The Office of General Counsel issued the following informal opinion on October 16, 2000, representing the position of the New York State Insurance Department.RE: Credit Card Rebate Payment System
Rebate amounts accrue on a credit card account when the credit card is used to make purchases. Is there a violation of the Insurance Law when the rebate amount is directed toward payment of a premium for an insurance policy?
Under the facts as specified herein, there would be no violation of the Insurance Law when the rebate amount is directed toward payment of a premium for an insurance policy.
ABC Corp. proposed a system in which the rebate feature on a credit card would be utilized to pay insurance premiums. A consumer makes purchases using a credit card that accrues a rebate based upon the amount of purchases made. The purchases are unrelated to insurance (unless the consumer uses the credit card to pay for his or her insurance). ABC Corp.s proposed system processes the accrued rebate by depositing it into an escrow account for the consumers benefit. The consumer will direct ABC Corp. to apply the rebate toward the consumers outstanding premium balance on an insurance policy. ABC Corp. will forward the amount electronically to the consumers insurer, at the customers request.
ABC Corp. indicated that the rebate may be applied to any policy from any insurer. It also indicated that the amount could be applied to pay other, non-insurance bills. ABC Corp. further indicated that the program was not being structured for the amounts to be paid directly to the consumer, although such arrangement was a possibility. The premium is neither discounted nor rebated by the insurer. The consumer remains liable to the insurer for the full premium and the insurer will receive the exact same premium as if the consumer had paid for the premium by check or cash, and the consumer could always pay the full premium directly.
N.Y. Ins. Law §§ 2324 and 4224 (McKinney 2000) contain prohibitions and restrictions concerning inducements and interdependent sales, and rebating. It is our opinion that neither provision is violated by ABC Corp.s proposal.
There is no joint marketing scheme with any insurer or other licensee. The credit card rebate accrues independently based upon purchases made, and would do so regardless of whether the consumer has insurance or wishes to engage in the program. The rebate may be applied to any insurance companys policy, or to none. The premium that is due is not affected in any manner by the consumers participation in the program; the insurer is due the same premium whether the consumer participates or not. The credit card rebate is clearly not a prohibited rebate within the meaning of either section, and there is no prohibited inducement or interdependent sale. Accordingly, we conclude that ABC Corp.s proposal does not violate the Insurance Law.
In response to our inquiry whether an insurer might consider payment of the rebate amount to be a partial and incomplete payment and would cancel a policy because it had not received a full payment, ABC Corp. represented that the participating insurers did not indicate that this would be a problem. Nonetheless, ABC Corp. was advised that it should make sure that the consumer remains aware of his or her obligation to pay the balance due.
For further information you may contact Supervising Attorney Paul A. Zuckerman at the New York City Office.