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Bulletin No. 95-03

Offer and sale of insurance by lenders

Issued and entered March 21, 1995 by Patrick M. McQueen, Acting Commissioner of Insurance

As of March 30, 1995, Michigan lenders and affiliates of lenders, and their employees, will be allowed to obtain insurance agency or agent licenses. Public Act 409 of 1994 added Section 1243 to the Insurance Code under which the Commissioner of Insurance may issue licenses to those entities and individuals that he determines have met the prerequisites for licensure and will conduct the sale of insurance in compliance with the provisions of the act. Any entity or individual holding an agent or agency license and meeting the definition of "lender" or "affiliate" must comply with Public Act 409.

Public Act 409 contains fair competition and consumer protection provisions that set strict parameters on the offer and sale of insurance by lenders and their affiliates. A violation of this act may result in a civil fine of up to $25,000. Lenders and their affiliates licensed or wishing to become licensed to sell insurance are advised to become familiar with the requirements of this new law and to develop procedures which would assure that all transactions are in compliance with its provisions.

A critical starting point is to recognize that "lender" and "affiliate" are defined broadly. Some persons, such as mortgage brokers or insurers engaged in lending, may not be aware that the new law applies to them. The act defines "lender" as:

A person or entity who directly or indirectly, in the ordinary course of business regularly makes, arranges, offers to make, or purchases and services a loan as defined by subdivision (h). A lender includes a mortgage broker. If a person purchases an interest in but does not service a loan, that person is not a lender under this section for the purposes of that loan.

Under subdivision (h), "loan" is defined as:

An agreement to lend money or to finance goods or services. Loan does not include any of the following:

(i) The financing of insurance premiums.

(ii) A loan from the cash value of an insurance policy.

(iii) A home improvement charge agreement or a home improvement installment contract made under the home improvement finance act, Act No. 332 of the Public Acts of 1965, being sections 445.1101 to 445.1431 of the Michigan Compiled Laws.

(iv) A retail installment contract of $10,000.00 or less or a retail charge agreement made under the retail installment sales act, Act No. 224 of the Public Acts of 1966, being sections 445.851 to 445.873 of the Michigan Compiled Laws.

"Affiliate" is defined as:

A person that directly or indirectly or through one or more intermediaries, controls or is controlled by another or is under common control with another. An affiliate includes a person who for any 12-month period makes a monthly average of 10 or more referrals to lenders for the purpose of procuring a loan and the person receives consideration for making such referrals.

The new requirements of P.A. 409 can be found in the Michigan Compiled Laws Annotated at 500.1243 and in the Michigan Statutes Annotated at 24.11243. Individuals not having access to a law library may obtain copies from the Legislative Service Bureau, Document Room, P.O. Box 30036, Lansing, MI 48909-7536. The Document Room phone number is (517) 373-0169.