Banking Interpretations

NYSBL 108(4) & 340
Gen. Reg. Part 4

Steven Barras


Subject:  Licensed Lenders

Your E-Mail yesterday to the Banking Department's Consumer Services Division has been referred to me for reply. In that E-Mail, you ask whether banking institutions are exempt from the licensing requirements of Article IX of the Banking Law. Although such institutions are not specifically listed as being exempt from licensing under that article, their exemption may be found in the provisions of the first paragraph of Section 340. The provisions therein state that a license is not required if the lender does not charge a greater rate of interest that it could legally charge on the loan amounts listed in that section if it were not a licensee. This language may appear to be confusing but what it is addressing is the fact that the legal rate of interest in New York, as set forth in Section 14-a of the Banking Law, is 16% per annum. Consequently, the general rule is that unlicensed nonbank lenders may not charge more than that rate on the small loans within the purview of Article IX. If such lenders obtain an Article IX license, they may charge interest up to 25% per annum on the small loans. Any greater charge would be deemed to be criminal usury under the New York Penal Law. However, all banking institutions licensed or chartered under the New York Banking Law are authorized to charge up to 25% on personal loans and therefore are not in violation of Section 340 when they charge more than 16% per annum on small loans without an Article IX license (Federally chartered and licensed banking institutions are exempt from licensing as well for similar reasons ­ preemption considerations aside).

I trust that this response is of assistance to you.