July 14, 2005
John J. Faso, Esq.
Manatt, Phelps & Phillips, LLP
121 State Street , 3rd Floor
Albany , NY 12207
Re: Section 492 of the New York Banking Law
Dear Mr. Faso:
Your letter dated June 16, 2005 to Stephen Barras, Esq., First Assistant Counsel, New York State Banking Department (the "Department"), has been referred to me for response. In your letter you asked the following question: Whether a Delaware limited liability company (the "Company"), headquartered outside New York State, with no physical presence in New York State should be required to be licensed under Article XI- B of the Banking Law if the Company purchases installment sales contracts initiated in the state?
According to Article XI-B, Section 492 of the Banking Law:
No person, except a bank, savings bank, savings and loan association, trust company, private banker or investment company, organized under the banking law of this state and authorized to accept deposits, or licensed lender conducting business pursuant to the provisions of article nine of this chapter, shall engage in the business of a sales finance company in this state without a license therefor obtained from the superintendent, as provided in this article.
"Sales finance company" is defined by Section 491(7) as:
[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.
From the information provided in your letter, it seems clear that the Company is a Sales Finance Company as defined by Section 491(7) of the Banking Law. However, the fact that the Company does not have a physical presence in New York State is determinative in this case and would enable the Company to conduct its proposed business activities without first obtaining a license under Article XI-B. This conclusion is in line with the conclusion reached in the Department's interpretive letter dated July 8, 1999, which in part states that "a sales finance company with no physical presence in New York that acquires or creates New York retail installment credit arrangements is not required to obtain a sales finance company license since such activity does not constitute engaging in the business of a sales finance company in this state."
However, as stated in the July 8, 1999 interpretive letter, certain case law may have potential contrary implications. In Schleimer v. McPherson, 60 A.D.2d 837, 400 N.Y.S.2d 566 (1978), the court held that a New Jersey resident, engaged in the business of purchasing retail installment sales contracts from New York based used car dealers could not enforce said installment contracts in New York because she had not obtained a New York sales finance company license prior to being involved in the transaction.
In addition, please note that the Department is currently readdressing the issue as to whether licensing under this section of the Banking Law should depend on whether or not an entity has a physical presence in New York and, therefore, it might be the case in the future that an entity would be required to be licensed under Article XI-B of the Banking Law even though it has no physical presence in New York.
I trust the foregoing is responsive to your inquiry.
Very truly yours,
Harry C. Goberdhan