June 25, 2001
David P. Gesser
Shaw, Licitra, Bohner, Esernio, Schwartz & Pfluger, P.C.
1010 Franklin Avenue
Garden City, NY 11530
Re: Financing of Automobile Insurance Premiums
Dear Mr. Gesser,
Your letter dated May 18, 2001 addressed to Deputy Superintendent Paul Fazio has been forwarded to me for a response. You have requested guidance with regard to licensing requirements for one of your clients. You state that your client may purchase a controlling interest in a New York corporation that is currently licensed as a sales finance company pursuant to Article 11-B of the New York Banking Law. Your client is also contemplating providing financing (secured or unsecured) for the payment of automobile insurance premiums.
Your first question is whether a corporation that is already licensed pursuant to Article 11-B is required to apply for and obtain a license under Article 12-B in order to provide financing for the payment of automobile insurance premiums. Yes your client would be required to apply for a license under Article 12-B. In accordance with section 555 of Article 12-B the only entities that are exempt from the licensing requirement are a bank, state or federally chartered savings bank or savings and loan association, an authorized insurer or a lender licensed pursuant to Article 9 of the Banking Law.
Your second question asks for an interpretation of section 577 of the Banking Law. Section 577(1) and (2) mean that simply including an amount for insurance in a retail installment contract in accordance with the motor vehicle retail installment sales act or the retail instalment sales act, or in a lease agreement in accordance with the motor vehicle retail leasing act, does not render such agreements "premium finance agreements" under Article 12-B. Section 577(3) creates an exception from the licensing requirements of Article 12-B for a party making insurance premium finance loans and charging interest at rates that do not exceed the legal rate of interest prescribed by section 14-a of the Banking Law which is 16%. Accordingly, it is the Department's position that pursuant to 577(3) of the Banking law, a party making insurance premium loans at interest rates not in excess of 16% is not required to obtain a premium finance license under Article 12-B.
I note that prior to acquiring control of the corporation licensed under Article 11-B your client would be required to apply to the Banking Department for a change of control pursuant to section 492-a of the Banking Law. With regard to your client's plan to possibly provide secured financing for automobile insurance premiums, such is not authorized by Article 12-B of the Banking Law. When conducted properly there should be little risk involved in the financing of insurance premiums and therefore no need for the finance agency to obtain collateral securing the loan. The premium finance agency is protected because it is allowed to obtain a power of attorney from the insured permitting cancellation of the policy by the finance agency upon default by the borrower.
I trust this is helpful.
Sharon A. Cherry
cc: Paul Fazio, Deputy Superintendent