Can a New York insurance company or broker charge an extra fee to a customer who pays an insurance premium by credit card?

Plain-English summary

General Business Law § 518 makes it a misdemeanor for "a seller in any sales transaction" to impose a surcharge on a customer who pays by credit card instead of by cash or check. Penalties can include a fine up to $500 or up to a year in jail. The statute does not define "sales transaction," and only a handful of trial-level decisions had construed it as of 2006.

Insurers and brokers had asked the Insurance Department whether they could charge a service fee to customers who paid premiums by credit card. The goal was to pass the credit-card processing fee on to the cardholder. The Insurance Department had previously taken the position that § 518 prohibited such fees, and asked the AG to confirm.

The AG agreed: § 518 prohibits a credit-card surcharge on an insurance premium payment. The reasoning unfolds in several steps.

First, the text of § 518 is broad. It applies to "any sales transaction" and to any "seller," which Article 29-A's definitions section (§ 511(6)) defines as "any person who honors credit cards or debit cards which may be used to purchase or lease property or services." The Legislature did not limit the term "sales transaction" or carve out particular industries.

Second, the AG concluded that an insurance contract qualifies as a "service" or a "property interest" for purposes of a consumer protection statute. Other states had reached the same conclusion under their analogous consumer-protection statutes (Kentucky, Pennsylvania, Illinois). New York's own general consumer-fraud statute, GBL § 349, has long been applied to the sale and marketing of insurance, by both the Second Circuit and the Court of Appeals.

Third, the AG looked at the predecessor federal statute. The state surcharge ban was enacted in 1984 to fill the gap left when the comparable federal Truth in Lending Act provision (15 U.S.C. § 1666f(a)(2)) expired. New York's statute mirrors the federal language exactly. Although there were no reported decisions construing the federal surcharge ban specifically, federal cases interpreting another TILA provision applying to "credit sales" had applied that section to insurance. Under in pari materia and consistent-meaning canons, the same word in the same setting in TILA should be read the same way, and the state statute that mirrored TILA should also be read to include insurance.

Putting these strands together, the AG concluded that the Legislature intended § 518's prohibition to reach a broad range of consumer transactions, including the purchase of insurance, and that fees imposed for paying insurance premiums by credit card violate § 518.

Currency note

This opinion was issued in 2006. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What about a cash discount? Is that the same thing?
The AG noted in a footnote that two reported trial-level decisions had addressed whether § 518 was unconstitutionally vague insofar as it banned a credit-card surcharge but allowed a cash discount. The vagueness issue was not part of this opinion. Whether and how an insurer or broker could structure a lawful cash discount, rather than a surcharge, was outside the question presented.

Does this apply only to credit cards or also to debit cards?
The statute speaks of credit cards, and Article 29-A's definitions tie "seller" to honoring credit or debit cards. The opinion is specifically about credit cards. Debit card surcharges were treated differently under contemporary federal law, though.

Is the fee illegal regardless of how it's labeled?
The opinion does not turn on the label. § 518 bans surcharges imposed on cardholders who use a credit card "in lieu of payment by cash, check, or similar means." A "service fee" that is only charged to credit-card payers fits that description regardless of what it is called.

Does this opinion address whether the Insurance Department itself can regulate these fees?
No. The AG expressly noted that the Insurance Department's question was limited to § 518. The opinion did not analyze whether Insurance Law or Department regulations independently address the fees.

Does this apply to insurance brokers as well as insurers?
The opinion treats the issue generally as one about "insurers, insurance brokers or similar entit[ies]" charging service fees. The statutory ban runs against any "seller in any sales transaction," and brokers facilitating insurance sales would fit within that definition.

Background and statutory framework

The federal Truth in Lending Act briefly banned credit-card surcharges through Pub. L. 94-222, codified at the former 15 U.S.C. § 1666f(a)(2). That federal ban expired in the early 1980s. In 1984, New York enacted General Business Law § 518, using the federal language verbatim, to maintain the prohibition at the state level. The statute provides a misdemeanor penalty for violation and applies to "any sales transaction."

Article 29-A of the General Business Law, where § 518 sits, defines "holder" (a person to whom a credit card is issued or who has agreed to pay for one issued to another), and "seller" (any person who honors credit or debit cards usable to purchase or lease property or services). The breadth of the "seller" definition tracks the breadth of "sales transaction."

The AG looks beyond § 518's text to three sources of meaning. First, comparative insurance consumer-protection case law from other states confirms that insurance contracts have been treated as services or property interests under broadly worded consumer-protection statutes. Second, New York's own GBL § 349 has been applied to insurance practices. Third, federal Truth in Lending decisions applying TILA's "credit sale" language to insurance suggest that the identical text in § 518's federal predecessor would have applied to insurance, and the state statute that imported that text should follow the same reading.

Insurance Law § 9101 defines "premium" for tax purposes; the AG cites it to support the practical proposition that a premium is consideration for the insurance contract, which fits the § 518 definition of a sales transaction.

Citations

• General Business Law § 518 (ban on credit-card surcharges); § 511(4) (holder definition); § 511(6) (seller definition); § 349 (general consumer fraud statute).
• Insurance Law § 9101 (defining premium).
• Public Law No. 94-222; former 15 U.S.C. § 1666f(a)(2) (predecessor federal ban).
• Stevens v. Motorists Mut. Ins. Co., 759 S.W.2d 819 (Ky. 1988); Pekular v. Eich, 513 A.2d 427 (Pa. Super. Ct. 1986); Fox v. Indus. Cas. Ins. Co., 424 N.E.2d 839 (Ill. App. Ct. 1981) (insurance as service or property interest under state consumer-protection statutes).
• Riordan v. Nationwide Mut. Fire Ins. Co., 977 F.2d 47 (2d Cir. 1992); Gaidon v. Guardian Life Ins. Co. of Am., 94 N.Y.2d 330 (1999); Uibell Anesthesia, P.C. v. Guardian Life Ins. Co. of Am., 239 A.D.2d 248 (1st Dep't 1997) (GBL § 349 applied to insurance).
• Stefanski v. Mainway Budget Plan, Inc., 456 F.2d 211, 212 (5th Cir. 1972); King v. Central Bank, 558 P.2d 857, 861 (Cal. 1977) (TILA "credit sales" applied to insurance).
• People v. Fulvio, 136 Misc. 2d 334 (N.Y.C. Crim. Ct., Bronx Co. 1987); People v. Fulvio, 135 Misc. 2d 93 (N.Y.C. Crim. Ct., Bronx Co. 1987) (vagueness challenges to § 518).
• Brian J. Redmond, Coverage of Insurance Transactions Under State Consumer Protection Statutes, 77 A.L.R.4th 991, § 4a (1990).

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/2006-F2_pw.pdf

Original opinion text

GENERAL BUSINESS LAW §§ 349, 511(4),(6), 518; INSURANCE LAW § 9101; PUBLIC LAW NO. 94-222; 15 U.S.C. § 1666f(a)(2)

Fees imposed for the payment of insurance premiums by credit card are prohibited by General Business Law § 518.

January 25, 2006

Audrey Samers
Deputy Superintendent & General Counsel
New York State Insurance Department
25 Beaver Street
New York, NY 10004

Formal Opinion No. 2006-F2

Dear Ms. Samers:

You have asked whether General Business Law § 518, which prohibits a "seller in any sales transaction" from imposing a surcharge for the use of a credit card in lieu of another payment method, applies to service fees charged to insureds who elect to pay insurance premiums by credit card. Your question focuses on whether the payment of premiums for a contract of insurance is a "sales transaction" within the meaning of the statute. We conclude that such payments are "sales transactions," and thus that fees imposed for the payment of insurance premiums by credit card are prohibited credit card surcharges within the meaning of General Business Law § 518.

BACKGROUND

Insurers and insurance brokers have inquired of your Department whether they are permitted to charge a service fee to insureds who use a credit card to pay for insurance premiums. They seek to use the service fee to recover from the insureds credit card transactions fees imposed by credit card issuers. The Insurance Department has in the past opined that General Business Law § 518 prohibits the imposition of such service fees upon insureds. You ask whether the Department's interpretation of this provision is correct.

ANALYSIS

The imposition of surcharges upon credit card holders for the use of a credit card in lieu of other methods of payment is prohibited by General Business Law § 518, which provides in full:

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 issue presented here is whether a fee imposed by an insurer, insurance broker or similar entity upon an insured who uses a credit card to pay insurance premiums falls within the statutory prohibition. Insurance premiums are the consideration paid for coverage under an insurance policy. See N.Y. Jur. 2d, Insurance § 902 (1988); cf. Insurance Law § 9101 (defining "premium" for purpose of article governing fees and taxes). The question is therefore whether the purchase of insurance is a "sales transaction" within the meaning of General Business Law § 518.

The term "sales transaction" is not defined in the statute, and there are no reported decisions that address the types of transactions that fall within the ambit of the statute. Because section 518 prohibits the use of a credit card surcharge in "any sales transaction," the language of the statute indicates that it was intended to apply broadly. See General Business Law § 518 (emphasis added). Additionally, for purposes of Article 29-A of the General Business Law, within which section 518 falls, the term "seller" is defined as "any person who honors credit cards or debit cards which may be used to purchase or lease property or services." General Business Law § 511(6). Thus, as long as the sale of insurance can be considered the sale of property or a service, it appears to fall within the plain meaning of the statute. We believe that the purchase of insurance coverage can be considered the purchase of property or a service, and thus that credit card surcharges imposed in connection with the payment of insurance premiums fall within the intended scope of the statute.

Nothing in General Business Law § 518 or its legislative history indicates that the Legislature intended to limit the statute's application to only certain types of sales transactions or to give the terms "property" and "service" narrow or restrictive meanings. Moreover, an insurance contract has generally been considered a "service" or "property interest," as those terms are used in other state consumer protection laws. See, e.g., Stevens v. Motorists Mut. Ins. Co., 759 S.W.2d 819, 820 (Ky. 1988); Pekular v. Eich, 513 A.2d 427, 433 (Pa. Super. Ct. 1986); Fox v. Indus. Cas. Ins. Co., 424 N.E.2d 839, 842 (Ill. App. Ct. 1981). See generally Brian J. Redmond, Coverage of Insurance Transactions Under State Consumer Protection Statutes, 77 A.L.R.4th 991, § 4a (1990). It is also well-accepted that New York's general consumer frauds statute, General Business Law § 349, which prohibits deceptive practices in "the conduct of any business, trade or commerce or in the furnishing of any service," applies to transactions involving the sale and marketing of insurance. See, e.g., Riordan v. Nationwide Mut. Fire Ins. Co., 977 F.2d 47 (2d Cir. 1992); Gaidon v. Guardian Life Ins. Co. of Am., 94 N.Y.2d 330, 344 (1999); Uibell Anesthesia, P.C. v. Guardian Life Ins. Co. of Am., 239 A.D.2d 248 (1st Dep't 1997). Our conclusion that the sale of insurance should be considered the sale of property or a service within the scope of General Business Law § 518 is thus consistent with the inclusion of insurance transactions under other broadly-worded consumer protection laws.

Analysis of a related federal statute further supports this construction of section 518. The state prohibition on credit card surcharges was enacted in 1984 to replace a federal ban on surcharges that had recently expired. See, e.g., Sponsor's Memorandum, reprinted in Bill Jacket to ch. 160 (1984), at 5. The prohibition under state law follows the wording of the former federal statute exactly. See Act of Feb. 27, 1976, Pub. L. No. 94-222, 90 Stat. 197 (1976) (codified at former 15 U.S.C. § 1666f(a)(2)). Thus, the scope of the pre-existing federal statute is probative as to the intended scope of the New York law that replaced it.

Nothing in the legislative history of the federal statute indicates that Congress intended to limit the types of sales transactions covered under that statute, the Truth in Lending Act ("TILA"). Moreover, although we were not able to locate any decisions construing the scope of the federal surcharge ban, cases involving another section of TILA are instructive. Specifically, a section of TILA that requires certain disclosures in "credit sales" has been applied to the sale of insurance. See Stefanski v. Mainway Budget Plan, Inc., 456 F.2d 211, 212 (5th Cir. 1972); King v. Central Bank, 558 P.2d 857, 861 (Ca. 1977). Applying the principles of statutory construction that the same words used in different parts of an act are presumed to have the same meaning, and that statutes in pari materia (statutes that relate to the same subject) generally are to be construed similarly, these cases indicate that the sale of insurance would likely have been included within the term "sales transaction" in the former federal credit card surcharge ban. This further supports our view that General Business Law § 518, because it is based upon the federal surcharge statute, should likewise be interpreted as including the sale of insurance within its scope.

CONCLUSION

Because General Business Law § 518 is broadly worded to prohibit credit card surcharges in "any sales transaction" which involves the purchase of "property or services," and nothing in the legislative history to this provision indicates that a narrow scope of the statute was intended, there does not appear to be any basis for excluding the purchase of insurance from the scope of this statute. Therefore, we conclude that the ban on credit card surcharges in General Business Law § 518 prohibits the imposition of a surcharge on an insured who uses a credit card to pay insurance premiums.

Very truly yours,

ELIOT SPITZER
Attorney General