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 August 28, 2007 representing the position of the New York State Insurance Department.

Re: Tie-In Sales and Rebating

Question Presented:

Under the New York Insurance Law may a bank offer a customer a lower interest rate on an automobile loan on the condition that the customer purchases automobile insurance from an insurance agency owned by the bank?

Conclusion:

No. A bank may not offer a customer a lower interest rate on an automobile loan on the condition that the customer purchases automobile insurance from an insurance agency owned by the bank.

Facts:

The inquiry is general in nature, without reference to specific facts.

Analysis:

This issue is governed by two provisions of the New York Insurance Law. The first, N.Y. Ins. Law § 2502 (b)(2) (McKinney 2006), specifically addresses the actions of banks and similar institutions in connection with insurance sales. That statute provides, in relevant part:

(2) Banks, trust companies, savings banks, savings and loan associations, federal savings associations and national banks shall not extend credit, lease or sell property of any kind, or furnish any services, or fix or vary the consideration for any of the foregoing, on the condition or requirement that the customer obtain insurance from the bank, trust company, savings bank, savings and loan association, federal savings association or national bank, its affiliate or subsidiary, or a particular insurer, agent or broker... .

The other relevant provision is Insurance Law § 2324, which addresses rebating and discrimination in general. It provides, in pertinent part, as follows:

No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no employee or other representative of any such insurer, agent or broker shall make, procure or negotiate any contract of insurance other than as plainly expressed in the policy ... or shall directly or indirectly ... give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract... .

The conduct presented in the inquiry violates both of the above-quoted statutes. If a bank offers a customer a lower rate on an automobile loan if the customer also purchases automobile insurance from the bank-owned insurance agency, it would be “vary[ing] the consideration” of a loan on the condition that the borrower obtain insurance from an affiliate of the bank in violation of Insurance Law § 2502(a)(2).

Furthermore, if a bank, as a representative of its insurance agency, offers the customer a valuable consideration or inducement that is not specified in the insurance policy or contract, such conduct runs afoul of Insurance Law § 2324. The Department has previously opined that a bank may not lawfully offer a customer a ¼% reduction in a mortgage interest rate on the condition that the customer purchase certain unspecified insurance coverage from a particular agency. See Office of General Counsel Opinion (October 13, 1995).

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