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Banking Interpretations

BL 340

December 21, 2006

[---]

Re: Section 340 of the New York Banking Law

Dear [---]:

Your letter dated October 18, 2006 to Diana L. Taylor, Superintendent, New York State Banking Department (the "Department"), has been referred to me for response. In your letter you asked a number of questions relating to your client (the "Company"), which is located in Nevada, has no physical presence in New York State, and conducts a "traditional, " unsecured installment lending business solely over the internet.

Your key question is whether the Company is required to be licensed to operate in New York. The answer is "yes," although the answer can depend on the rates and amounts of loans contemplated by your client.

Article IX of the New York Banking Law ("Banking Law") requires persons or entities to be licensed in New York State if they solicit loans in the State, and in connection with such solicitation, make loans to residents of the State for personal, family household or investment purposes in principal amounts of $25,000 or less, at interest rates greater than 16% per annum, which is the maximum rate of interest permitted under New York's Banking Law, Section 14-a. (Similarly, a license is required under Article IX of the Banking Law for persons or entities that make loans in the State for business or commercial purposes in the principal amount of $50,000 or less, at interest rates greater than 16% per annum.)  In answer to one of your other questions, regulation by the State of Nevada could not be accepted as a substitute for a license required by the New York Banking Law.

If the loans your client would be making, however, would be at interest rates of equal to or less than 16% per annum, the Company would not need to be licensed under Article IX of the Banking Law. If you wish a legal opinion based on the specific details of the type of lending contemplated by your client, you should send the request to my attention. In addition, in order to avoid the risks of making loans without the proper license, should your client wish to make loans in the amount of $50,000 or less at interest rates to exceed 16%, it is highly recommended that you or your client contact the State of New York Banking Department, Licensed Financial Services Division, to obtain information on becoming a licensed lender in New York State and an application package for such a license.

You also asked what other provisions of New York law would apply to your client's internet lending business. We cannot answer this question. Besides the fact that we do not know enough about client's internet lending business to provide an answer, your question is very general and we have no particular expertise to answer questions outside the realm of New York Banking Law. I trust the foregoing is responsive to your inquiry.

Very truly yours,

Alan M. Weinberg
Assistant Counsel