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

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following opinion on January 6, 2003, representing the position of the New York State Insurance Department.

 RE: Credit Card and Electronic Payment Fees

 Questions Presented:

Notwithstanding the New York Automobile Insurance Plan ("Plan") rules that restrict the types and amounts of fees that a producer may charge an insured, may a service fee be charged to an insured, who has paid its premium:

1) by credit card, as a means of offsetting the credit card transaction fees that were imposed on the producer by the credit card issuer?

2) through an electronic fund transfer, as a means of offsetting the transaction fees imposed on the producer by the electronic fund transfer service provider?

Conclusions:

Notwithstanding the New York Automobile Insurance Plan rules, which restrict the types and amounts of fees that a producer may charge an insured, a producer:

1) may not charge an insured who pays his premium by credit card a service fee as a means of offsetting the credit card transaction fees that were imposed on the producer by the credit card issuer;

2) may charge an insured who pays his premium through an electronic fund transfer a service fee as a means of offsetting the transaction fees imposed on the producer by the electronic fund transfer service provider.

Facts:

An inquirer opined that, upon appropriate amendment to the New York Automobile Insurance Plan rules, a producer may pass credit card transaction fees and electronic fund transfer service fees onto the assigned risk insureds who used such methods to make their premium payments.

Analysis:

Credit Card Transactions

N.Y. Gen. Bus. Law § 518 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.

N.Y. Gen. Bus. Law § 511(6) states in relevant part: "In this article, unless the context or subject matter otherwise requires: . . . ‘Seller’ means any person who honors the credit cards or debit cards which may be used to purchase or lease property or services[.]" We believe that the purpose of N.Y. Gen. Bus. Law § 518 is to protect a buyer from being penalized for using a credit card to make a purchase, rather than paying by cash or similar means, and that the purchase of insurance is a purchase of services as that term is used in N.Y. Gen. Bus. Law § 511(6).

Thus, notwithstanding any changes that might be made to the New York Automobile Insurance Plan rules that restrict the types and amounts of fees that a producer may charge an insured, a producer may not charge an insured who pays his premium by credit card a service fee as a means of offsetting the credit card transaction fees imposed on the producer by the credit card issuer.

Electronic Fund Transfer Transactions

N.Y. Ins. Law § 2119(c) (McKinney 2000) states, in relevant part, as follows:

(c)(1) No insurance broker may receive any compensation, other than commissions deductible from premiums on insurance policies or contracts, from any insured or prospective insured for or on account of the negotiation or procurement of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance policies or contracts, including adjustment of claims arising therefrom, unless such compensation is based upon a written memorandum, signed by the party to be charged, and specifying or clearly defining the amount or extent of such compensation.

(2) A copy of every such memorandum shall be retained by the broker for not less than three years after such services have been fully performed.

Thus, an insurance broker may charge an insured a fee for services performed in relation to the placement of an automobile insurance policy provided that the requirements of N.Y. Ins. Law § 2119(c) have been met.

N.Y. Ins. Law § 2119(c) applies only to insurance brokers. There is no corresponding section under the Insurance Law for insurance agents. Thus, an insurance agent is not authorized to charge such type of fee to an insured. However, there is one exception to this general rule, and that is in regard to policies placed with the New York Automobile Insurance Plan ("Plan"). Under the Plan rules, an insurance agent represents the insured, and therefore, acts as an insurance broker. Thus, for this limited purpose only, an insurance agent who complies with the N.Y. Ins. Law § 2119(c) requirements may charge an insured a service fee as permitted under, and limited by, § 21(C) of the Plan rules.

The Plan rules do not currently authorize a producer (an insurance agent or broker) to charge an insured who has paid its premium through an electronic fund transfer a service fee as a means of offsetting the transaction fees imposed on the producer by the electronic fund transfer service provider. However, there is no prohibition under the Insurance Law that would preclude the Plan from being amended to authorize such type of service fee. We offer no opinion as to whether the charging of such service fee is prohibited by any other state or federal law.

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