Banking Interpretations

April 3, 2002

Lisa A. Frey, Esq.
Kelly & Roth
605 Third Avenue
New York, NY  10158

RE:  Lender License and Deposits

Dear Ms. Frey:

Please be advised that your letter addressed to Sara Kelsey, Esq. has been forwarded to me for a response.  You stated that you represent a New York corporation that is in the process of applying to be a licensed lender.  Your client, which is a franchisor for limousine drivers, wishes to invite the franchisees to make deposits in the franchisor’s account and the franchisor will pay interest on those deposits.  You asked whether your client can provide this service to its franchisees.

The issue of your client accepting deposits is governed by Section 131 of the New York State Banking Law.  The relevant part of section 131.1 provides as follows:

No corporation, domestic or foreign, other than a national bank or a federal reserve bank, unless expressly authorized by the laws of this state, shall employ any part of its property, or be in any way interested in any fund which shall be employed for the purpose of receiving deposits,…”

Accordingly, the activity proposed by your client, which is not a banking organization would be in violation of Section 131 of the Banking Law.  Please note that becoming a licensed lender pursuant to Article IX of the Banking Law does not cure the illegality inherent in the deposit taking aspect of your client’s proposal.  Additionally, please be advised that Article IX of the Banking Law requires the licensing of persons or entities engaged in the business of making small loans ($25,000 or less to individuals for personal loans; $50,000 or less to individuals for business and commercial purposes) and charging interest at a rate greater than otherwise permitted by law (currently 16% under Section 14-a of the Banking Law and 5-501 of the General Obligations Law).

I trust this is responsive to your request.


Sharon A. Cherry
Associate Attorney