OGC Opinion No. 07-07-24
The Office of General Counsel issued the following opinion on July 25, 2007, representing the position of the New York State Insurance Department.
RE: Cash Transaction Facilitator
May a processing fee be charged to an insured that pays its insurance premium in cash through a self-service, automated kiosk?
Yes. A processing fee may be charged to an insured that pays its insurance premium in cash through a self-service, automated kiosk subject to the conditions set forth below.
ABC Company owns and operates self-service, unmanned kiosks (electronically-run machines) that are designed to allow consumers to pay their bills in cash. A kiosk functions in the following manner: a consumer enters its debt information into the electronically-run machine and remits cash payment into it. The machine expels a statement showing transaction information, such as the date, consumer identification details, amount paid, and name of crediting company. The kiosks are equipped to accept payment on behalf of several utility, credit card, and auto finance/leasing companies. ABC Company intends to contract with insurance companies to accept premium payments made through the kiosks.
Based on an opinion by the New York State Attorney General, this Department previously opined that N.Y. Gen. Bus. Law § 518 (McKinney 1996) prohibits an insurer and its representing agent from charging a processing fee to an insured who has made premium payment by credit card. See Office of General Counsel (“OGC”) opinion dated February 2, 2006. However, General Business Law § 518 does not apply to the situation here because the transaction described does not involve the use of a credit card; rather, premium payment is made in cash. Hence, a processing fee may be charged to an insured that pays its insurance premium in cash through an ABC Company kiosk. See OGC opinions dated January 6, 2003 and December 28, 2001 (permitting service fees for insureds’ usage of electronic fund transaction devices to pay premiums).
However, in collecting premium payments, ABC Company would be acting on behalf of the insurers for whom premiums have been accepted. Hence, any fees associated with using an ABC Company kiosk would constitute service fees charged by the insurer, and not a direct charge by ABC Company. As such, these fees would be subject to taxation pursuant to Insurance Law Article 91. See OGC opinion dated March 12, 2007 (holding that service fees constitute “consideration” or “other compensation” that are taxable under Article 91).
Further, prior to using an ABC Company kiosk, an insured must be apprised of the service fees involved. Moreover, the fees must be reasonable in relation to the service provided. See OGC opinions dated January 4, 2002 and October 1, 2003 (requiring clear statement of service fees and reasonableness of fees charged).
Finally, an insurer that agrees to accept premium payments via the ABC Company kiosks must include in its agreement an acknowledgment that insureds would be held harmless for the failure of ABC Company to remit premium payments that were made through its kiosks, since ABC Company is acting on behalf of the insurer. See OGC opinion dated March 16, 2007 (applying general agency law that principal is liable for the wrongful conduct of its agent).
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.