Banking Interpretations

GRBB Part 41.1(h)

To: John G. Fasciani
Senior Examiner
Licensed Financial Services Division

From: Alvin A. Narin
Legal Division

Date: September 27, 2004

Subject: [ ] and [ ] -- Request for legal opinion relating to proposed dual authority.

Issue: [ ] and [ ], licensed lenders, submitted requests for a non-objection opinion from the Department regarding a proposal to market a Home Protection Plan ("Plan") through its licensed branch offices in New York.

Recommendation: There is nothing in the materials submitted to indicate that permitting [ ] or [ ] to market the Plan would result in the evasions of Article IX of the Banking Law or the regulations promulgated thereto.

Background: [ ] has been a licensed lender since [ ] and [ ] was licensed in [ ]. [ ] has [ ] licensed branches in New York and [ ] has [ ] licensed branches in New York. In [ ], [ ] and [ ] merged with the resulting corporation operating under the [ ] name. In [ ], [ ] acquired [ ].

The Plan is designed to cover the cost of a repair or replacement covered under the service contract of a customer's major appliances and home systems. It will be provided by and administered though [ ], an [ ] division of [ ]. The Plan provides customers with a toll-free telephone number to arrange for repair service through [ ] network of local trade professionals. The program is voluntary and is not a condition to the extension of credit or granting of a loan. Customers may cancel at any time and receive a pro-rata refund less a $25 cancellation fee. The Plan has terms of one, two and three years and the customer has the option of paying for the Plan in cash, check, money order or from the loan proceeds.

Reasoning: Banking Law §350(3) provides that except for certain enumerated situations, a licensed lender may not engage in the business of making loans under Article IX of the Banking Law ("Article IX") in association with any other business unless authorized in writing by the Superintendent. In order to engage in any other business, the Superintendent must find that the other business would not result in evasions of Article IX or the rules and regulations lawfully made thereto.

Review of the terms of the Plan does not indicate that permitting [ ] and [ ] to offer the Plan would constitute an evasion of Article IX and the applicable regulations. I note that since customer participation is voluntary, [ ] and [ ] should advise customers that approval for a loan is not contingent upon purchasing the Plan.

Accordingly, there is no legal objection to the issuance of dual authority certificates to [ ] in order to allow them to offer the Plan to their customers.