Banking Interpretations

NYSBL 491; 340

December 26, 2008


Re: Licensing Requirements

To Whom It May Concern:

Your letter dated August 28, 2008 to the New York State Banking Department was referred to me for a response. In your letter you request an opinion as to whether [---] , a car dealership, needs to obtain a license in order to sell trade-in or repossessed vehicles under a one year program with no secondary financing or interest in which the dealership will receive weekly payments.

Under Article l l-B of the Banking Law, Section 491(7), a “sales finance company” is defined as a person engaged, directly or indirectly, “in the business of holding retail installment contracts acquired from retail buyers, which have aggregate unpaid time balances of $25,000 or more at anyone time.” If the aggregate balances are $25,000 or more, [---] would be considered a sales finance company and would be required to obtain a license pursuant to Section 492 of the Banking Law. If the aggregate balances are under $25,000 then a license is not required.

If the financing arrangement is evidenced by a promissory note rather than an installment contract, Section 340 of the Banking Law is applicable. Section 340 of the Banking Law requires persons or entities to obtain a license as a "licensed lender" if they solicit loans in the State of New York, and in connection with such solicitation, make loans to residents of the State for personal, family, household, or investment purposes in the principal amount of $25,000 or less and charge "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." Section 14-a of the Banking Law provides that the maximum rate of interest shall be sixteen percent per annum. Thus, if the financing arrangements are evidenced by a promissory note, it is not necessary to obtain a license, regardless of the amount of the loan, so long as the interest rate charged is sixteen percent per annum or less.

In summary, [---] would have to obtain a license if it sells cars under retail installment contracts with aggregate balances of $25,000 or more or with loans evidenced by a promissory note which provides for an interest rate greater than sixteen percent.

If [---] will finance automobiles to customers with a balance of$25,000 or more or at an interest rate greater than sixteen percent, it is highly recommended that you contact the State of New York Banking Department Licensed Financial Services Division at (212) 709-5500 to obtain information on becoming a sales finance company in New York State and an application for such license. You can also consult our website, for application information.

If you have any further questions, please do not hesitate to contact me at (212) 709-1653.

Very truly yours,

Monique E. Holmes
Assistant Counsel