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

Eliot Spitzer
Governor

Eric R. Dinallo
Superintendent

The Office of General Counsel issued the following opinion on February 25, 2008 representing the position of the New York State Insurance Department.

Re: Proposed Electronic Premium Payment System

Question Presented:

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

Conclusion:

Yes, nothing in the New York Insurance Law or regulations promulgated thereunder prohibits an entity that provides a service to insurance policyholders that enables them to pay their insurance premiums electronically by credit card from charging those policyholders a fee to cover credit card and other service expenses.

Facts:

A company has developed an electronic premium payment system (the “Payment System”) that would allow its customers to make secure electronic premium payments using credit cards, debit cards or electronic fund transfers. The Payment System directs the premium payments to be made directly to the insurance company designated by the customer, on the date designated by the customer. The Payment System is secure, and designed to meet data security standards so as to satisfy customer concerns regarding privacy protection and prevention of identity theft.

The Payment System does not at any time hold the premium payment on behalf of the customer or any insurance company. Rather, it simply acts to facilitate the making of payments by secure electronic means. Finally, the company charges a transaction fee for the service provided, and that this transaction fee is the same regardless of the payment method chosen.

Analysis:

No provision of the New York Insurance Law or the regulations promulgated thereunder governs the service provided through the operation of the Payment System. Accordingly, there is no legal impediment in the New York Insurance Law or the regulations promulgated thereunder that prohibits the operation of the Payment System as described. In addition, although it may involve the use of credit card payments, the Payment System does not appear to fall within the ambit of the prohibition contained in N.Y. General Business Law (GBL) § 518 (McKinney 1996). That statute provides:

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." While the Department’s Office of General Counsel does not generally construe the General Business Law, it appears that the fee imposed for use of the Payment System does not constitute a surcharge under that statute, because it is a fee for a separate and distinct service that is provided by a third party. It is not an extra charge levied by the insurance provider itself or its agent for the privilege of paying by credit card.

The prohibition set forth in GBL § 518 applies to the “seller” in any sales transaction. N.Y. Gen. Bus. Law § 511(6) defines "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.

Under the Attorney General’s Opinion, the N.Y. Gen. Bus. Law § 518 prohibition against the imposition of a surcharge applies to insurers and insurance agents and brokers, in that they are the “sellers” of insurance. Thus, an insurer (or anyone acting on the insurer’s behalf) may not impose a credit card surcharge on a policyholder. The company, by contrast, is not selling insurance and is not acting on any insurer’s behalf. Rather, it is providing (and charging for) a distinct service, i.e., the making of secure payments via electronic means. Therefore, the company’s activities are prohibited by neither the New York Insurance Law nor N.Y. Gen. Bus. Law § 518.

Finally, I note that in Office of General Counsel (O.G.C.) Opinion No. 07-06-17 (June 19, 2007), this office concluded that the operation of the Payment System would violate N.Y. Gen. Bus. Law §518. The reason for that conclusion was a misapprehension of the operation of the Payment System and the nature of its relationship to the insurance company vendors based on an earlier submission to the Department. In view of the clarifications provided, O.G.C. Opinion No. 07-06-17 is hereby withdrawn, and no longer should be followed.

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