The Office of General Counsel issued the following opinion on June 26, 2001, representing the position of the New York State Insurance Department.
Re: Credit Card Premium Payment
Question Presented:
May an insurance agent or insurance broker charge an insured the service fees that are associated with a credit card transaction?
Conclusions:
Credit card transaction service fees may not be charged to an insured by an insurance agent, but may be charged by an insurance broker provided that the N.Y. Ins. Law §2119(c) requirements have been met.
Facts:
An insurance agency represented that it does not currently accept, but is considering accepting, credit cards for the payment of premiums. It stated that premiums are generally required to be paid in full, and that it provides premium financing through several premium finance companies, in which situation a cash down payment in the range of 20% to 25% is required to be made by the insured to the agency. The agency stated that it is considering accepting credit card payments for the cash down payment of policies whose premiums are financed. The agency contends that the service fees associated with the anticipated credit card transactions will amount to more than 5% of its commission revenue, and it inquired whether it may charge such service fees to the insureds who pay with credit cards. The agency did not state the kind of insurance that it places.
Analysis:
The Department has long held that insurance premiums may be paid by credit card. Credit card transactions must be treated in the same manner as checking transactions, and must be dealt with by the insurance agent or insurance broker that receives such payment in accordance with the fiduciary responsibility and premium account provisions contained in N.Y. Ins. Law § 2120 (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11, § 20.3 (1996).
With respect to an insurance agent or insurance broker passing the service fees associated with a credit card transaction on to the insured, N.Y. Ins. Law § 2119(c) (McKinney 2000) permits insurance brokers to charge to, and collect from, insureds compensation other than commissions. N.Y. Ins. Law § 2119(c) (McKinney 2000) provides:
(1) No insurance broker may receive any compensation, other than commissions deductible from premiums on insurance policies or contracts, from any insured or prospective insured for or on account of the negotiation or procurement of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance policies or contracts, including adjustment of claims arising therefrom, unless such compensation is based upon a written memorandum, signed by the party to be charged, and specifying or clearly defining the amount or extent of such compensation.
(2) A copy of every such memorandum shall be retained by the broker for not less than three years after such services have been fully performed.
(3) This subsection shall not affect the right of any such broker to recover from the insured the amount of any premium or premiums for insurance effectuated by or through such broker.
(4) This subsection shall not affect the requirements of subsection (a) or (b) hereof, subsection (g) of section two thousand one hundred one or section two thousand one hundred eight of this article.
Thus, an insurance broker may be able to pass the credit card service fees on to its insureds under § 2119(c). However, there is no provision similar to § 2119(c) in the Insurance Law for insurance agents. Thus, insurance agents must absorb any credit card charges as part of the general cost of doing business.
In the agencys letter it also indicated that it intended to accept credit cards only for the cash down payment of policies whose premiums are financed. While the Department does not object to an agencys limitation of credit card use based on certain lines of insurance, it does object to this agencys proposed use. Articles 23 and 42 of the Insurance Law prohibit rate and benefit discrimination. The Department has historically held that the method of premium payment is a benefit under the insurance policy. Therefore, where an insurer or agent agrees to accept payment by credit card, it cannot accept it from some insureds but not others when all parties are within the same general class. Thus, if an agency will make credit card payment available to insureds that finance their premiums, it must also make credit card payment available to insureds within the same general class that do not finance their premiums. However, the Department would not object to an agency limiting credit card use for the payment of only a certain percentage of premium provided that the same percentage applied to all members of the same general class (i.e., the acceptance of credit card payments for only 20% of the insurance premium, whether the premium is financed or not).
For further information you may contact Attorney Sally Geisel at the New York City Office.