Banking Interpretations


New York State Banking Department

To:       Regina Stone

From:   Christine R. Cardi

Date:    November 2, 2007

Subject:  [---] - Recourse Agreements with Brokers


Whether the recourse/commission program instituted by [---] Company, Inc. ("[---]"), a New York State licensed premium finance company, is permissible under Section 566.2(a) of New York's Banking Law?

For the reason given below, the Legal Division is of the opinion that the recourse/commission program instituted by [---] is not in violation of Section 566.2(a) of New York's Banking Law.


[---] acquires premium finance agreements from certain insurance brokers. With respect to such agreements acquired regarding insureds that are commercial entities, [---] funds the insurance premiums upon the condition that the brokers provide recourse. In particular, under these circumstances, the brokers agree to guarantee the payment due to [---] for financing the insurance premiums in the event that a policy on an insurance premium finance agreement results in cancellation for other than additional premiums and audits.  In consideration for recourse, [---] agrees to pay to brokers a fee ranging from .05 to 6 points of an agreed upon rate of interest associated with the premium finance agreement. In order for the recourse arrangement to be effective, the brokers have to agree, in writing, to it.

Reason for Opinion

New York Banking Law Section 566.2(a) provides, in part, that a premium finance agency may purchase or otherwise acquire a premium finance agreement, provided that it conforms to Article 12-B in all respects, from an insurance agent or broker or another premium finance agency with recourse against the agent, broker or agency on such terms and conditions as may be mutually agreed upon.

Based on a review of the [---] recourse arrangement as described above, which arrangement must be mutually agreed upon by [---] and the brokers, the Legal Division finds that it is consistent with the provisions of Banking Law Section 566.2(a), and thus, has no legal objection to it.


Noted and agreed: M.G.