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

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on July 21, 2006 representing the position of the New York State Insurance Department.

RE: Credit Card Surcharge

Question Presented:

May an entity that provides a service to insurance companies that permits policyholders to pay their insurance premiums by credit card charge those policyholders an additional fee to cover credit card and other service expenses?

Conclusion:

No, an entity that provides a service to insurance companies that permits policyholders to pay their insurance premiums by credit card may not charge those policyholders an additional fee to cover credit card and other service expenses.

Facts:

An inquiry states that an employer ("ABC") is a third party processor that provides a service to insurance industry clients that allows policyholders to pay their premium by credit card. A small convenience fee is imposed on the policyholder for use of this service. The fee is not paid to the insurance companies but to ABC to cover credit card and service expenses it assumes by providing this service. It was inquired as to whether there are any New York State regulations that relate to the service ABC provides.

Analysis:

N.Y. Gen. Bus. Law § 518 (McKinney 1996) provides as follows:

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.

Black’s Law Dictionary 712 (8th ed. 1999) defines the term surcharge as "an additional tax, charge, or cost." Hence, the convenience fee, which is an additional charge to the premiums being paid by the policyholders, falls within this definition.

N.Y. Gen. Bus. Law § 511(6) (McKinney 1996) defines the term "seller" as "any person who honors credit cards or debit cards which may be used to purchase or lease property or services." The Office of Attorney General has stated in its formal opinion No. 2006-F2 that:

[A]s long as the sale of insurance can be considered the sale of property or a service, it appears to fall within the plain meaning of the statute. We believe that the purchase of property or a service, and thus the credit card surcharges imposed in connection with the payment of insurance premiums fall within its intended scope.

Accordingly, the § 518 prohibition against the imposition of a surcharge applies to insurers and insurance agents and brokers. Since an insurer may not impose a credit card surcharge on a policyholder, anyone, such as ABC, acting on its behalf may not impose such a surcharge on the policyholder either. This opinion may be viewed online at http://www.oag.state.ny.us/lawyers/opinions/2006/formal/2006-F2.pdf.

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