OGC Op. No. 08-07-25
The Office of General Counsel issued the following opinion on July 30, 2008, representing the position of the New York Insurance Department.
RE: Premium Installment Fees
1. Do fees charged by insurance companies when policyholders elect to pay their premiums in installments constitute interest payments that could potentially render the transaction usurious?
2. Does the charging of premium installment fees fall within the scope of the Fair Credit Reporting Act or other consumer credit laws?
1. No. Assuming the premium installment fee is a flat fee unrelated to the amount of the premium, the fee would not appear to be interest and therefore would be beyond the reach of New York’s usury laws.
2. To the extent that premium installment fees are not considered interest, they do not appear to constitute a consumer credit transaction coming within the Fair Credit Reporting Act or other consumer credit laws. However, please be advised that those laws are beyond the purview of the New York State Insurance Department.
The inquiry is of a general nature, without reference to particular facts.
The Insurance Department does not regulate premium installment fees. However, an insurer may choose to allow policyholders to pay their premiums in installments, and may charge a fee to the policyholder who elects to pay his or her premium in installments. This fee constitutes an “obligation in connection with the payment of premiums on a policy of insurance or any installment of such premium,” N.Y. Ins. Law § 3425(a)(10) (McKinney 2007), such that failure to pay the fee is considered nonpayment of premium. See Insurance Law § 3426(a)(3). Assuming the premium installment fee is not calculated as a percentage of the premium, the Insurance Department considers the installment fee to be a service fee related to the expense the insurer incurs by billing the policyholder in multiple installments. See OGC Opinion 03-04-31 (April 29, 2003).
The New York statute governing usury is N.Y. Gen. Oblig. Law § 5-501 (McKinney 2001), which states:
1. The rate of interest, as computed pursuant to this title, upon the loan or forbearance of any money, goods, or things in action, except as provided in subdivisions five and six of this section or as otherwise provided by law, shall be six per centum per annum unless a different rate is prescribed in section fourteen-a of the banking law.
2. No person or corporation shall, directly or indirectly, charge, take or receive any money, goods or things in action at a rate exceeding the rate above specified….
Assuming that the premium installment fee amount is independent of the amount of the premium, the fee would not appear to be interest or usurious in violation of section 5-501.
The inquirer also asks about the Fair Credit Reporting Act and other consumer credit laws. The Fair Credit Reporting Act (“Act”) aims to ensure “fair and accurate credit reporting” for the sake of “the continued functioning of the banking system.” 15 U.S.C. § 1681(a)(1). To that end, the Act regulates consumer reporting agencies and their procedures. As discussed above, in the estimation of the Insurance Department, premium installments fees are service fees charged to reflect costs incurred by the insurer. Assuming that the fees are not tied to the amount of the premium, they do not appear to be interest and do not seem to constitute a consumer credit transaction within the purview of the consumer reporting activities that the Fair Credit Reporting Act encompasses. Similarly, the charging of premium installment fees should not implicate state consumer credit issues under such circumstances.
Please note, however, that while the Insurance Department is not aware of any cases or determinations to the contrary, interpretations of the General Obligations Law and the Fair Credit Reporting Act are outside the province of this Department.
For further information, you may contact Associate Attorney Samuel Wachtel at the New York City office.