Banking Interpretations

NYSBL 566

New York State Banking Department
Memorandum

You requested a legal opinion as to whether certain activities involving [---] Funding Group, Inc. ("[---] Funding"), [---] Financing Specialist, (“[---] Financing") and [---]will, Inc (“[---]will”, constitute a violation of Section 566.2(a) of the Banking Law.

Recommendation

The situation you describe does not constitute a violation of Section 566.2(a) of the Banking Law, as long as the purchase of sale agreement does not negate recourse against the seller.

Background

[---] Funding, [---] Financing and [---]will are all licensed by the Department as premium finance companies. You stated that during your review of [---] Funding's annual report for year end 2006, you noted that the volume of operation schedule included the number of contracts executed for a particular month, but no numbers indicating the dollar amounts advanced were provided. Also, management officials at [---] Funding advised you that it does not fund any contracts, but instead sells them to [---] Financing or [---]will for funding. [---] Funding receives up to 2% of the income derived. You believe that the payment of the fee by [---] Financing and [---]will violates Section 566.2(a).

Reasoning
 
This involves the sale of premium finance agreements by a premium finance agency to two other premium finance agencies. This type of transaction is authorized by 566.2(a) which provides that "...a premium finance agency may purchase or otherwise acquire a premium finance agreement, provided that it conforms to this article in all respects, from an insurance agent or broker or another premium finance agency with recourse against the agent, broker or agency on such terms and conditions as may be mutually agreed upon;" Accordingly, as long as the purchase of sale agreement does not negate recourse against the seller, there is no violation of Section 566.2(a).