Banking Interpretations

NYSBL 14-a, 340

November 17, 2004

Re: Licensed Lender Status

Dear [           ]:

Your inquiry to the New York State Banking Department, regarding the need to be licensed as a lender in New York, has been referred to me for response.

You state in your letter that the [                           ] is a nonprofit  [    ] corporation that provides low-interest loans to homeowners with substandard drinking water systems.  These loans can be used only for the installation of a new water well system, refurbishing an existing system or for repair and/or maintenance to an existing water well system.  The maximum principal amount of the loans is $8,000.00 with 1% interest per year on the unpaid balance.

Section 340 of the New York State Banking Law provides that "No person or other entity shall engage 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 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."

Section 14-a of the New York State Banking Law provides that the maximum rate of interest shall be sixteen per centum per annum.  Therefore, since the loans that you are providing are given to individuals at an interest rate of less than sixteen per centum per annum, you would not need to apply for a license to be a lender in New York as long as that maximum rate is not exceeded.  

I trust that this has been responsive to your inquiry.

Very truly yours,

Megan Prendergast
Associate Attorney