Banking Interpretations


July 26, 2005

Errol Blank, Esq.
Attorney at Law
Centerock East
2 Crosfield Avenue
West Nyack, New York 10994

Re: Licensing Requirements

Dear Mr. Blank:

Your May 10, 2005 letter to Sara Kelsey, Deputy Superintendent of Banking, regarding licensing requirements has been forwarded to me for reply.

In this letter, you outline the following information: your client, Lex Funding LLC, proposes to engage in the business of making loans principally or solely to law firms and attorneys for the purpose of providing funds to pay expenses and disbursements necessary or appropriate in connection with the prosecution of specified lawsuits; the loans will be made for $250,000.00 or more with the amounts thereafter varying based upon subsequent partial repayments and additional advances; repayment of the loans will be the obligation of the attorneys and law firms to whom the loans are made and may be guaranteed by individual attorneys; in addition to any guarantees; the client intends to require security for repayment of the loans in the form of individual assignments of proceeds of the lawsuits with respect to which loans are made; it is possible that additional security for the loans may be required; the rate of interest to be charged for the loans, inclusive of all fees and expenses, will be less than 16 percent per annum but may rise based upon any increase in interest rates generally; and a rate of interest, which may exceed 16 percent per annum, may be charged in the event of a default under loan documents.

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 General Obligations Law Section 5-501. 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.

According to the above-stated information, the loans your client would be making in the amount of $250,000 or more at interest rates of less than 16% per annum would not require that your client be licensed under Article IX of the Banking Law in order to do so, so long as the interest rate were not greater than 16% per annum.

However, you have also informed me in a telephone conversation that there may circumstances in which your client may make loans in the amount of $50,000 or less at interest rates to exceed 16% per annum. Based on our brief conversation, it appears that under those circumstances, your client would have to be licensed under Article IX of the Banking Law. If you wish a legal opinion based on the specific details of this 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%, before doing so, it is highly recommended that you or your client contact the State of New York Banking Department Licensed Financial Services Division at (212) 709-5500 to discuss this proposed activity and to obtain information on becoming a licensed lender in New York State and an application package for such a license.

I trust that this is responsive to your inquiry. If you have any questions, I can be reached at (212) 709-1642.


Christine M. Tomczak
Assistant Counsel