General Obligation Law 5-501
June 11, 2009
Re: Lending Activities
Dear Mr. [---]:
As per your request, I am setting forth herein a summary of our phone conversation today relating to a letter dated May 29, 2009 that you sent to Deputy and Counsel Gross concerning certain lending activities by your client, a Nevada corporation. In that letter, you ask several questions in regard to your client, which is not a duly chartered bank, making commercial loans in New York. In our conversation, I noted the following:
1. Given that your client would only be making commercial loans exceeding $50,000, some of which loans could be secured by commercial real estate in New York, no license under the Banking Law would be required.
2. Under New York law, the legal rate of interest is set at 16% per annum in Section 14-a of the Banking Law but loans to a corporation may be made at a rate up to 25% per annum as corporations cannot raise the defense of civil usury. Other exceptions to the 16% per annum cap may be found in the General Obligations Law and Banking Law.
3. Section 190.40 of the Penal Law states that loans exceeding 25% per annum constitute criminal usury but an exception is found in Section 5-501(6)(b) of the General Obligations Law for loans of $2.5 million or more. Your client's proposed interest rates on the New York loans (i.e. 3% for the first 30 days, 4% for the next 30 days, and 5% for the next 120 days) appear to exceed 25% per annum when calculated on an annual basis. I note that under applicable Federal law, only a duly chartered bank may export the interest rate allowed by its home state.
4. Your other questions concerning guaranties, conflicts of law and requirements of the New York Department of State for conducting business in this state are beyond the expertise of this Department.
I trust that the forgoing accurately reflects our conversation.
First Assistant Counsel