OGC Opinion No. 08-04-07
The Office of General Counsel issued the following opinion on April 3, 2008, representing the position of the New York State Insurance Department.
RE: ABC Insurance Association inquiry--an insured's use of a credit card to pay the premium on an insurance policy
Questions Presented:
(1) Must an insurer accept use of a credit card by an insured to pay the premium on an insurance policy?
(2) If an insurer accepts use of a credit card by an insured to pay the premium on an insurance policy, must the insurer pay the credit card transaction fee imposed on to it by the credit card issuer every time the insured uses a credit card to make a premium payment?
Conclusions:
(1) An insurer does not have an obligation to accept use of a credit card by an insured to pay the premium on an insurance policy. However, the New York State Insurance Department (hereinafter, "Department") has long held that there is no prohibition in the New York State Insurance Law (hereinafter, "Insurance Law" or "N.Y. Ins. Law") against the use of a credit card to pay the premium on an insurance policy as long as there is no discrimination among members of the same general class.
(2) If an insurer accepts use of a credit card by an insured to pay the premium on an insurance policy, then the insurer must pay the credit card transaction fee imposed on it by the credit card issuer.
Facts:
The inquirer states that he is a researcher working for an Insurance Association located in another country. In an e-mail to the Department, the inquirer asks about specific issues regarding the merchant service charge between insurers and credit card issuers. The Department's Office of General Counsel (hereinafter, "OGC") refers to the "merchant service charge" herein as the "credit card transaction fee" imposed on the insurer by the credit card issuer. The credit card transaction fee is based on a percentage of the amount paid by a credit card holder (hereinafter, "the insured") that uses a credit card to pay the premium on an insurance policy. First, the inquirer asks whether an insurer must accept use of a credit card by an insured to pay the premium on an insurance policy. Second, the inquirer asks whether, if an insured may use a credit card to pay the premium on an insurance policy, the insurer must pay the credit card transaction fee to the credit card issuer every time the insured makes a premium payment using a credit card. Although the inquirer refers to automobile insurance with regard to an insured's payment of installment premiums by credit card by way of illustration, this opinion applies generally to all kinds of insurance.
Analysis:
An insurer does not have an obligation to accept use of a credit card by an insured to pay the premium on an insurance policy. However, in interpreting the anti-rebating and anti-discrimination provisions of N.Y. Ins. Law § 2324 (McKinney 2006) and N.Y. Ins. Law § 4224 (McKinney 2007), the Department has long held that, while there is no prohibition in the Insurance Law against the use of a credit card by an insured to pay the premium on an insurance policy, an insurer or insurance agent or broker may not discriminate among members of the same general class. OGC Opinion Number 02-10-03 (10/02/2002) states in relevant part:
[W]hen an insurer . . . agrees to accept payment by credit card, it cannot accept it from some insureds but not from others when all parties are within the same general class. Thus, it would not be acceptable for an insurer . . . to accept payment by credit card for new policies but not for renewals or to accept credit cards for the cash down payment on financed policies but not for the payment of premium on non-financed policies. The company could, however, limit credit card use to the payment of only a certain percentage of premium, provided that the percentage is the same for all members of the same general class.
In the United States, the credit card issuer typically imposes a credit card transaction fee on the merchant of goods or services that accepts a customer's use of a credit card. If an insurer were to accept use of a credit card by an insured to pay the premium on an insurance policy, the insurer must pay the credit card transaction fee imposed on to it by the credit card issuer every time the insured uses a credit card to pay the premium.
Credit card transaction fees that are imposed on a merchant by a credit card issuer may not be offset by the merchant by passing such fees on to the credit card holder. New York State General Business Law (hereinafter, "N.Y. Gen. Bus. Law") § 518 (McKinney 1996) provides:
No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means. Any seller who violates the provisions of this section shall be guilty of a misdemeanor punishable by a fine not to exceed five hundred dollars or a term of imprisonment up to one year, or both.
The New York State Attorney General has interpreted N.Y. Gen. Bus. Law § 518 (McKinney 1996) as applying to insurers with respect to premium payments. Thus, the credit card transaction fee, referred to as a "surcharge" by N.Y. Gen. Bus. Law § 518, may not be imposed by insurers on insureds pursuant to that New York State statute. See New York State Attorney General Formal Opinion No. 2006-F2 (January 25, 2006), available online at http://www.oag.state.ny.us/lawyers/opinions/2006/formal/2006-F2.pdf; see also OGC Opinion Number 08-02-11 (02/25/2008) (allowing a third-party payment facilitator to collect a fee from an insured for effecting electronic payments to an insurer).
For further information, you may contact Senior Attorney Robert Freedman at the New York City office.