New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on December 28, 2001, representing the position of the New York State Insurance Department.

Re: Credit Card and E-Check Transaction Fees

Questions Presented:

1) May an insurer charge a service fee to an insured that has paid its premium by credit card as a means to offset the credit card transaction fees imposed on the insurer by the credit card issuer?

2) May an insurer charge a service fee to an insured that has paid its premium by e-Check as a means to offset the e-Check transaction fees imposed on the insurer by its bank and/or the electronic fund transfer service provider?

Conclusions:

1) No. It is impermissible to pass such credit card transaction fees on to an insured pursuant to N.Y. Gen. Bus. Law § 518 (McKinney 1996).

2) The New York Insurance Law does not prohibit an insurer from passing such e-Check transaction fees on to an insured. However, we offer no opinion as to whether such activity is prohibited by any other state or federal law.

Analysis:

Credit Card Transactions

Credit card transaction fees that are imposed on a merchant by a credit card issuer may not be offset by the merchant by passing such fees on to the credit card holder pursuant to N.Y. Gen. Bus. Law § 518 (McKinney 1996), which states:

No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means. Any seller who violates the provisions of this section shall be guilty of a misdemeanor punishable by a fine not to exceed five hundred dollars or a term of imprisonment up to one year, or both.

Thus, an insurer may not charge a service fee to an insured that has paid its premium by credit card as a means to offset the credit card transaction fees imposed on the insurer by the credit card issuer.

E-Check Transaction

The New York Insurance Law does not prohibit an insurer from charging a service fee to an insured that has paid its premium by e-Check as a means to offset the e-Check transaction fees imposed on the insurer by its bank and/or the electronic fund transfer service provider. However, we offer no opinion as to whether the charging of an e-Check transaction fee to an insured is prohibited by any other state or federal law.

Assuming there is no prohibition under state or federal law against an insurer offsetting an e-Check transaction fee by passing such fee on to the insured as a service fee, the Department views such service fee to be properly classified as a fee that is outside of the rating structure, and which does not have to be filed with the Department or included as part of the manual rates. Such fee may be charged separately and apart from the policy premium because the expense that such fee is meant to deflect arises independently from the issuance, underwriting, or general maintenance of an insurance policy. This fee arises in relation to the way an insured opts to pay its premium, and not in relation to the expenses incurred on behalf of an insured generally.

In addition, this service fee, and any consequences an insured would experience for failure to pay such fee, must be clearly stated to the insured (e.g., by including this information in the insurance policy form or in the billing statement). To preclude discrimination, the amount, and conditions placed upon the payment of, this fee must be applied equally to all insureds of the same class that are subject to the fee. In addition, the amount of the fee must be reasonable.

For further information you may contact Senior Attorney Sally Geisel at the New York City Office.