2003 -- S 0433

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LC02136

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2003

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A N A C T

RELATING TO INSURANCE - INSURANCE PREMIUM FINANCE AGREEMENTS

     Introduced By: Senator David E. Bates

     Date Introduced: February 13, 2003

     Referred To: Senate Financial, Technology, Regulatory

It is enacted by the General Assembly as follows:

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     SECTION 1. Chapter 27-40 of the General Laws entitled "Insurance Premium Finance

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Agreements" is hereby repealed in its entirety.

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     CHAPTER 27-40

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Insurance Premium Finance Agreements

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     27-40-1. Short title. -- This chapter may be cited as the "Insurance Premium Finance

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Act".

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     27-40-2. Definitions. -- As used in this chapter:

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      (1) "Director" means the director of business regulation.

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      (2) "Insurance premium finance agreement"; referred to in this chapter as "agreement",

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means an agreement by which an insured, or prospective insured, promises to pay to an insurance

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premium finance company the amount advanced or to be advanced, under the agreement to an

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insurer or to an insurance producer, in payment of a premium or premiums on an insurance

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contract or contracts, together with interest and a service charge, as authorized and limited by this

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chapter;

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      (3) "Insurance premium finance company", referred to in this chapter as "company",

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means a person engaged in the business of entering into insurance premium finance agreements,

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as defined in subdivision (2) of this section, or acquiring insurance premium finance agreements

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from other insurance premium finance companies;

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      (4) "Licensee" means an insurance premium finance company holding a license issued

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and existing by virtue of and pursuant to chapter 14.1 of title 19; and

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      (5) "Person" means an individual, partnership, association, business corporation,

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nonprofit corporation, common law trust, joint stock company; or any other group of individuals

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howsoever lawfully organized.

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     27-40-3. Licensee's maintenance and preservation of records -- Examination by

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director. -- (a) Every licensee shall maintain records of its insurance premium finance

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transactions, and the records shall be available for examination and investigation by the director.

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The director may, at any time during regular business hours of the licensee, examine the records

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of the licensee at any location at which the records are maintained.

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      (b) Every licensee shall preserve records of the insurance premium finance transactions,

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including cards used in a card system, if any, for at least two (2) years after the final entry is made

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with respect to an agreement. Preservation of the records on photographics, microfilm,

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microfiche, or similar media shall constitute compliance with this section.

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     27-40-4. Form of agreement. -- (a) Every agreement shall:

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      (1) Be dated and signed by, or on behalf of, the insured, and the printed portion of it shall

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be in at least eight (8) point type;

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      (2) Contain the names and place of business of the insurance producer negotiating the

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insurance contract or contracts to which the agreement relates, the name and residence, or place

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of business, of the insured, as specified by the insured, the name and place of business of the

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company to which payments under the agreement are to be made, a brief description of the

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insurance contract, or contracts, and the amount of the premium or premiums for the contract; and

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      (3) Set forth the following items where they are applicable:

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      (i) The total amount of the premium or premiums;

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      (ii) The amount of the down payment;

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      (iii) The principal balance, the difference between paragraphs (i) and (ii) of this

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subdivision;

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      (iv) The amount of interest to be charged;

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      (v) The balance payable by the insured, sum of paragraphs (iii) and (iv) of this

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subdivision; and

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      (vi) The number of installments required, the amount of each installment expressed in

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dollars, and the due date or period of the installments.

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      (b) The items set forth in subdivision (a)(3) of this section do not need to be stated in the

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sequence in which they appear in subdivision (a)(3) of this section, and additional items may be

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included to explain computations made in determining the amount to be paid by the insured.

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     27-40-5. Limitation on interest and other charges. -- (a) A company shall not charge,

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contract for, receive, or collect an interest or discount charge other than as provided by this

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chapter.

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      (b) Interest is to be computed on the balance of the premium or premiums due, after

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subtracting the down payment made by the insured in accordance with the agreement, from the

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effective date of the insurance contract, for which the premium or premiums is or are being

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advanced, to and including the date when the final installment provided for in the agreement is

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due and payable.

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      (c) Interest shall not exceed that specified in section 6-26-2. A service charge of fifteen

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dollars ($15.00) per agreement, which need not be refunded upon cancellation or prepayment,

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may be imposed. The interest provided for by this chapter anticipates timely repayment, in

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consecutive equal monthly installments, for a period of one year. With respect to contractual

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arrangements for repayment in greater or lesser periods, or in unequal, irregular, or other than

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monthly installments, interest may be computed at an equivalent effective rate, having due regard

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for timely payments of installments.

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      (d) Notwithstanding the provisions of any agreement, an insured may prepay the

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obligation in full at any time. In that event, the insured shall receive a refund credit. The refund

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credit shall represent at least as great a proportion of the interest as the sum of the periodic

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balances following the month in which prepayment is made bears to the sum of all periodic

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balances under the schedule of installments in the agreement. If the amount of a refund credit is

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less than one dollar ($1.00), no actual refund need be made.

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     27-40-6. Delinquency and cancellation charges. -- (a) An agreement may provide for

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payment by the insured of a delinquency charge ranging from one dollar ($1.00) to a maximum of

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five percent (5%) of an installment that is in default for a period of five (5) days or more.

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      (b) The agreement may provide for payment by the insured of a cancellation charge of

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fifteen dollars ($15.00), if the default results in cancellation of any insurance contract or contracts

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listed in the agreement.

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      (c) An agreement may also provide for payment, upon default, of reasonable costs of

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collection, including reasonable attorneys' fees.

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      (d) None of the charges referred to in this section shall be considered directly or

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indirectly in determining whether a violation of the usury laws has occurred under an agreement.

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     27-40-7. Cancellation of insurance contract upon default. -- (a) When an agreement

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contains a power of attorney enabling the company to cancel an insurance contract or contracts

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listed in the agreement, the insurance contract or contracts shall not be cancelled by the company

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unless the cancellation is effectuated in accordance with this section.

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      (b) Not less than ten (10) days written notice shall be mailed to the insured, at his or her

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last known address, as shown on the records of the company, of the intention of the company to

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cancel the insurance contract or contracts unless the default is removed within the ten (10) day

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period.

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      (c) After expiration of the ten (10) day period, the company may cancel the insurance

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contract or contracts by mailing a notice of cancellation to the insurer. The insurance contract or

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contracts shall be cancelled as if notice of cancellation had personally been submitted by the

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insured, but without requiring return of the insurance contract or contracts. The company shall

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also mail a notice of cancellation to the insured at his or her last known address as shown on the

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records of the company. The insurance contract or contracts shall be cancelled by the insurer on a

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pro rata basis.

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      (d) All statutory, regulatory, and contractual restrictions providing that an insurance

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contract may not be cancelled unless notice is given to a particular governmental agency,

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mortgagee, or other third party shall be applicable to any cancellation effected under the

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provisions of this section. The insurer shall give the prescribed notice on behalf of itself or the

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insured to any governmental agency, mortgagee, or other third party on or before the second

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business day after the day it receives notice of cancellation from the company, and shall

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determine the effective date of cancellation, taking into consideration the number of days' notice

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required to complete the cancellation.

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     27-40-8. Return premiums. -- Whenever a financed insurance contract or contracts is

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cancelled, the insurer shall return the gross unearned premium or premiums, if any, that may be

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due under the insurance contract or contracts, directly to the company for the account of the

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insured, as soon as reasonably possible, but, in no event, shall the period for the return exceed

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sixty (60) days after the effective date of cancellation. In the event that crediting of a return

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premium or premiums to the account of an insured results in a surplus over the amount due from

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the insured, the company shall refund the excess to the insured, provided that no refund shall be

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required if the refund amounts to less than one dollar ($1.00).

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     27-40-9. Exemption from filing requirements. -- Filing of the agreement shall not be

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necessary to perfect its validity, as a secured transaction against creditors, subsequent purchasers,

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pledgees, encumbrancers, trustees in bankruptcy, or other insolvency proceeding under any law,

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or any person having the status, power, or authority of these, or their successors or assigns.

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     SECTION 2. Section 19-14-1 of the General Laws in Chapter 19-14 entitled "Licensed

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Activities" is hereby amended to read as follows:

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     19-14-1. Definitions. -- For purposes of this chapter and chapters 14.1, 14.2, 14.3, 14.4

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and 14.4 14.5 of this title:

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      (1) "Check" means any check, draft, money order, personal money order, or other

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instrument for the transmission or payment of money. For the purposes of check cashing,

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travelers checks or foreign denomination instruments shall not be considered checks. "Check

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cashing" means providing currency for checks;

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      (2) "Deliver" means to deliver a check to the first person who in payment for the check

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makes or purports to make a remittance of or against the face amount of the check, whether or not

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the deliverer also charges a fee in addition to the face amount, and whether or not the deliverer

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signs the check;

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      (3) "Electronic money transfer" means receiving money for transmission within the

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United States or to locations abroad by any means including, but not limited to, wire, facsimile or

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other electronic transfer system;

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      (4) (i) "Lender" means any person who makes or funds a loan within this state with the

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person's own funds, regardless of whether the person is the nominal mortgagee or creditor on the

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instrument evidencing the loan;

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      (ii) A loan is made or funded within this state if any of the following conditions exist:

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      (A) The loan is secured by real property located in this state;

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      (B) An application for a loan is taken by an employee, agent, or representative of the

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lender within this state;

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      (C) The loan closes within this state; or

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      (D) The loan solicitation is done by an individual with a physical presence in this state.

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acting in the capacity of an employee, agent, or representative of the lender.

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      (iii) The term "lender" shall also include any person engaged in a transaction whereby

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the person makes or funds a loan within this state using the proceeds of an advance under a line

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of credit over which proceeds the person has dominion and control and for the repayment of

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which the person is unconditionally liable. This transaction is not a table funding transaction. A

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person is deemed to have dominion and control over the proceeds of an advance under a line of

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credit used to fund a loan regardless of whether:

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      (A) The person may, contemporaneously with or shortly following the funding of the

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loan, assign or deliver to the line of credit lender one or more loans funded by the proceeds of an

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advance to the person under the line of credit;

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      (B) The proceeds of an advance are delivered directly to the settlement agent by the line

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of credit lender, unless the settlement agent is the agent of the line of credit lender;

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      (C) One or more loans funded by the proceeds of an advance under the line of credit is

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purchased by the line of credit lender; or

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      (D) Under the circumstances as set forth in regulations adopted by the director or the

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director's designee pursuant to this chapter;

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      (5) "Licensee" means an entity licensed under this chapter;

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      (6) "Loan" means any advance of money or credit including, but not limited to:

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      (i) Loans secured by mortgages;

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      (ii) Insurance premium finance contracts; agreements;

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      (iii) The purchase or acquisition of retail installment contracts or advances to the holders

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of those contracts;

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      (iv) Educational loans;

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      (v) Any other advance of money; or

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      (vi) Any transaction such as those commonly known as "pay day loans," "pay day

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advances," or "deferred presentment loans," in which a cash advance is made to a customer in

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exchange for the customer's personal check, or in exchange for the customer's authorization to

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debit the customer's deposit account, and where the parties agree either that the check will not be

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cashed or deposited, or that customer's deposit account will not be debited, until a designated

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future date.

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      (7) "Loan broker" means any person who, for compensation or gain, or in the expectation

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of compensation or gain, either directly or indirectly, solicits, processes, negotiates, places or sells

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a loan within this state for others in the primary market, or offers to do so. A loan broker shall

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also mean any person who is the nominal mortgagee or creditor in a table funding transaction. A

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loan is brokered within this state if any of the following conditions exist:

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      (i) The loan is secured by real property located in this state;

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      (ii) An application for a loan is taken by an employee, agent or representative of the loan

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broker within this state;

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      (iii) The loan closes within this state; or

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      (iv) The loan solicitation is done by an individual with a physical presence in this state

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acting in the capacity of an employee, agent, or representative of the loan broker.

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      (8) "Personal money order" means any instrument for the transmission or payment of

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money in relation to which the purchaser or remitter appoints or purports to appoint the seller as

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his or her agent for the receipt, transmission, or handling of money, whether the instrument is

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signed by the seller or by the purchaser or remitter or some other person;

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      (9) "Primary market" means the market in which loans are made to borrowers by lenders,

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whether or not through a loan broker or other conduit;

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      (10) "Principal owner" means any person who owns, controls, votes or has a beneficial

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interest in, directly or indirectly, ten percent (10%) or more of the outstanding capital stock of a

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licensee;

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      (11) "Sell" means to sell, to issue, or to deliver a check;

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      (12) "Small loan" means a loan of less than five thousand dollars ($5,000), not secured

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by real estate, made pursuant to the provisions of chapter 14.2 of this title;

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      (13) "Small loan lender" means a lender engaged in the business of making small loans

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within this state;

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      (14) "Table funding transaction" means a transaction in which there is a

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contemporaneous advance of funds by a lender and an assignment by the mortgagee or creditor of

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the loan to the lender;

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      (15) "Check casher" means a person or entity that, for compensation, engages, in whole

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or in part, in the business of cashing checks; and

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      (16) "Deferred deposit transaction" means any transaction such as those commonly

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known as "pay-day loans," "pay-day advances," or "deferred presentment loans" in which a cash

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advance is made to a customer in exchange for the customer's personal check or in exchange for

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the customer's authorization to debit the customer's deposit account and where the parties agree

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either that the check will not be cashed or deposited, or that the customer's deposit account will

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not be debited until a designated future date. ;

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     (17) “Insurance premium finance agreement” means an agreement by which an insured,

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or prospective insured, promises to pay to an insurance premium finance company the amount

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advanced or to be advanced, under the agreement to an insurer or to an insurance producer, in

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payment of a premium or premiums on an insurance contract or contracts, together with interest

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and a service charge, as authorized and limited by this title;

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     (18) “Insurance premium finance company” means a person engaged in the business of

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making insurance premium finance agreements or acquiring insurance premium finance

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agreements from other insurance premium finance companies; and

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     (19) “Simple interest” means interest computed on the principal balance outstanding

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immediately prior to a payment for the actual number of days between payments made on a loan

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over the life of a loan.

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     SECTION 3. Section 19-14.1-2 of the General Laws in Chapter 19-14.1 entitled "Lenders

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and Loan Brokers" is hereby amended to read as follows:

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     19-14.1-2. Maximum rate of interest. -- (a) Every lender may lend or loan broker may

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negotiate the lending of any sum of money and may charge, contract for and receive points, fees,

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charges and interest on the unpaid balance of the loan at a rate not to exceed that provided in

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section 6-26-2, or as otherwise permitted under applicable federal law or regulation.

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      (b) Rebates of finance charges on precomputed loans, made for an original term of sixty

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(60) months or less, may be calculated on the method commonly referred to as the rule of 78 or

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sum of the digits. Rebates of finance charges on precomputed loans, made for an original term

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greater than sixty (60) months, must be calculated on the simple interest method. at least the

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amount as would be produced by the application of the rule of anticipation.

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     SECTION 4. Title 19 of the General Laws entitled "Financial Institutions" is hereby

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amended by adding thereto the following chapter:

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     CHAPTER 14.6

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INSURANCE PREMIUM FINANCE AGREEMENTS

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     19-14.6-1. Form of agreement. - - (a) Every agreement shall:

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     (1) Be dated and signed by, or on behalf of, the insured, and the printed portion thereof

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shall be in at least eight (8) point type;

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     (2) Contain the names and place of business of the insurance producer negotiating the

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insurance contract or contracts thereto relating, the name and residence, or place of business, of

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the insured, as specified by the insured, the name and place of business of the company to which

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payments under the agreement are to be made, a brief description of the insurance contract or

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contracts, and the amount of the premium or premiums therefore; and

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     (3) Set forth following items where they are applicable;

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     (i) The total amount of the premium or premiums;

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     (ii) The amount of the down payment;

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     (iii) The principal balance, the difference between (i) and (ii);

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     (iv) The amount of interest to be charged;

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     (v) The balance payable by the insured, sum of items (iii) and (iv); and

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     (vi) The number of installments required, the amount of each installment expressed in

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dollars, and the due date or period thereof.

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     (b) The items set forth in subsection (a)(3) need not be stated in the sequence in which

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they appear in subsection (a)(3), and additional items may be included to explain computations

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made in determining the amount to be paid by the insured.

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     19-14.6-2. Limitation on interest and other charges. - - (a) An insurance premium

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finance company shall not charge, contract for, receive or collect any interest or discount charges

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at a rate in excess of that provided in section 6-26-2.

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     (b) Interest on any insurance premium finance agreement is to be computed on the

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balance of the premium or premiums due, after subtracting the down payment made by the

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insured in accordance with the agreement, from the effective date of the insurance contract, for

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which the premium or premiums is or are being advanced, to and including the date when the

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final installment provided for in the agreement is due and payable. The interest so provided for by

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this chapter anticipates timely repayment, in consecutive equal monthly installments, for a period

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of one year. With respect to contractual arrangements for repayment in greater or lesser periods,

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or in unequal, irregular, or other than monthly installments, interest may be computed at an

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equivalent effective rate, likewise, having due regard for timely payments of installments.

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     (c) A service charge of fifteen dollars ($15.00) per insurance premium finance agreement,

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which need not be refunded upon cancellation or prepayment, may be imposed as long as the

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imposition of said service charge does not cause the total charges provided for in the agreement to

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exceed that specified in section 6-26-2.

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     (d) Notwithstanding the provisions of any agreement, an insured may prepay the

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obligation in full at any time. In that event, the insured shall receive a refund credit. The refund

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credit shall represent at least as great a proportion of the interest as the sum of the periodic

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balances following the month in which prepayment is made bears the sum of all periodic balances

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under the schedule of installments in the agreement. If the amount of a refund credit is less than

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one dollar ($1.00), no actual refund need be made.

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     19-14.6-3. Delinquency and cancellation charges. - - (a) An insurance premium finance

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agreement may provide for payment by the insured of a delinquency charge ranging from one

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dollar ($1.00) to a maximum of five percent (5%) of an installment which is in default for a

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period of five (5) days or more.

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     (b) The agreement may provide for payment by the insured of a cancellation charge of

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fifteen dollars ($15.00), if the default results in cancellation of any insurance contract or contracts

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listed in the agreement.

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     (c) An agreement may also provide for payment, upon default, of reasonable costs of

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collection, including reasonable attorneys’ fees.

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     (d) none of the charges referred to in this section shall be considered directly or indirectly

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in determining whether a violation of the usury laws has occurred under an agreement.

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     19-14.6-4. Cancellation of insurance contract upon default. - - (a) When an insurance

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premium finance agreement contains a power of attorney enabling the company to cancel an

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insurance contract or contracts listed in the agreement, the insurance contract or contracts shall

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not be cancelled by the company unless the cancellation is effectuated in accordance with this

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section.

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     (b) Not less than ten (10) days written notice shall be mailed to the insured, at his or her

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last known address, as shown on the records of the company, of the intention of the company, to

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cancel the insurance contract or contracts unless the default is removed within the ten (10) day

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period.

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     (c) After expiration of the ten (10) day period, the company may cancel the insurance

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contract or contracts by mailing to the insurer a notice of cancellation. The insurance contract or

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contracts shall be cancelled as if notice of cancellation had been submitted by the insured

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personally, but without requiring return of the insurance contract or contracts. The company shall

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also mail a notice of cancellation to the insured at his or her last known address as shown on the

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records of the company. The insurance contract or contracts shall be cancelled by the insurer on a

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pro rata basis.

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     (d) All statutory, regulatory, and contractual restrictions providing that an insurance

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contract may not be cancelled unless notice be given to a particular governmental agency,

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mortgagee, or other third party shall be applicable to any cancellation effected under the

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provisions of this section. The insurer shall give the prescribed notice on behalf of itself or the

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insured to any governmental agency, mortgagee, or other third party on or before the second

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business day after the day it receives notice of cancellation from the company, and shall

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determine the effective date of cancellation, taking into consideration the number of days notice

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required to complete the cancellation.

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     19-14.6-5. Return premiums. - - Whenever a financed insurance contract or contracts is

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cancelled, the insurer shall return the gross unearned premium or premiums, if any, that may be

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due under the insurance contract or contracts, directly to the insurance premium finance company

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for the account of the insured, as soon as reasonably possible, but, in no event, shall the period for

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the return exceed sixty (60) days after the effective date of cancellation. In the event that crediting

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of a return premium or premiums to the account of an insured results in a surplus over the amount

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due from the insured, the insurance premium finance company shall refund the excess to the

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insured, provided that no refund shall be required if the refund amounts to less than one dollar

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($1.00).

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     19-14.6-6. Exemption from filing requirements. – Filing of the insurance premium

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finance agreement shall not be necessary to perfect validity thereof, as a secured transaction

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against creditors, subsequent purchasers, pledgees, encumbrancers, trustees in bankruptcy, or

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other insolvency proceeding under any law or any person having the status, power, or authority of

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the aforementioned, or their successors or assigns.

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     SECTION 5. This act shall take effect upon passage.

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LC02136

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO INSURANCE - INSURANCE PREMIUM FINANCE AGREEMENTS

***

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     This act would repeal chapter 27-40, would enact a new chapter relative to insurance

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premium finance agreements in title 19 and would replace the rule of anticipation as a means for

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rebating finance charges on precomputed loans with a simple interest rebate method and broadens

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the applicability of the lender and loan brokering licensing provisions to any person with a

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physical presence in this state.

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     This act would take effect upon passage.

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LC02136

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