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Banking Interpretations

NYSBL 590(2)
Gen. Reg. Part 39

New York State Banking Department
Memorandum

To: Vincent C. Anyamene, Assistant Deputy, Mortgage Banking
From: Monique E. Holmes, Assistant Counsel
Date:

January 20, 2010

Subject:

Determination of Article 12-D Exempt Status

Issues

  1. Whether the client of the inquirer, a Nevada Industrial Loan Company (“Company") formed and regulated under the Nevada Thrift Companies Act, qualifies as a "bank" under the New York Banking Law ("Banking Law”); and
  2. Whether the wholly owned subsidiary of the Company qualifies as an "exempt organization" under Section 590(1)(e) of the Banking Law and is therefore exempt from the registration and licensing requirements of Article 12-D.

Recommendation

The Company qualifies as a bank under the Banking Law and is therefore an "exempt organization" as defined under Section 590(1)(e).  Any subsidiary of the Company is also an exempt organization. Therefore, both the Company and the subsidiary are exempt from the registration and licensing requirements of Article 12-D.

Background

The Company is insured by the Federal Deposit Insurance Corporation ("FDIC") and is an out of state, state chartered bank. Nevada Industrial Loan Companies (“ILCs") such as the Company are regulated, supervised and examined by the Nevada Commissioner of Financial Institutions.

Reasoning

Section 590(2)(a) of Article 12-D of the Banking Law provides that:

No person, partnership, association, corporation or other entity shall engage in the business of making five or more mortgage loans in any one calendar year without first obtaining a license from the superintendent in accordance with the licensing procedure provided in this article and such regulations as may be promulgated by the banking board or prescribed by the superintendent. The licensing provisions of this subdivision shall not apply to any exempt organization ... (Emphasis added.)

Therefore, any person or entity that wishes to engage in mortgage banking must first be licensed, unless such person or entity qualifies as an exempt organization.

Section 590(2)(b) of Article 12-D of the Banking Law provides that:

No person, partnership, association, corporation or other entity shall engage in the business of soliciting, processing, placing or negotiation a mortgage loan or offering to solicit, process, place or negotiate a mortgage loan in this state without first being registered with the superintendent as a mortgage broker in accordance with the registration procedure provided in this article and by such regulations as may be promulgated by the banking board or prescribed by the superintendent. The registration provisions of this subdivision shall not apply to any exempt organization or mortgage banker. (Emphasis added.)

Thus, mortgage brokers must be registered before doing business as a mortgage broker in New York, unless such person or entity qualifies as an exempt organization.  It is necessary to determine whether a Nevada ILC and its wholly owned subsidiary qualify as an "exempt organization" as it is defined in Section 590(1)(e) of the Banking Law. Under Section 590(1)(e), "Exempt organization" shall mean:

any insurance company, banking organization, foreign banking corporation licensed by the superintendent or the comptroller of the currency to transact business in this state, national bank, federal savings bank, federal savings and loan association, federal credit union, or any bank, trust company, savings bank, savings and loan association, or credit union organized under the laws of any other state, or any instrumentality created by the United States or any state with the power to make mortgage loans. Subject to such regulations as may be promulgated by the banking board, "exempt organization" may also include any subsidiary of such entities. (Emphasis added.)

Article 12-D of the Banking Law does not expressly define or limit the term "bank"; however, the Banking Department has previously concluded that a state chartered industrial bank, such as the Company, which has deposit insurance from the FDIC, is exempt from the registration and licensing provisions of Article 12-D of the Banking Law even though an exemption for ILCs is not expressly provided for in Article 12-D.1 This view is supported by Article 5-C of the Banking Law, which sheds light on the term "bank" and a federal law that defines a bank to include a state chartered industrial bank.2

Under Section 222(2) of the Banking Law, the term "out-of-state state bank" means a state bank, as such term is defined in Section 3(a)(2) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1813(a)(2)). Pursuant to Section 3(a)(2) of the FDIA, "state bank" means:

any bank, banking association, trust company, savings bank, industrial bank (or similar depository institution which the Board of Directors finds to be operating substantially in the same manner as an industrial bank), or other banking institution which--

(A)   is engaged in the business of receiving deposits, other than trust funds
        (as defined in this section); and

(B)   is incorporated under the laws of any State or which is operating under the Code of
        Law for the District of Columbia...(Emphasis added.)

Based on the above definition, the Company qualifies as a "state bank". Thus, the Company qualifies as an "out-of-state state bank" under the Banking Law and as such, fits within the definition of "exempt organization" and is therefore exempt from the registration and licensing requirements of Article 12-D of the Banking Law.

In the past, the Banking Department reasoned that based on the definitional structure, exemptions from registration and licensing for a "bank" extend to FDIC insured ILCs chartered by a state other than New York in the same manner as the exemptions apply to any other out of state, state chartered bank.3

In addition, the definition of "exempt organization" under Section 590(1)(e) of the Banking Law includes subsidiaries of qualifying entities subject to regulations promulgated by the banking board.  Section 39.2(a) of the General Regulations of the Banking Board ("GRBB") states that exempt organizations include "any entities exempt pursuant to Section 39.4 of this Part".  Section 39.4 of Part 39 of the GRBB includes "consolidated subsidiaries". Thus, in order for the subsidiary of the Company to be considered an exempt organization and therefore not subject to the registration and licensing requirements of Article 12-D, such subsidiary must qualify as a consolidated subsidiary.

Section 39.2(c) of the GRBB defines the term "consolidated subsidiary" to mean:

a subsidiary of an insurance company, banking organization, foreign banking corporation licensed by the superintendent or the Comptroller of the Currency to transact business in this State, national bank, Federal savings bank, Federal savings and loan association, Federal credit union, or of any bank, trust company, savings bank, savings and loan association, or credit union organized under the laws of any other state; or any instrumentality created by the United States or any state with the power to make mortgage loans as to which consolidated financial statements are issued with its parent pursuant to title 26 of the United States Code.

Since the Company is considered a bank under the Banking Law, any consolidated subsidiary of the Company qualifies as an exempt organization under Article 12-D. The subsidiary, which is the subject of the inquiry, is wholly owned by the Company and therefore qualifies as a consolidated subsidiary as such term is defined under Section 39.2(c) of the GRBB. Thus, the subsidiary in question is an exempt organization under the Banking Law and therefore is not subject to the registration and licensing requirements of Article 12-D.

Please note that although the Company is considered an "exempt organization" under the Banking Law, it is not exempt from the New York state laws and regulations governing the making of residential mortgage loans in New York relating to advertising, solicitation, application and commitment procedures, and disclosure requirements or penalties. (See Article 12-D of the Banking Law and Parts 38 and 39 of the GRBB).

Noted: M.E.G


  1. See Staff Interpretation, dated February 20, 2007, by Alan Weinberg.
  2. Id.
  3. Id.

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