New York Codes, Rules and Regulations › Title 3 - BANKING › Legal Interpretations › LI 6 - Other Licensees › Section LI 6.3 - Preemption of part of banking law, section 352(b) by the federal equal credit opportunity act

Current through Register Vol. 46, No. 28, July 10, 2024
Banking Law, § 352[b]
(a) Section 352 (b)  of the Banking Law
				provides that a licensed lender may not "induce or permit any person, nor any
				husband and wife jointly or severally, to become obligated, directly or
				contingently, or both, under more than one contract of loan at the same time,
				for the purpose or with the result of obtaining a higher rate of interest than
				would otherwise be permitted by this section". This prohibits a licensed lender
				from inducing or permitting husband and wife to enter into multiple loan
				agreements if the purpose or result is to obtain a rate of interest higher than
				would be permissible if only one loan agreement were made. Since the interest
				rates which licensed lenders may charge decline as the amount of the loan
				increases, a licensee would earn greater interest from multiple loans than from
				a single loan and might attempt to structure a singe loan as a multiple loan in
				the absence of such a provision.
(b) The Federal Equal Credit Opportunity Act
				and Regulation B, which was promulgated pursuant thereto, expressly preempt
				"any provision of State law which prohibits the separate extension of consumer
				credit" to spouses if "each spouse voluntarily applies for separate credit from
				the same creditor". Thus, Regulation B preempts so much of section 352(b) as
				prohibits a licensee from permitting a husband and wife to enter into separate
				loan agreements with the same licensee. By its terms, however, section 202.8(a)
				of Regulation B does not apply to a situation in which a licensee induces a
				husband and wife to enter into separate loan agreements.
(c) The result of the interplay of the two
				provisions is that the language of section 352(b) quoted above should be
				understood as follows:
(1) No licensee shall
				induce or permit any person to become obligated, directly or contingently, or
				both, under more than one contract of loan at the same time, for the purpose or
				with the result of obtaining a higher rate of interest than would otherwise be
				permitted by this section.
(2) No
				licensee shall induce any husband and wife jointly or severally to become
				obligated, directly or contingently, or both, under more than one contract of
				loan at the same time, for the purpose or with the result of obtaining a higher
				rate of interest than would otherwise be permitted by this section.
(3) If a husband or wife so requests, a
				licensee must permit any husband and wife jointly or severally to become
				obligated, directly or contingently, or both, under more than one contract of
				loan at the same time, but the licensee may not obtain a higher rate of
				interest on any loan than would otherwise be permitted if any loan or loans
				made to both spouses jointly and any loan or loans made to one spouse
				individually were considered a single loan; provided, however, that any loan or
				loans made to one spouse individually or jointly with a third party shall not
				be considered in determining the rate of interest applicable to any loan or
				loans made to the other spouse individually or jointly with a third
				party.
(4) The aggregate amount of
				loans outstanding by a licensee on which any person is obligated in any manner
				shall not exceed the amount authorized by section 352 (a)  of the Banking
				Law.