July 12, 2005
Douglas J. McClintock, Esq.
Thacher Proffitt & Wood LLP
Two World Financial Center
New York , NY 10281
Re: Section 340 of the Banking Law
Dear Mr. McClintock:
Your letter dated April 20, 2005 to Regina A. Stone - Deputy Superintendent of Banks - New York State Banking Department (the "Department"), has been referred to me for response. In your letter you asked the following question: Whether a financial entity, licensed and supervised by another state, would be required to be licensed under §340 of the Banking Law if it makes direct cash loans to military personnel who are stationed in New York but who are not residents of New York?
According to your letter, Omni Loan Company, Ltd. ("Omni") is a Nevada corporation licensed and regulated by the Nevada Department of Corporations, Division of Financial Institutions, to engage in the consumer finance business that operates out of its home office in Las Vegas, Nevada. Consumer loans made by Omni are subject to the laws of the State of Nevada, and Omni is supervised and examined by the Division of Financial Institutions. Omni is in the business of lending money solely to United States military personnel throughout the United States, including the making of direct cash loans in New York solely to military personnel who are stationed in New York but who are not residents of New York.
Considering the information presented, Article IX of the Banking Law seems to be the relevant section against which the facts should be examined. According to Article IX, Section 340 of the Banking Law:
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 in a principal amount of fifty thousand dollars or less for business and commercial loans, 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. For the purposes of this section, a person or entity shall be considered as engaging in the business of making loans in New York, and subject to the licensing and other requirements of this article, if it solicits loans in the amounts prescribed by this section within this state and, in connection with such solicitation, makes loans to individuals then resident in this state, except that no person or entity shall be considered as engaging in the business of making loans in this state on the basis of isolated, incidental or occasional transactions which otherwise meet the requirements of this section.
The term "resident" is not defined in Article IX of the Banking Law. However, in a decision rendered by the Eight Circuit Court of Appeals in the case of Pioneer Military Lending, Inc. v. Earl L. Manning , the Court held that it was a violation of the interstate commerce clause of the Constitution when the State of Missouri applied its small loan regulatory scheme to Pioneer Military Lending Inc.'s operations in Missouri. The Court concluded that the violation arose from the fact Pioneer made loans only to non-residents, and there was no evidence that Pioneer's operation "was a sham or that it had any direct effect on Missouri residents." It should be noted that a rehearing of the Manning case was denied shortly after it was decided, and to date, the decision has not been overruled by any courts.
Further, in a letter dated May 11, 1994 from Steven Barras, Esq., Assistant Counsel of the New York State Banking Department to J. Douglas Irmen, Esq., on behalf of Pioneer Military Lending, Inc. ("Pioneer"), the Department answered an analogous question based on similar facts. In the May 11, 1994 letter, the Department, in light of the Manning case, concluded that "[it] has no objection to Pioneer commencing lending operations at Federal military bases located in New York ... without first obtaining a license under Article IX of the Banking Law."
Based on the information you provided that Omni is supervised and examined by the Nevada Department of Corporations, Division of Financial Institutions, and your representation that Omni's business model is virtually identical to Pioneer's in that it: (i) lends money only to active-duty, non-resident military personnel stationed at military bases in New York; (ii) processes, approves and funds all loans out-of-state; (iii) has a New York Presence limited to particular locations in the immediate vicinity of military bases; (iv) is licensed out-of-state and complies with its licensors' laws; (v) does not make loans in New York to New York residents; (vi) maintains its loan documents out- of-state; and (vii) does not institute any litigation to enforce payments against borrowers who are in default while the borrowers remain in the military service, the Department in concurring with the May 11, 1994 opinion, has no objection to Omni making direct cash loans to military personnel stationed in New York who are not residents of New York, without first obtaining a license under Article IX of the Banking Law.
I trust the foregoing is responsive to your inquiry.
Very truly yours,
Harry C. Goberdhan
cc: Regina A. Stone
Deputy Superintendent of Banks