Banking Interpretations

NYSBL 568 & 576

February 22, 2007


Re: Premium Finance Agency License

Dear Mr. [---]

This letter is in response to your inquiry, dated November 29, 2006, requesting guidance in the area of premium finance agencies licensed by the New York State Banking Department. You have explained that your area of interest is in payments of assigned risk automobile insurance.

Your first issue concerns a situation where the premium finance agency agrees to accept monthly payments from the insured. You have asked whether the premium finance agency is required to remit the total premium to the insurer "up front" as soon as the premium finance agreement is executed. The premium finance agency can still make monthly payments to the insurance company if that is the type of payment schedule that was agreed upon between the insured and the insurance company. The terms of the agreement remain in effect.

Your second issue is whether a premium finance agency is permitted to Contact the insurance company every month to inquire whether the insurance company intends to cancel the policy. It seems that the most common reason for cancellation would be non-payment and the premium finance agency would already be in a position to know whether the payments are being made to the insurance company. It is unclear why the premium finance agency would need to contact the insurance company. The answer to this question is not found in Article 12-B of the Banking Law. I note that a licensed premium finance agency does have the ability, in certain circumstances, under Article 12-B, to cancel the insurance policy that is being financed under the premium finance agreement. (see Banking Law Section 576). Pursuant to Section 3428(c) of the Insurance Law, an insurance company may honor a power of attorney to cancel an insurance policy that is given by an insured person to a licensee under Article 12-B.

Your third issue is whether there is a limit on the annual percentage rate that can be charged the insured. That rate is set forth in Section 568(4)(a) of the Banking Law and is not expressed as an "interest" rate but rather as a "service charge". The maximum service charge authorized by that section is $14 per $100 per annum plus an additional charge of $10 for each premium finance agreement.  This is not an annual percentage rate of 14% per annum but rather is equivalent to an APR of approximately 24%, depending on the term of the loan.

I trust that this has been helpful.

Very truly yours,
Megan Prendergast
Associate Attorney