Banking Interpretations

NYSBL 491(7) and 492

August 16, 2006

[ ]

Re: Section 492 of the New York Banking Law

Dear [ ]:

Your letter dated April 26, 2006 to Sara Kelsey, Deputy Superintendent and Counsel, New York State Banking Department (the "Department"), has been referred to me for response. In your letter you asked the following question: Is [ ] (the "Company"), which is headquartered outside New York State and has no physical presence in New York State, required to be licensed under Article XI- B of the Banking Law if the Company purchases retail installment sales contracts originated by motor vehicle dealers located in New York State?

According to Article XI-B, Section 492 of the Banking Law:

No person, except a bank, savings bank, savings and loan association, trust company, private banker or investment company, organized under the banking law of this state and authorized to accept deposits, or licensed lender conducting business pursuant to the provisions of article nine of this chapter, shall engage in the business of a sales finance company in this state without a license therefor obtained from the superintendent, as provided in this article. (Emphasis added.)

"Sales finance company" is defined by Section 491(7) as:

[A] person engaged, in whole or in part, directly or indirectly, in the business of purchasing or otherwise acquiring retail installment contracts, obligations or credit agreements made by and between other parties, or any interest therein.

From the information provided in your letter, it seems clear that the Company is a Sales Finance Company as defined by Section 491(7) of the Banking Law. However, because of the fact that the Company does not have a physical presence in New York State, at this time, we do not interpose any objection in this case to the Company conducting its proposed business activities without first obtaining a license under Article XI-B. This conclusion is in line with the conclusion reached in the Department's attached interpretive letter dated July 8, 1999, which in part states that "a sales finance company with no physical presence in New York that acquires or creates New York retail installment credit arrangements is not required to obtain a sales finance company license since such activity does not constitute engaging in the business of a sales finance company in this state."

Please note, however, that the Department is currently readdressing the issue as to whether licensing under this section of the Banking Law should depend on whether or not an entity has a physical presence in New York and, therefore, it might be the case in the future that an entity would be required to be licensed under Article XI-B of the Banking Law even though it has no physical presence in New York.

In addition, you should note, as stated in the July 8, 1999 interpretive letter, that certain case law may have potential contrary implications. In Schleimer v. McPherson, 60 A.D.2d 837, 400 N.Y.S.2d 566 (1978), the court held that a New Jersey resident, engaged in the business of purchasing retail installment sales contracts from New York based used car dealers could not enforce said installment contracts in New York because she had not obtained a New York sales finance company license prior to being involved in the transaction.

I trust the foregoing is responsive to your inquiry.

Very truly yours,

Alan M. Weinberg
Assistant Counsel