On April 5, 2019, the Minnesota Department of Commerce (“Department”) issued guidance formalizing its position that a company that purchases retail installment contracts from Minnesota dealers must hold a sales finance company license, even if the company does not have a physical presence in Minnesota.
Under the Minnesota Motor Vehicle Retail Installment Sales law, a company that engages in the business of a sales finance company “in [Minnesota]” must hold a license. A sales finance company is defined as a person that purchases retail installment contracts “in [Minnesota].” As both the definition of a sales finance company and the license requirement are tied to activity “in Minnesota,” the Department’s historical interpretation has been that a license is required only if a company has a physical presence in Minnesota.
The April 5, 2019 guidance formalizes the Department’s current interpretation, which is that a company that purchases retail installment contracts from dealers must obtain a sales finance company license, regardless of whether the company has a presence in Minnesota. The guidance also clarifies that a Minnesota dealer that creates and holds retail installment contracts, but chooses to hold and collect the contracts out of state, must also hold this license.
Buy-here, pay-here dealers and sales finance companies that purchase retail installment contracts from Minnesota dealers will need to review the license requirement and how it applies to their respective business models.
There are several statutory exclusions to the license requirement. Among others, banks, industrial loan and thrift companies, and Minnesota Regulated Loan Act licensees are not required to hold a sales finance company license.
Companies that need a Minnesota sales finance company license must submit their applications to the Department through the Nationwide Multistate Licensing System by July 1, 2019. The Department’s guidance also explains that the license requirement applies to retail installment contracts that are executed after July 1, 2019.
Kelly Lipinski is a member of McGlinchey Stafford’s National Consumer Financial Services Compliance practice. Based in Cleveland, Lipinski advises indirect and direct auto finance companies on federal and state regulatory and compliance issues. She can be reached at (216) 378-4969 or [email protected] McGlinchey Stafford is the Compliance Partner of Auto Finance Excellence (AutoFinanceExcellence.org), a sister service of Auto Finance News.