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Banking Interpretations

December 30, 1999

Dear [ ]:

Your letter of November 8, 1999 to [ ], which concerns the criminal usury law in New York, has been referred to me for reply. In your letter, you indicate that your [ Bank ], is proposing to offer a stock index linked certificate of deposit which could "contingently’ earn interest in excess of 25% per annum. You ask the Banking Department to confirm the contingent nature of the interest on the certificate of deposit and the fact that the issuance of the certificate would not contravene the provisions of Section 190.40 of the Penal Law.

The detailed description of your Bank’s proposed product in your letter indicates that the interest on the certificate of deposit may well be deemed to be "contingent". The fact that the interest rate is dependent on the performance of the Standard & Poor’s 500 Composite Stock Price Index means that there is no assurance that any particular rate of interest would be paid or that the rate would ever exceed 25% per annum. Although the legislative history of Section190.40 and applicable case law noted in your letter do appear to confirm your view that the issuance of the certificate of deposit would not contravene the provisions of that section, it would not be appropriate for the Banking Department to give a definitive opinion on the applicability of a criminal statute.

I trust that this letter is of assistance to you.

Very truly yours

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