Banking Interpretations

NYSBL Section 340, 491, 590(1)

July 24, 2006

[ ]

Re: Article IX – Solicitation on behalf of a Licensed Lender

Dear [ ]:

Your request for an opinion sent to Sara Kelsey, Esq., General Counsel - New York State Banking Department (the “Department”) on May 5, 2006, has been referred to me for response. In your request you asked whether [ ] would be required to obtain a license under New York’s Licensed Lender Law, or under any other New York law or regulation, if it enters into a contract with HSBC to engage in the telemarketing and processing of telephone applications for unsecured consumer loans, funded by HSBC.

In your request, you stated that [ ] will be paid on an hourly basis, and will perform the following functions, referred to as “Work Activity:”

• Receives a list of prospect names from HSBC Consumer Lending Division;
• Processes the list in accordance with all state and federal requirements; and
• Sends a file to the call center, where the leads are solicited.

At the center, [ ] representatives:
• Use a script provided by HSBC to make outbound phone calls for HSBC to prospects and existing customers;
• Receive inbound calls on a phone number that HSBC gives to prospects via mail, again using script provided by HSBC (Portions of the script include questions to the customer/prospect about financial needs and options);
• Read to prospect the description of HSBC products (such as unsecured revolving credit) that matches the customer/prospect’s need;
• Take personal information from customer/prospect and fill out an online loan application through the HSBC System (software);
• Electronically submit the application to HSBC underwriting through the System (software);
• Communicate the underwriting decision made at HSBC to the customer/prospect;
• Communicate, using HSBC script, loan terms to the customer/prospect; and
• Electronically, send loan fulfillment information to HSBC, so that funds (check) would be mailed to the customer.

Article IX, Section 340 of the New York Banking Law prohibits a:

[P]erson or other entity [from] engag[ing] in the business of making loans in the principal amount of twenty-five thousand dollars or less for any loan to an individual for personal, family, household, or investment purposes and in a principal amount of fifty thousand dollars or less for business and commercial loans, and charge, contract for, or receive a greater rate of interest than the lender would be permitted by law to charge if he were not a licensee hereunder except as authorized by this article and without first obtaining a license from the superintendent.

And states that:

[A] person or entity shall be considered as engaging in the business of making loans in New York, and subject to the licensing requirements of this article, if it solicits loans in the amounts prescribed by this section within this state and, in connection with such solicitation, makes loans to individuals then resident in this state, except that no person or entity shall be considered as engaging in the business of making loans in this state on the basis of isolated, incidental or occasional transactions which otherwise meet the requirements of this section. (Emphasis added)

The statute is clear that a person has to both solicit and make loans in order for Section 340 to be applicable. Based on the information you provided, the Work Activity [ ] proposes to be engaged in, do not appear to include the making of loans, and therefore, [ ] would not be required to be licensed under Article IX of the Banking Law. Further, [ ] would not be required to be registered under Article XII-D as a mortgage broker since the loans [ ] contemplates soliciting are “unsecured loans,” and not “mortgage loans” as defined by Section 590(1) of the Banking Law. Neither would it be required to be licensed under Article XI-B of the Banking Law as [ ] is not proposing to conduct business as a “Sales Finance company” as defined by Section 491(7) of the Banking Law. In conclusion, based on the information you provided, the Department is of the opinion that [ ] does not have to have a license or registration, under any of the New York Banking Laws or Regulations, prior to being involve in the proposed activities.

I trust the foregoing is responsive to your inquiry.

Very truly yours,

Harry C. Goberdhan
Assistant Counsel