N.Y. Comp. Codes R. & Regs. tit. 3 § LI 6.3

Current through Register Vol. 46, No. 45, November 2, 2024

Section LI 6.3 - Preemption of part of banking law, section 352(b) by the federal equal credit opportunity act

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.

N.Y. Comp. Codes R. & Regs. Tit. 3 § LI 6.3