IN RE: REQUEST BY WILLINGHAM & COTE/ RAYMOND J. FORESMAN, JR FOR A DECLARATORY RULING ON THE APPLICABILITY OF THE MOTOR VEHICLE SALES FINANCE ACT TO CERTAIN TRANSACTIONS

DECISION

I. Authority

You have requested on behalf of Mr. H. Terry Hanks, the sole shareholder of an installment seller licensed by the Financial Institutions Bureau (Bureau) under the Motor Vehicle Sales Finance Act (Act), a declaratory ruling on the applicability of the Act to Mr. Hanks' proposed investment in a dealer-related insurance agency.

Section 63 of the Administrative Procedures Act of 1969, MCL Section 24.263, allows an agency to issue a declaratory ruling, upon request by an interested person, as to how a statute administered by the agency would be applied to an actual state of facts. Section 2(17) of the Act, MCL Section 492.102(17), defines the administrator of the Act as the Financial Institutions Bureau, thus the Bureau has authority to issue a declaratory ruling on the applicability of the Act to an actual state of facts. Your request set forth a statement of facts sufficient to enable the Bureau to make a declaratory ruling on the applicability of the Act to the stated facts.

II. Facts

Mr. H. Terry Hanks is the sole shareholder, a director, and chief officer of Sundance Chevrolet, Inc. (Sundance), which is licensed by the Financial Institutions Bureau under the Motor Vehicle Sales Finance Act (Act) as an installment seller. Sundance, which is located in Grand Ledge, Michigan, is in the business of selling new and used motor vehicles. With the credit purchase of a vehicle, Sundance offers its customers the opportunity to purchase group credit insurance.

Lariat Insurance Agency, Inc. (Lariat), a Michigan corporation, is the dealer-related agency that provides group insurance to Sundance. The sole shareholder of Lariat is Ms. Hazel Brandt. Ms. Brandt is not a shareholder, director, officer, or other employee of Sundance, and has no interest in Sundance.

On October 25, 1996, the Commissioner of the Financial Institutions Bureau received a letter from Mr. Hanks' counsel requesting a declaratory ruling that 1995 PA 166, effective April 1, 1996, which amended the Motor Vehicle Sales Finance Act, would permit Mr. Hanks to purchase shares of stock in Lariat and/or to create a separate corporation in which he owns some or all of the stock to serve as a dealer-related agency for Sundance.

III. Statutes

An individual's purchase or formation of an insurance agency in Michigan is subject to the Michigan Insurance Code. However, compensation by an agency to an agency owner who is an installment seller is subject to the Motor Vehicle Sales Finance Act, Act No. 27 of the Extra Session of 1950, MCL 492.101, et seq. The sections of the Act to be discussed in this ruling are:

"Sec. 2. Except where the context indicates otherwise, as used in this act:

2. "Person" means an individual, partnership, association, corporation, governmental entity, or other entity. . . .

4. "Installment seller" or "seller" means a person engaged in the business of selling, offering for sale, hiring, or leasing motor vehicles under installment sale contracts or a legal successor in interest to that person. As used in this subdivision, "business" does not include an isolated sale. . . ." MCL 492.102

"Sec. 31. . . .
(c) An insurance company, agent or broker shall not pay or cause to be paid, directly or indirectly, to any installment seller, nor shall any installment seller receive from any insurance company, agent, or broker, any portion of an insurance premium involved in the retail installment sale of a motor vehicle other than for the benefit of the installment buyer, and all payments shall be held by the installment seller in trust for the benefit of the installment buyer and shall be paid to the installment buyer within 30 days, unless used in procuring comparable insurance or credited to matured unpaid installments under the contract as provided in section 16(f) of this act. . . ." MCL 492.131(c)

Prior to amendment of the Act by Act No. 166 of the Public Acts of 1995 (effective April 1, 1996), the definition of "person" was broader, including, in addition to individuals and entities, their officers, directors, and employees, as follows:

"an individual, partnership, association, business corporation, financial institution, nonprofit corporation, common law trust, joint stock company, or any other group of individuals however organized, and the officers, directors, employees, and agents of those persons."

IV. Discussion

Since the question of Mr. Hanks' qualifications to own an insurance agency is not within the purview of the Financial Institutions Bureau, this discussion will be limited to whether Mr. Hanks' status as shareholder, director, and officer of a licensed installment seller would impair his ability to own in whole or in part, and to receive a return on his investment from, a dealer related agency.

An owner or shareholder of a dealer-related agency would expect to receive dividends or other return on investment from the dealer-related agency, which necessarily would involve payment of a portion of insurance premiums involved in retail installment sales. Section 31(c) of the Act, prohibits direct or indirect payment of a portion of the insurance premium involved in a retail installment sale by an insurance company, agent, or broker to an installment seller. It also prohibits an installment seller from receiving such a payment.

Mr. Hanks' ability to receive a return on an investment in a dealer-related agency would be distinctly impaired if he is an "installment seller" for purposes of the Act. The Act defines an installment seller as a person who is engaged in the business of selling, offering for sale, hiring or leasing motor vehicles under installment sale contracts. "Person" is defined to include any individual or legal entity.

Sundance, as a Michigan corporation, clearly is a "person", for purposes of the Act. In addition, Sundance is licensed under the Act as an installment seller to "engage in the business of selling, offering for sale, hiring, or leasing motor vehicles under installment sale contracts . . ." Mr. Hanks is represented to be a shareholder, director, and officer of Sundance.

Mr. Hanks, as an individual, clearly is a "person", for purposes of the Act. However, a person is not an installment seller subject to the Act unless the person is "engaged in the business of selling, offering for sale, hiring, or leasing motor vehicles under installment sale contracts" or is "a legal successor in interest to that person." Mr. Hanks has a shareholder's interest in and is a director and officer of Sundance, but if Mr. Hanks does not engage directly in the activities of an installment seller as defined in the Act, Mr. Hanks is not an installment seller.

Prior to April 1, 1996, an individual who was an "officer, director, employee, or agent" of an installment seller could not have any interest in a dealer-related agency for the reason that he/she was, by definition, an installment seller, i.e., an "officer, director, employee, or agent" of a "person" "engaged in the business of selling, offering for sale, hiring, or leasing motor vehicles under installment sale contracts. . ." After 1995 PA 166 took effect, however, a corporate installment seller includes, because of the amended definition of "person", only the corporate legal entity. While the prohibitions of Section 31(c) (as enunciated in Attorney General Opinion No. 6630) remain in effect as to a corporate installment seller, an "officer, director, employee, or agent" of an installment seller is no longer prohibited by the Act from owning a dealer-related agency.

V. Conclusion

Based upon the facts presented, Mr. Hanks' status as a shareholder, officer, and director of a corporate installment seller (Sundance) would be insufficient to render him an installment seller under the Motor Vehicle Sales Finance Act. Thus, unless Mr. Hanks is an installment seller in his individual capacity, he would not be precluded by the Motor Vehicle Sales Finance Act from receiving compensation from his investment in Lariat, which sells group credit insurance.

Patrick M. McQueen, Commissioner
Financial Institutions Bureau
Department of Consumer and Industry Services
Date: December 13, 1996