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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL


Opinion No. 6034

January 27, 1982

CONSTITUTIONAL LAW:

Const 1963, art 4, Sec. 25--amendments by implication

INSURANCE:

Authority of Commissioner of Insurance to enforce insurance law

Credit life insurance

1956 PA 218, Sec. 4416, does not unconstitutionally amend an act regulating the activities of financial institutions.

Under 1956 PA 218, Sec. 4416, the Legislature has limited the premium on a credit life insurance transaction so that the combined premium and interest or finance charge does not exceed the maximum interest the lender may lawfully receive.

The Commissioner of Insurance has responsibility for enforcing 1956 PA 218, Sec. 4416.

Nancy A. Baerwaldt

Commissioner of Insurance

Department of Licensing & Regulation

1048 Pierpont

Lansing, Michigan

Martha R. Seger

Commissioner

Financial Institutions Bureau

Department of Commerce

Law Building

Lansing, Michigan

You have requested my opinion with regard to 1956 PA 218, Sec. 4416, as amended; MCLA 500.4416; MSA 24.14416, which provides:

'Group life insurance may be issued covering only the lives of members of a group of persons for not more than $5,000.00 on any 1 life, numbering not less than 50 new entrants to the group yearly, who become borrowers from 1 financial institution, including subsidiary or affiliated companies, or who become purchasers of merchandise or other tangible property from 1 vendor under agreement to repay the sum borrowed or to pay the balance of the price of the merchandise or other tangible property purchased on the installment plan over a period of not more than 10 years, to the extent of their indebtedness to the financial institution or vendor does not exceed $5,000.00 on any 1 life. The policy may be issued on the application of and made payable to the financial institutions or vendor or other creditor to whom the vendor may have transferred title to the indebtedness, as beneficiary, the premium on the policy to be payable either from funds of the financial institution, vendor or other creditor, or from charges collected from insured borrowers or purchasers, or both. If all or part of the premium is derived from the collection from the insured borrowers or purchasers of an identifiable charge for the insurance, the borrowers or purchasers shall have the option to reject the insurance. The limitation of $5,000.00 on any 1 life may be raised to a sum in excess of $5,000.00 but shall not exceed $20,000.00 on any 1 life, in a group numbering not less than 100 new entrants to the group yearly. The total amount charged to the borrower for interest and for the insurance premium shall not exceed the maximum amount of interest which could be lawfully charged. The financial institution, including subsidiaries or affiliated companies, shall not act as agent for the group life insurance transaction. The provisions of section 4438 shall not apply to insurance described in this section. The borrower shall be given written notification of the application of the insurance when written. If a beneficiary receives money from a policy issued under this section, the person whose indebtedness is insured, or the estate of the deceased, shall be released from liability for the payment of the indebtedness to the amount paid to the beneficiary on the policy.' (Emphasis added.)

Although 1956 PA 218, Sec. 4416, supra, is part of the Michigan Insurance Code, the provision relates to the conduct of retailers and group policyholders, such as banks, savings and loan associations, credit unions, small loan companies and motor vehicle sales finance companies. In connection with most financing, purchasers and borrowers are provided the opportunity to purchase group life insurance which provides payment of the outstanding balance on the debt in the event of the death of the purchaser or borrower. The credit activities of retailers are governed by the provisions of the retail installment sales act, 1966 PA 224, as amended; MCLA 445.851 et seq; MSA 19.416(101) et seq. Each of the aforementioned lenders is licensed either by the State of Michigan or by an appropriate federal agency. The state agency charged with licensing and examining the affairs of state chartered lenders is the Financial Institutions Bureau. Banks, savings and loan associations and credit unions may also be chartered pursuant to federal enabling statutes, in which cases they would be subject to the supervision of the Comptroller of the Currency, the Federal Home Loan Bank Board, or the National Credit Union Administration, respectively.

The duties of the Commissioner of Insurance relate to the licensing and regulation of persons and entities engaged in the insurance and surety business. 1956 PA 218, Sec. 200; MCLA 500.200; MSA 24.1200. Your questions relate to the insurance activities of lending institutions which are licensed and regulated by the Commissioner of the Financial Institutions Bureau or an appropriate federal agency, but which are not licensed by the Commissioner of Insurance. Nonetheless, to the extent such lenders engage in insurance activities, their conduct may come within the purview of the Insurance Code, supra, which possibility has prompted your questions relating to the sale of credit life insurance. Your questions will be separately stated and answered.

1) Is Section 4416 of the Insurance Code, supra, constitutional, and is it enforceable as written in view of the fact that a provision of the Insurance Code is purporting to regulate lending practices of financial institutions?

Your initial inquiry deals with the constitutionality of 1956 PA 218, Sec. 4416, supra. This question is suggested by the fact that a provision in the Insurance Code purports to regulate the lending practices of various financial institutions, which factor poses a constitutional issue involving an amendment by implication. In that regard, Const 1963, art 4, Sec. 25 provides:

'No law shall be revised, altered or amended by reference to its title only.

The section or sections of the act altered or amended shall be reenacted and published at length.'

In Alan v Wayne County, 388 Mich 210, 285; 200 NW 2d 628 (1972), the court recognized that where the Legislature enacts a law with the intent to amend a prior statute so that its operation is narrower or broader than previously stated, an unconstitutional statutory amendment occurs. However, the Supreme Court also held that if the intent of the Legislature is not to amend or alter another statute, the court would treat both acts as in existence, and 'interpret them as they are written unaffected by subsequent statutes.'

In Advisory Opinion Re Constitutionality of 1972 PA 294, 389 Mich 441, 477; 208 NW2d 469 (1972), the court considered a similar constitutional question involving various provisions of the Michigan no fault insurance law. After noting that the no fault statute impacted on over 200 other state laws, the court nonetheless found constitutionality, stating:

'Amendments by implication are an inevitable by-product of the legislative scheme of government. It boggles the mind to contemplate the laws which would be rendered unconstitutional ab initio and the avalanche of litigation which would follow were we to construe Sec. 25 in so extended a manner as to find unconstitutional its effect upon 1972 PA 294.

'This act does not purport by its terms to directly revise, alter or amend any act or section of an act other than the Insurance Code. It does amend the title of the Insurance Code and it sets forth in full the additions to the body of the Code. To the extent which this act cuts across and affects other acts, it does not present the kind of problem toward which this constitutional provision is directed.'

The court found the notice requirements of Const 1963, art 4, Sec. 25 had been met, the enactment standards had been observed, and the act was complete in itself, thereby meeting the test of constitutionality under Const 1963, art 4, Sec. 25. Similarly, 1956 PA 218, Sec. 4416, supra, does not purport by its terms to revise, alter or amend any other act. There is no indication by any legislative intent to amend any law relating to the regulation of a financial institution. It does not confuse and it is complete onto itself.

It is my opinion, therefore, that there is no improper amendment in violation of Const 1963, art 4, Sec. 25.

2) If financial institutions are complying with interest rate provisions in their respective governing statutes and do not require insurance as a condition for obtaining credit, must financial institutions also comply with Section 4416 of the Insurance Code, supra?

Your second question relates to the statutory construction of 1956 PA 218, Sec. 4416, supra. As previously noted, the pertinent provision provides:

'[The] total amount charged to the borrower for interest and for the insurance premium shall not exceed the maximum amount of interest which could be lawfully charged. . . .'

You state that you are uncertain as to the meaning of this provision. You suggest that one reasonable interpretation might be that the insurance premium should be combined with the interest rate only in cases where credit insurance is required by the creditor. However, 1956 PA 218, Sec. 4416, supra, also provides:

'[If] all or part of the premium is derived from the collection from the insured borrowers or purchasers of an identifiable charge for the insurance, the borrowers or purchasers shall have the option to reject the insurance. . . .' (1)

Since the creditor may not require the purchase of credit insurance from the creditor, your suggested interpretation of 1956 PA 218, Sec. 4416, supra, must be rejected.

1956 PA 218, Sec. 4416, supra, which requires that the insurance premium be combined with the finance charge, is clear and unambiguous and must be enforced as enacted by the Legislature. Attorney General ex rel Insurance Commissioner v Michigan Property and Casualty Guaranty Association, 80 Mich App 653; 263 NW2d 918 (1978). It is recognized that this may cause lenders who charge the maximum interest rate to either absorb the cost of credit insurance or not offer it to a particular purchaser or borrower. However, for many years, credit unions which charged the maximum rate of interest provided by law have included credit insurance to their members at no additional charge. Obviously, the lender receives greater protection and additional security in providing credit life insurance to a borrower since the beneficiary of the policy is the lender. Whether it is preferable to encourage the free sale of credit insurance or to limit its sale in order to prevent a lender from indirectly exacting a higher interest rate is a policy question which must ultimately rest with the Legislature. Detroit Automobile Inter-Insurance Exchange v Commissioner of Insurance, 86 Mich App 473, 480; 272 NW2d 689 (1978). In General American Life Insurance Co v Wojciechowski, 314 Mich 275, 287; 22 NW2d 371 (1946), the court specifically noted with respect to a charge that the group life insurance law has an inequitable effect upon group members, that that 'the court does not decide the policy of legislation. If the objection merits consideration, the remedy lies in legislative action.'

Moreover, in determining the meaning of any statutory provision, the courts have followed the policy of ascertaining and giving effect to legislative intent. Spartan Asphalt Paving Co v Grand Ledge Mobile Home Park, 400 Mich 184; 253 NW2d 646 (1977). The provision of 1956 PA 218, Sec. 4416, supra, which requires that the insurance premium and interest be combined for the purpose of determining the maximum premium that may be charged, was made a part of the state insurance laws by 1951 PA 260. Prior to that time, the insurance laws prohibited a vendor or lender from charging the borrower for credit life insurance. The 1917 Insurance Code provided, for example, that while a group of debtors could be considered a group for the purposes of group life insurance, 'the premium on such policy [was] to be payable by the financial institution, vendor or other creditor.' 1917 PA 256, Part III, c II, Sec. 9a(2)(c), as amended by 1937 PA 75. Neither 1941 PA 101 nor 1943 PA 154 changed these provisions. However, amendatory 1951 PA 260 drastically changed the insurance laws relative to the sale of group credit life insurance. The restriction that the creditor absorb the cost of the insurance premium was lifted. The revised version, in pertinent part, stated:

'[Where] all or part of the premium is derived from the collection from the insured borrowers or purchasers of an identifiable charge for the insurance, the borrowers or purchasers shall have the option to reject the insurance: Provided, that the foregoing limitation of $5,000.00 on any 1 life may be raised to any sum in excess of $5,000.00, but not to exceed $10,000.00 on any 1 life, in any such group numbering not less than 100 new entrants to the group yearly: Provided, that the total amount charged to the borrower for interest and for such insurance premiums shall not exceed the maximum amount of interest which could be lawfully charged: Provided further, that such financial institution, including subsidiaries or affiliated companies, shall not act as an agent for such group life insurance transaction. . . .' (Emphasis added.)

1956 PA 103 retained the aforementioned provision as did the recodification of the Insurance Code by 1956 PA 218, and subsequent amendments thereto in 1957 PA 78, 1961 PA 226, and 1978 PA 169. An examination of the historical evolution of 1956 PA 218, Sec. 4416, supra, demonstrates that until 1937 creditors were not permitted to form groups for the purpose of selling credit life insurance to borrowers. When such groups were finally allowed, for a period of 14 years creditors were not permitted to charge debtors for the cost of group credit insurance. When the Legislature finally did permit the premium to be paid by the debtor, it did so in a restrictive manner so that the combined insurance premium and finance charge may not exceed the lawful usury rate.

It is my opinion, therefore, that a financial institution may not collect a premium in connection with the sale of credit life insurance which, when combined with the interest charged, exceeds the maximum amount of interest which could be lawfully charged. The rates which most often apply to transactions involving the sale of credit life insurance are those relating to automobile purchases. Until December 1, 1982, the maximum rate which can be charged on such loans by motor vehicle sales finance companies is between 16.5% and 22%, depending on the age of the vehicle. 1950 PA 27, Sec. 18, as amended by 1981 PA 165; MCLA 492.118; MSA 23.628(18). Banks, credit unions and savings and loan associations may charge the same rates. See OAG, 1981-1982, No 5894, p 157 (May 1, 1981).

3) Who should enforce Section 4416 of the Insurance Code, supra, in cases where state and federally chartered financial institutions and retailers are involved?

Your third question is with respect to the responsibility for enforcement of 1956 PA 218, Sec. 4416, supra. Your concern is whether the Commissioner of the Financial Institutions Bureau must enforce the law since most of the group policyholders are financial institutions. As previously noted, 1956 PA 218, Sec. 200, supra, provides that the Insurance Bureau '[s]hall be especially charged with the execution of the laws in relation to insurance. . . .' Moreover, 1956 PA 218, Sec. 4430; MCLA 500.4430; MSA 24.14430, requires that every policy of group insurance be filed and approved by the Commissioner of Insurance.

The Commissioner of the Financial Institutions Bureau has no authority to examine the affairs of federally chartered banks, savings and loan associations credit unions for the purpose of assuring compliance with state insurance laws. Moreover, many of the creditors/group policyholders are retailers who similarly are not subject to the authority of the Commissioner of the Financial Institutions Bureau. On the other hand, the Commissioner of Insurance is specifically charged with enforcing all the provisions of the insurance laws of Michigan. In examining the affairs of an insurer, the Commissioner of Insurance is authorized to examine books and records of any person having relevant information. 1956 PA 218, Sec. 222(2); MCLA 500.222(2); MSA 24.1222(2). Inasmuch as the Commissioner of Insurance has the responsibility for enforcement of the Insurance Code, supra, it is my opinion that the Commissioner of Insurance, not the Commissioner of the Financial Institutions Bureau, must enforce 1956 PA 218, Sec. 4416, supra.

In a previous opinion involving the Banking Commissioner's duty to report criminal violations discovered in the course of routine bank examinations, it was stated that '[I]n Michigan it is the duty of every citizen to report to appropriate governmental officials any information which he has regarding the commission of an offense against the laws of the State. . . .' 3 OAG, 1956, No 2643, p 466, 477 (August 14, 1956). Moreover, while information secured by the commissioner in the course of examining banks and savings and loan associations is by statute confidential, [see 1969 PA 319, Sec. 29; MCLA 487.329; MSA 23.710(29); 1980 PA 307, Sec. 206; MCLA 491.206; MSA 23.602(206)], it is recognized that revelations may be made when legal violations are discovered and there is a duty to report or take official action against the financial institution involved.

It is my opinion, therefore, that should the Commissioner of the Financial Institutions Bureau come upon information evidencing a violation of 1956 PA 218, Sec. 4416, supra, the violation should be reported to the Commissioner of Insurance, whose responsibility it is to enforce the Insurance Code, Sec. 4416, supra.

4) How do we determine whether the insurance company or the financial institution is in violation of the law in instances where the insurance is optional and the total combined charges to the borrower exceed the maximum interest that may lawfully be charged?

Your final question involves the manner of enforcement of 1956 PA 218, Sec. 4416, supra. As previously mentioned, practical difficulties exist with enforcement by the Commissioner of the Financial Institutions Bureau since numerous group policyholders are neither licensed nor examined by the commissioner. On the other hand, the Insurance Bureau does not examine the affairs of group policyholders, since such persons are neither licensed nor regulated by the Insurance Bureau. While it is not the policy of this office to direct the specific manner of enforcement of statutes, absent legislative directives, some options are readily apparent. As previously noted, most group policyholders are licensed by the Commissioner of the Financial Institutions Bureau or by such federal agencies as the Comptroller of the Currency, the Federal Home Loan Bank Board or the National Credit Union Administration. Those agencies charged with examining financial institutions may be requested by the Commissioner of Insurance, as part of their statutory compliance examination, to report any violations of 1956 PA 218, Sec. 4416, supra, to the Commissioner of Insurance for further enforcement proceedings. Alternatively, the Insurance Bureau may advise licensed insurance companies of the requirements of 1956 PA 218, Sec. 4416, supra, in order that such companies may take necessary action to assure that the law is complied with by companies and persons associated with the sale of insurance written on such licensees. Finally, a borrower would have a cause of action should the total amount charged exceed the amount of interest which may be lawfully charged.

In summary, it is my opinion that the pertinent provisions of 1956 PA 218, Sec. 4416, supra, are clear and require that, if an identifiable charge for credit life insurance is made to the borrower or installment buyer, the combined premiums and interest or finance charges may not exceed the maximum interest which may be received on the particular transaction. Your suggestion that the premium limitation of 1956 PA 218, Sec. 4416, supra, only applies where the insurance is mandatory is not warranted since it is illegal in the transactions described to require the purchase of group life insurance. Finally, you are advised that while ultimate responsibility for enforcement of 1956 PA 218, Sec. 4416, supra, rests with you as the Commissioner of Insurance, other agencies, including the Financial Institutions Bureau, may be requested to examine for its compliance in the course of the performance of their respective regulatory duties.

Frank J. Kelley

Attorney General

(1) In addition, other provisions of law prohibit a group policyholder from requiring a debtor to purchase credit insurance from the group policyholder. See 1958 PA 173; MCLA 550.621; MSA 24.568(21). Moreover, 1956 PA 218, Sec. 2077; MCLA 500.2077; MSA 24.12077, declares that it is a misdemeanor for any lender or credit-seller to condition a loan on the procurement of credit insurance from the lender or seller.

 


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