Banking Interpretations

January 27, 2000

Re: Licensing Requirements for Out-Of-State Budget Planners

Dear [ ]:

Your letter, dated November 4, 1999, has been referred to me. Currently, your client, a non-profit 501(c)(3) corporation licensed in [ State ] as a debt management company, does not have any physical presence in New York. You have requested our opinion on whether it is necessary for your client to become licensed under the New York Banking Law: (i) to continue relationships it began with [ State ] debtors who have relocated to New York; (ii) if [ State ] creditors recommend your client’s services to New York resident-debtors; and (iii) if the answers to any of the foregoing change if your client provides its services without charge to New York residents.

Article 12-C of the Banking Law coupled with Article 28-B of the General Business Law and Article 2 of the Not-For-Profit Corporation Law establishes that budget planners must operate on a not-for-profit basis and must be licensed by the Superintendent of Banks.

Section 455(1) of the General Business Law defines the business of budget planning as:

"[T]he making of a contract with a particular debtor whereby the debtor agrees to pay a sum or sums of money periodically to the person engaged in the budget planning who shall distribute the same among certain specified creditors in accordance with a plan agreed upon and the debtor further agrees to pay to such person any valuable consideration for such services or for any other services rendered in connection therewith."

The statutes do not specifically address the issue of licensing out-of-state budget planners conducting business in New York without a physical presence.

a. Permissibility of Continuing Business Relationship with Relocated Debtor.

The primary concern of the Banking Department is the protection of a New York debtor’s funds. In the instant case, the relationships between your client and the former [ State ] debtors who have relocated to New York are predicated on contracts entered into, and presumably governed by [ State ] law. As such, they fall outside the scope of Section 455(1) of the General Business Law. As the debtor transacts all business with the [ State ] budget planner, having no physical presence in New York, via the mail or other means of communication, we conclude that it is not necessary for your client to become licensed under the Banking Law in order to receive payments directly from the relocated debtor in question.

b. Permissibility of [ State ] Creditors Referring New York Debtors.

You have asked whether licensing is necessary in New York if [ State ] creditors recommend your client’s services to New York debtors.

A search of past opinions rendered by our Department reveals no cases presenting a fact situation analogous to yours. However, if the [ State ] creditors seek to refer debtors residing in New York solely via phone, mail or other means from [ State ], the Banking Department would interpose no objection to such referrals. If those creditors sought to make referrals through a New York office, we would need to know the specific activities contemplated before reaching a determination.

c. Provision of Services Without Charge to New York Clients.

You have inquired whether our analysis would change if your client provided its services without charge to residents of [ State ]. As discussed above, the limited nature of the activities currently conducted by your client and [ State ] creditors that refer business to your client do not necessitate licensing. However, should your client contemplate expanding its activities in New York, by having a physical presence here, either directly or indirectly, it should first contact this Department to obtain a license under Article 12-C of the Banking Law. Also, please note the definition of "budget planning" says "with consideration."

I trust the foregoing will be helpful to your client. If you have any additional questions, please do not hesitate to contact our office.


Assistant Counsel