Requirements To Originate, Purchase Or Own Automobile Loans Made Directly To Customers - Q4 1999

By the Division of Banks

Massachusetts General Laws chapter 255B requires any person engaged, in whole or in part, in the business of purchasing retail installment contracts must obtain a license from the Division. Said chapter 255B applies to the sale of motor vehicles. If a company wishes to originate, purchase or own automobile loans made directly to the customer, and will not be selling motor vehicles as defined in said chapter 255B, then it is the position of the Division that if the company continues to purchase contracts from retail sellers, it would be required to maintain its license under chapter 255B as an automobile sales finance company. A loan made directly to the customer and secured by an automobile, however, does not require an automobile sales finance company license under said chapter 255B. Such a loan may, however be subject to the Commonwealth's Small Loan Law.

Massachusetts General Laws, chapter 140, section 96 states no person shall directly or indirectly engage in the business of making loans of $6,000.00 or less, if the amount to be paid on any such loan for interest and expenses exceeds in the aggregate an amount equivalent to 12% per annum upon the sum loaned, without first obtaining a license to carry on the said business in the town where the business is to be transacted. If the company were to conduct any such activity, it would first need to obtain a license pursuant to section 96 of said chapter 140.

The company, if making loans of $25,000.00 or less, is subject to the Massachusetts Truth-in-Lending Law, chapter 140D of the General Laws and its implementing regulation 209 CMR 32.00 et seq., which applies to loans of $25,000.00 or less that are not secured by real property.