February 13, 2006
Re: Section 340 of the New York Banking Law
Dear [ ]:
Your letter dated October 26, 2005 to Sara Kelsey, Esq., General Counsel - New York State Banking Department (the “Department”), has been referred to me for response. In your letter you asked whether an entity, with a license under Article IX of the Banking Law, can refinance existing motor vehicle loans and increase such loans to include the cost of purchasing extended warranty on such motor vehicle.
According to Article IX, Section 340 of the New York 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.
As provided for in the above-recited statute, an entity with an Article IX license may make loans for “personal, family, household, or investment purposes.” Although, financing of an “extended warranty,” as contemplated in your letter, is not explicitly provided for in Section 340, such financing can be considered a loan for “personal purpose,” and, therefore, provided that the other conditions of Section 340 are satisfied, be financed by an entity with an Article IX license.
I trust the foregoing is responsive to your inquiry.
Very truly yours,
Harry C. Goberdhan