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

Eliot Spitzer
Governor

Eric Dinallo
Superintendent

The Office of General Counsel issued the following opinion on June 19, 2007 representing the position of the New York State Insurance Department.

Imposition of Convenience Fee by a Third Party Facilitator of Credit Card Premium Payments

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:

ABC Payments (the “Company”), describes itself as a “third party credit card online gateway.” The Company provides a service to the insurance industry that allows policyholders to pay premiums by credit card. A small convenience fee is imposed on the policyholder by the Company for use of this service. This fee is not paid to the insurance company, but to the Company to cover credit card and service expenses it incurs by providing this service. The Company inquired about the permissibility of the practice under New York law.

Analysis:

N.Y. General Business Law § 518 (McKinney 1996) is relevant to your inquiry.1 It reads 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 that the Company imposes constitutes a surcharge because it is a charge on top of the premiums paid by policyholders.

N.Y. Gen. Bus. Law § 511(6) 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." New York’s Attorney General, in a formal opinion, has stated 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.

New York Attorney General Opinion No. 2006-F2 (January 25, 2006), available online at http://www.oag.state.ny.us/lawyers/opinions/2006/formal/2006-F2.pdf.

Accordingly, the prohibition set forth in Gen. Bus. Law § 518 against the imposition of a surcharge applies to insurers and insurance agents and brokers. Because an insurer may not impose a credit card surcharge on a policyholder, anyone acting on an insurer’s behalf, such as the Company, is similarly prohibited from imposing a surcharge on the policyholder.

For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.

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1 As a general matter, the Department’s Office of General Counsel (“O.G.C.”) limits its legal interpretations to the New York Insurance Law.  Nevertheless,  O.G.C. also opines on certain inquiries – such as yours – that pertain to the insurance industry but implicate other state statutes.