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Banking Interpretations

NYSBL Sections 131(1), 180, and 340

February 16, 2006

[ ]

Re: Request for Opinion

Dear [ ]:

I am in receipt of your letter dated December 21, 2005, which has been
referred to me for a response. Please accept my apologies for the delay in
responding.

You indicated in you letter that you have been asked to represent an
individual interested in establishing a "susu" in the United States. As you
explained, a susu is a mechanism under which individuals pool money, which
is paid out in the form of loans to the participants. You further indicate that
your client would be the director of the susu and would charge a fee for
managing it. Also, "she would arrange for ACH debit deposits into a set
account."

You ask whether the creation and operation of the SUSU would violate any
rules or regulations of the Banking Department.

Based on the limited information you supplied (and our preliminary research
into this matter), we are unable to say whether the arrangement you
describe would violate any New York law or any rules or regulations of the
New York state Banking Department.

We observe, however, that the question you raise needs to be considered in
light of the overall purposes of the Banking Law, including the policy of the
state.

New York Banking Law, § 10, provides as follows:

Declaration of policy. It is hereby declared to be the policy of the
state of New York that the business of all banking organizations
shall be supervised and regulated through the banking department in
such manner as to insure the safe and sound conduct of such
business, to conserve their assets, to prevent hoarding of
money, to eliminate unsound and destructive competition among such
banking organizations and thus to maintain public confidence in such
business and protect the public interest and the interests of
depositors, creditors, shareholders and stockholders.

Whether the operator of the susu constitutes a banking organization is an
open question that depends on all the facts and circumstances. Under
Banking Law, § 2.1 1,

"the term, 'banking organizations,' when used in this chapter,
means and includes all banks, trust companies, private bankers,
savings banks, industrial banks, safe deposit companies, savings
and loan associations, credit unions and investment companies."

We further note, however, that under the Banking Law certain powers are
reserved for certain banking organizations. In particular we direct your
attention to Banking Law, Section 180, which provides:

Except as authorized by this chapter, no individual, either for himself
or as trustee, and no partnership or unincorporated association shall:

(1) Engage in the business of receiving deposits;
(2) Make use of the words "bank," "banker" or "banking" or any
derivative or compound of any such words or any word or words in a
foreign language having the same or similar meanings in any sign,
advertisement, circular, letterhead or in other written or printed
matter, in such manner as might indicate that such individual,
partnership or unincorporated association is authorized to engage in
business as a bank or private banker;
(3) As principal, agent or trustee engage in the business of receiving
payments of money in installments, for cooperative, mutual loan,
savings or investment purposes in sums of less than five hundred
dollars each under a declaration of trust or otherwise;
(4) Personally or by the publication or circulation of advertisements solicit
such payment of money to any unauthorized individual, trustee,
partnership or unincorporated association or the execution of a
declaration of trust to or a contract with, any unauthorized individual,
trustee, partnership or unincorporated association, under which such
payments will become due and payable;
(5) Engage in or conduct a business similar to the business of a savings
bank or of a savings and loan association, or promise to make loans at
any time, either fixed or uncertain, upon real estate security for
building, home-owning, savings or investment purposes as an
inducement for the payment of sums of money in installments of less
than five hundred dollars each to any unauthorized person, trustee,
partnership or unincorporated association;
(6) Engage in the business of transmitting money or receiving money for
transmission in any manner whatsoever; provided, however, that
nothing contained in this paragraph shall apply to an individual,
partnership or unincorporated association licensed pursuant to the
provisions of article thirteen-B of this chapter. Any person who shall
violate any provision of this section shall be guilty of a misdemeanor.

As to the aspect of the susu under which money that individuals pool is paid
out in the form of loans to the participants, but the amount available would
be reduced by fees paid to the director of the susu, there is a question of
whether the arrangement would be covered by the Licensed Lenders Law. In
particular, if it is determined that no rate of interest in excess of 16% per
annum is being charged, the Licensed Lenders Law would not apply;
whereas, if a rate of interest in excess of 16% per annum is being charged,
the Licensed Lenders Law may apply. In this regard, you may wish to note
that Banking Law § 340 of the Licensed Lenders Law prohibits doing
business without license and provides as follows:

§ 340. Doing business without license prohibited. 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.

Nothing in this article shall apply to licensed collateral loan brokers.

I trust that you will find this letter responsive to your inquiry, If you have any
other questions on this matter, please feel free to call me at 212-709-1660.

Very truly yours,

Alan M. Weinberg,
Assistant Counsel

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