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Banking Interpretations

NYSBL 350 and 351 and 357 and Superintendent's Regulations 401

September 15, 2005

Ms. Maggie Lawson
Corporate Counsel
Triad Financial Corporation
One Pacific Plaza
7711 Center Avenue, Suite 100
Huntington, Beach, Ca. 92647

Dear Ms. Lawson:

Your March 9, 2005 letter has been referred to me for review and response. Initially, let me apologize for the delay in responding to your letter. Your letter asks a number of questions regarding your interpretation of Article 9 (Licensed Lenders) of the New York Banking Law. I will respond to your questions in they order they were presented.

First, you ask if a licensed lender may impose a late fee on a simple interest loan. Based on your review of the statute, you have indicated that you are of the opinion that such fees may not be imposed. I agree with your analysis that late fees are only permissible under Article 9 in the case of pre-computed interest loans. This conclusion also makes sense given that a simple interest rate loan continues to accrue interest for the entire period principal is outstanding. In contrast in the pre-computed loan situation, a lender would not necessarily be compensated for late payments through the accrual of additional interest.

You next ask if a licensed lender may charge for GAP Waiver Agreements ("GAP"). Specifically, you ask if a lender may add a fee to the loan amount for this service. Initially in this regard, you note the difficulty of interpreting the Banking Law consistent with the New York Insurance Law (the "Insurance Law"). Again, I must agree with your conclusion that the Banking Law on its face does not appear to allow a licensed lender to charge for GAP. GAP is not one of the listed insurance products set forth in Section 357. Please be advised that I express no opinion on whether GAP constitutes insurance under the applicable provisions of the Insurance Law as you have suggested.

You next ask whether a licensed lender may charge for an extended warranty under Article 9. Again, you note that the Banking Law is silent on this question. It is our view that Section 351(6) does not permit any such charges to be added to the contract. You lastly note that Article 9 by its terms requires lenders to be licensed pursuant to its terms only if they engage in the business of making loans that satisfy the statutory thresholds set forth therein. You than ask what if any regulatory schemes apply to loans made by Article 9 Licensed Lenders that do not meet these statutory thresholds.

We are of the view that Article IX limits the type and amounts of, and imposes restrictions on, loans a licensed lender can make pursuant to the specific authority provided in that article. Section 350(3) and Section 401.11 of the Superintendent's regulations govern the conduct of other lending and non-lending activities conducted at licensed locations.

I trust the above will prove helpful.

Very truly yours,

Gene C. Brooks
Assistant Counsel