NYSBL 491 and 492
December 4, 2006
Dear Mr. [---]
Your letter, dated November 21, 2006, to the New York State Banking Department (the "Department"), has been referred to me for response. In your letter you asked whether the Department would interpose any objection if [---] ("[---]AF") purchases motor vehicle installment contracts from vehicle retailers without first obtaining a license under Article XI-B of the Banking Law.
In your letter you posited that because [---]AF does not have a physical presence in New York, based on the Department's July 8, 1999 interpretative letter, it should not be required to be licensed prior to conducting the contemplated activities in New York.
However, as more fully reasoned in the attached November 23, 2006 interpretation, the Department's position on this issue has recently changed; therefore, absent any additional countervailing factor, [---] AF would be required to be licensed as a Sales Finance Company prior to purchasing motor vehicle installment contracts entered into in this state by New York residents.
I trust the foregoing is responsive to your inquiry.
Very truly yours,
Harry C. Goberdhan
November 23, 2006
Re: Section 492 of the New York Banking Law
Dear Ms [---]:
Your letter, dated [---] to the New York State Banking Department (the "Department") has been referred to me for response. In your letter you asked the following question: Whether [---] (the "Corporation"), which has no physical presence in New York, would need to be licensed under Article XI-B of the Banking Law, in order to purchase instalment sales contracts entered into in this 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 instalment contracts, obligations or credit agreements made by and between other parties, or any interest therein.
Further "retail instalment contract," "retail instalment obligation" and "retail instalment credit agreement" are collectively referred to as "instalment sales contracts," and are each defined by Section 491(6), (6-a), and (6-b), respectively, as:
"Retail instalment contract" or "contract" means an agreement, entered into in this state, pursuant to which the title to, the property or security interest in or lien upon the goods, which are the subject matter of a retail instalment sale, is retained or taken by a retail seller from a retail buyer as security, in whole or in part, for the buyer's obligation. The term includes an agreement wherever entered into if executed by the buyer in this state and if solicited in person by a salesman or other person acting on his behalf or that of the seller.
"Retail instalment obligation" or "obligation" means an agreement, entered into in this state, pursuant to which the buyer promises to pay, in installments, the time sale price or prices of goods and/or services, or any part thereof.
"Retail instalment credit agreement" or "credit agreement" means an agreement entered into in this state" pursuant to which the buyer promises to pay, in instalments, his outstanding indebtedness from time to time to a retail seller, not evidenced by a retail instalment contract or obligation, for one or more items of goods or services, whenever purchased or obtained, which provides for a service charge and under which instalment payments apply to his outstanding indebtedness form time to time.
From the information provided in your letter, it is clear that the Corporation is a sales finance company as defined by Section 491(7) of the Banking Law. As a result, therefore, it would be required to obtain a license under Article XI-B in order to purchase instalment sales contracts entered into in this state. Note that the fact that the Corporation does not have a physical presence in New York State is not the determining factor in reaching a conclusion as to whether the Corporation needs a license; instead, the determining factor is that the instalment sales contracts, acquired by the Corporation, were entered into in this state with New York residents.
This conclusion is in line with Schleimer v. McPherson, 60 A.D.2d 837, 400 N.Y.S.2d 566 (1978), the only case to have dealt with this licensing issue. In Schleimer, the court held that a New Jersey resident with no New York presence and engaged in the business of purchasing retail installment contracts from New York based used car dealers could not enforce said installment contracts in this state. In reaching its conclusion, the court reasoned that the creditor failed to obtain a sales finance company license, in violation of Article XI-B – "a statute that was designed to protect New York consumers."
Note that this opinion by the Department on this issue results in a different conclusion than that reached in the past, which held that a person with no physical presence in New York is not required to be licensed by the Department in order to be engaged in sales finance company activity in this state.
Very truly yours,
Harry C. Goberdhan