NYSBL 576 and 577
May 16, 2005
Re: Section 577 of the New York Banking Law
Dear [ ]:
Your letter dated April 19, 2005 to Sara Kelsey, Esq., General Counsel and Deputy Superintendent, New York State Banking Department (the "Department"), has been referred tome for response. In your letter you asked the following questions: (i) Whether [ ] (the "Company") would be required to be licensed in New York as a premium finance agency if the interest it charges on premium financed transactions are not in excess of 16%? (ii) Would any of the provisions of Article 12-B of the Banking Law apply to the Company's proposed business? (iii) If the Company is not required to obtain a license as a premium finance agency: (a) Are there any benefits that the Company would derive from voluntarily obtaining a license under Article 12-B? (b) Should the Company register as a foreign corporation in New York to engage in the Proposed Business in New York?
Article 12-B of the Banking Law, dealing with Premium Finance Agencies, is relevant in this matter. Specifically on point is Section 577 of Article 12-B, which provides in part:
"This article does not affect: (1) the inclusion of amounts for insurance in retail installment contract or obligations in accordance with the motor vehicle retail installment retail installment sales act; (2) the inclusion of amounts for insurance in retail lease agreements in accordance with the motor vehicle retail leasing act; or (3) the making of loans for the purpose of financing insurance premiums:
(a) By any person at a rate of interest not greater than the rate prescribed by the banking board pursuant to section fourteen-a of this chapter, or, if no rate has been so prescribed , six percentum per annum."
The Banking Law in Section 14-A(1) prescribes that "[t]he maximum rate of interest provided for in section 5-501 of the general obligations law shall be sixteen per centum per annum."
Based on the exemption in the above-recited Section 577, and the information provided wherein the Company will only charge a rate of interest of five percent with respect to premiums financed, it is the Department's opinion that the Company will not be required to have a Premium Finance Agency license in order to conduct the proposed activities in New York.
As to your second question, it is the Department's position that the Banking Laws and/or the Superintendent's Regulations are applicable only to entities licensed by the Department. Therefore, in this case where no license is required, the provisions of Article 12-B will not apply to the Company's proposed business activities in New York.
With relation to whether there are any benefits that the Company might derive from voluntarily obtaining a license under Article 12-B, please note that under New York Insurance Law Section 3428 (c) "[n]o authorized insurer shall honor a power of attorney or other authority to cancel an insurance contract executed by an insured in connection with insurance premium financing, except in accordance with section five hundred seventy-six of the banking law." Therefore, the Company can benefit if it has a premium finance agency license by then availing itself of section five hundred seventy-six of the banking law, and cancel insurance policies by its power of attorney.
With respect to the question as to whether the Company should register as a foreign corporation in New York in order to be engaged in the proposed business activities, note that this question might be best answered by the Secretary of State, and not by the Department.
I trust the foregoing is responsive to your inquiry.
Very truly yours,
Harry C. Goberdhan