Industry Letter
Banking Law Section 351 - Licensed Lenders, Annual Fees on Open-End Loans

September 25, 1996

ADDRESSEE:

As you know, the New York Legislature recently adopted Chapter 223 of the Laws of 1996 that amended Section 351(6) of the Banking Law to enable the Superintendent of Banks to authorize licensed lenders to charge an annual fee on open-end loans, provided that such fee not exceed the lesser of one percent of the amount of the loan or $50. In addition, Chapter 223 of the Laws of 1996 provides that licensed lenders that charge an annual fee on open-end loans shall annually report to the Banking Department information concerning open-end loan borrowers, including average annual income, average amount of loans outstanding at the end of each calendar year, average interest charged, average annual fees and geographic distribution of loans.

Based on our understanding of the bill=s legislative history, the Department interpreted the measure to permit a licensed lender to charge an annual fee on open-end loans on a case-by-case basis upon approval of a letter application submitted to the Superintendent. It will be sufficient for a licensed lender with more than one branch to submit a single application. The Superintendent, in approving or denying an application, will take into consideration, among other things, the licensed lender=s record of serving the public, including a review of customer complaints, credit practices in general, collection practices and periodic examination findings. The Department further concludes that the Amount of the loan@ for purposes of calculating the annual fee is the maximum line of credit available to the borrower.

Under Chapter 223, licensed lenders that have received permission to charge an annual fee on open-end loans must file a report with the Superintendent, which shall include the information enumerated above relating to open-end loan borrowers. The Department has determined that it is consistent with the intent of the statute for licensed lenders to provide geographic information by zip code and that such report shall be required to be submitted within 60 days following the end of the calendar year.

If you have any questions, please contact Frank Mackin, Licensed Financial Services Division at (212) 618-6403.

Very truly yours,
Peter M. Philbin

Deputy Superintendent
Licensed Financial Services Division