Banking Interpretations

NYSBL 108(5)
Part 75; Part 90
Personal Property Law 413

May 14, 2009


Dear Mr. [---]:

Your letter to me dated April 20, 2009 requests that the Banking Department opine on the meaning of certain sections of the New York Personal Property and Banking Laws relating to credit cards. Specifically, you have asked for an interpretation of Section 413(3)(a) of the Personal Property Law and Section 108(5)(b) of the Banking Law wherein it is stated, in part, that, in the case of variable rate loans made in connection with credit card purchases and cash advances thereunder, respectively, no retail seller or lending institution, as the case may be, "may add any factors to increase the rate other than variations in the established index without the prior approval of the banking board." You indicate that [---] is seeking to increase the margin above the index it currently uses and ask whether such an increase would require the prior approval of the Banking Board.

On March 17, 1997, the Banking Board adopted an amendment to Part 90.4(b) of its Regulations which repealed a provision therein that required lending institutions to obtain the prior approval of the Banking Board when they sought to increase the margin above the index on variable rate open-ended cash advance loans made pursuant to Section 108(5) in the case of banks and trust companies and the other sections of the Banking Law providing such authorization for savings banks, licensed lenders and savings and loan associations. That amendment also was applicable to lending institutions making such open-ended loans for purchases via a credit card pursuant to the provisions of Section 413(3) of the Personal Property Law. I attach for your perusal a copy of the letter that was sent to all lending institutions by the Secretary of the Banking Board. That letter, dated April 1, 1997, directly addresses the question you ask.

The drafters of the 1997 amendment clearly believed that the language in the second unnumbered paragraph of Section 108(5)(b) (and similar language found in Section 413(3)(a)) stating that the regulations of the Banking Board "shall allow a bank or trust company after choosing an approved index to choose a spread and a minimum and maximum rate of interest at its discretion" was dispositive and that the authority in that paragraph was not restricted by the language in the first unnumbered paragraph of Section 108(5), which, as aforementioned, states that once the variable rate of interest (which may be based on an index value plus or minus a spread) is established, "no lending institution may add any factors to increase the rate other than Variations in the established index without the prior approval of the banking board." While reasonable people might differ with respect to this interpretation, the Legal Division will interpose no objection to [---] increasing the margin on its variable rate credit card without Banking Board approval.

I note that although the provisions of Section 108(5) are in Article III of the Banking Law, which is generally applicable only to banks and trust companies, the provisions of Part 75 of the Banking Board Regulations state that credit unions shall issue credit cards pursuant to the terms and conditions set forth in that section, as well as those set forth in Section 413 of the Personal Property Law.

I trust that the foregoing addresses your inquiry.


Steven Barras
First Assistant Counsel