Banking Interpretations

NYSBL Sections 14-a and
General Obligations Law Section 5-501 and 5-521

February 7, 2006

[ ]

Re: Licensing Requirements

Dear [ ]:

In your January 6, 2006 letter, you state that your client intends to lend money to attorneys to fund the costs and expenses associated with litigation. In connection with this situation, you request guidance on several issues.

1. While it appears that our client need not be licensed to make loans in excess of $50,000, would our client be subject to the 16% usury limitation should they acquire a license?

Article IX of the New York Banking Law ("Banking Law") requires persons or entities to be licensed in New York State if they solicit loans in the State, and in connection with such solicitation, make loans to residents of the State for personal, family household or investment purposes in principal amounts of $25,000 or less, at interest rates greater than 16% per annum, which is the maximum rate of interest permitted under New York's Banking Law Section 14- a. Similarly, a license is required under Article IX of the Banking Law for persons or entities that make loans in the State for business or commercial purposes in the principal amount of $50,000 or less, at interest rates greater than 16% per annum.

In New York State, any loan under $250,000 can only be charged an interest rate of up to 16% per annum, N.Y. Gen. Oblig. Law 5-501 and N.Y. Banking Law 14-a (1). However, there are several exceptions to this limitation noted in the General Obligations Law itself and throughout the Banking Law.

2. Are loans in excess of $250,000 subject to the 16% usury rate?

Any loan in the amount of $250,000 or more can be charged an interest rate of up to 25%. The exception to this is a loan or forbearance secured primarily by an interest in real property improved by a one or two family residence. N.Y. General Obligations Law §5-501.6(a).

3. N.Y. General Obligations §5-521 states, in relevant part, that "[n]o corporation shall hereafter interpose the defense of usury in any action. The term corporation, as used in this section, shall be construed to include all associations, and joint-stock companies having any of the powers and privileges of corporations not possessed by individuals or partnerships. " Are LLCs, LLPs and PCs included in this seeming expansive definition of what is a corporation?

The N.Y. General Obligations Law is not within the Banking Department's expertise, therefore, we cannot comment on what is included in the definition of the term, "corporation," in this area of N.Y. law.

I trust that this is responsive to your inquiry. If you have any questions, I can be reached at (212) 709-1642.


Christine M. Tomczak
Assistant Counsel