July 31, 1962
The following Circular Letter was issued as a press release by Superintendent of Insurance Thomas Thacher. It is currently in:
July 31, 1962
The Insurance Department has received numerous inquiries from agents and brokers raising, essentially, the following questions: (1) Is a license under Article XII-B of the Banking Law of New York State required (i) in the case of a producer who makes a loan to an insured at simple interest at a rate not in excess of six per cent per annum, or (ii) in the case of a broker who makes a loan to an insured with interest and service charges with respect thereto aggregating in excess of six per cent per annum? (2) Is an authorized insurer permitted, pursuant to Section153(2) of the Insurance Law, to accept payment of premiums advanced by an agent or broker not licensed under Article XII-B?
In answer to these questions, Superintendent of Insurance Thomas Thacher today released the following extract from a legal opinion by the Department's Deputy Superintendent and General Counsel, Peter Ward, captioned "OPINION: RE INSURANCE PREMIUM FINANCING: SECS. 129, 153(2) INSURANCE LAW, SECS. 370, 371 GENERAL BUSINESS LAW AND ARTICLE XII-B BANKING LAW" and dated July 25, 1962:
"Based upon the advice of Counsel to the Banking Department, it is my opinion that a producer who makes a loan to an insured at simple interest at a rate not in excess of six per cent or less per annum is not required to be licensed under Article
and would be considered as "authorized.....to make loans.... in accordance with the banking law" within the meaning of that phrase in section 153(2) of the Insurance Law. Accordingly, there is presently no statutory bar to an authorized insurer or its agent accepting payment of premiums so advanced under a premium finance agreement.
"It is also my opinion that section 129 of the Insurance Law does not authorize service charges by a broker which contravene the prohibitions of sections 370 and 371 of the General Business Law or the Banking Law. Thus, if in compliance with section 129, a service charge is made which "directly or indirectly" is for the financing of an insurance premium, the total of such charge and any related charges for interest, etc., must not exceed six per cent simple interest on the loan, unless the broker is licensed under article XII-B of the Banking Law and the charges are in accordance with the requirements of that article. Any charge for financing the loan which, when added to the interest thereon, results in a total amount charged in excess of six per cent simple interest is usurious "except as otherwise provided by law" ($ 370, General Business Law). The only applicable exception is contained in article XII-B of the Banking Law, whereunder certain licensees are permitted, under specified conditions, to charge in excess of six per cent simple interest per annum for loans to finance premiums."