centum per annum, your client would not need to apply for a license to be a lender in New York under Article IX of the Banking Law.

The third license that you mentioned in your letter was a license to become an insurance premium finance agency. Your client does not need a license to become an insurance premium finance agency. According to your letter, your client would be providing loans or promissory notes directly to the potential drivers and they would then make their own insurance payments. Section 554 of the Banking Law defines a "premium finance agreement" as "a promissory note or other written agreement by which an insured promises or agrees to pay to, or to the order of, either a premium finance agency or an insurance agent or broker the amount advanced or to be advanced under the agreement to an authorized insurer or to an insurance agent or broker in payment on an insurance contract......" There is no premium finance agreement involved in these loans made directly to the potential drivers so that they can then pay their insurance premiums.

Section 555 of the Banking Law states that "no person except a bank, state or federally chartered savings bank or savings and loan association, an authorized insurer or lender licensed pursuant to article nine of this chapter
shall engage in the business of a premium finance agency without a license therefore obtained from the superintendent, as provided in this article." Since your client's business does not meet the definition of a premium finance agency, as defined in Section 554(7) of the Banking Law, your client would not need a license as such.

I trust that this has been responsive to your inquiry.

Very truly yours,

Megan Prendergast
Associate Attorney