September 12, 2006
Re: Direct Mail Solicitations
Your letter dated May 30, 2006 to Sara Kelsey, Deputy Superintendent and Counsel, New York State Banking Department (the "Department"), has been referred to me for response. In your letter you asked whether [---] (the "Company"), which is headquartered outside New York State and has no physical presence in New York State, is required to be licensed to conduct direct mailing and related services (the "Services") on behalf of direct lenders.
The Services, as are more fully described in your letter, essentially involve the sending by mail of a pre-screened solicitation of a firm offer of a secured motor vehicle loan on behalf of a direct lender. The prospective borrower can take advantage of the offer by bringing the "live check" he or she receives as part of the mailing to the named motor vehicle dealer, who pays the costs for these promotional mailings. The Company acts as an intermediary between the lender and the dealer (and as a servicer for the lender) in connection with the origination of the loan, including the maintaining of a real-time web site tracking the progress of the transaction, but does not negotiate terms of the vehicle purchase or of the loan with the potential buyer/borrower.
Your letter raises several issues, but from the description you provided the activities in which you propose to engage do not appear to require any registration with or licensing from the Banking Department. We cannot say the same about the direct lenders, however.
First, your letter seems to indicate that the credit transactions will involve direct loans from the lender rather than the purchase of retail installment sales contracts originated by motor vehicle dealers located in New York State. Thus, the lenders could need to be licensed depending upon the terms and conditions of the loans and whether they are not exempt from licensing. Your letter does not provide sufficient information for us to make any determination on that issue, however.
Second, if, rather than being a direct lender, the lender is engaged in purchasing retail installment contracts and has a physical presence in New York State it would need to obtain a license under Article XI-B of the Banking law.
Third, the activities that will be conducted through the Company on behalf of the lenders will not apparently involve charging a fee to the prospective borrower. The vehicle dealers will pay the Company. Therefore, based on the foregoing facts, the Company would not appear to be considered a loan broker within the meaning of Section 5-531 of the New York General Obligations Law, which governs the brokerage of loans. If a fee were to be charged to the prospective borrower, the Company would appear to be a loan broker within the meaning of Section 5-531 of the New York General Obligations Law. The Banking Department, however, does not regulate loan brokers, as defined in Section 5531, does not possess any special expertise on the subject and thus cannot render additional guidance on the question.
Finally, as to whether the Company must obtain a license in order to engage in providing support services for direct lenders as described above and in your letter, the Company need not obtain any license from the Department to conduct such support services activities.
I trust the foregoing is responsive to your inquiry.
Very truly yours,
Alan M. Weinberg