Minnesota Statute § 53C.02 prohibits a person from engaging in the business of a “sales finance company” within the State of Minnesota without a motor vehicle sales finance company license.  Section 53C.01, subd. 12 defines a sales finance company as:

“…a person engaged, in whole or in part, in the business of purchasing retail installment contracts in this state from one or more retail sellers…”

This definition does not, and similar definitions in other states do not, have a consistent agreed upon interpretation among auto finance companies.  Given the wording of the statute, some finance companies have taken the view that, because they lack a physical presence in the State , they are not purchasing retail installment contracts “in this state” and, therefore, do not fall within the scope of this statute.

In early April, the Minnesota Department of Commerce (the “Department”) issued guidance clarifying the types of financial entities that are covered by the definition of “sales finance company” for which a motor vehicle sales finance company license is required.    The Department’s guidance makes clear that a finance company without a physical presence in the State of Minnesota is captured by the licensing requirement.

Companies that fall within the definition must file a materially completed application with the Department by July 1, 2019.  The license application requirement applies only to those retail installment sale contracts entered into on or after July 1, 2019, and activity conducted after such date without a license may be subject to enforcement action.   Banks, credit unions, savings associations, trust companies, industrial loan and thrift companies and other regulated lenders that are already authorized to do business in Minnesota are not required to obtain separate motor vehicle sales finance company licenses. Securitization entities (e.g., depositor and issuer) engaged in a typical two-step securitization transaction would not be sales finance companies subject to licensing under the current definition, because they purchase retail installment contracts from sales finance companies not retail sellers.

The Department’s guidance can be found by clicking the following link.