| STATE OF MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES FINANCIAL INSTITUTIONS BUREAU IN THE MATTER OF THE REQUEST BY MICHAEL S. FREUD/CONNIE HOLZER AND TOM HOLZER 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 Mrs. Connie Holzer, the sole shareholder of a corporate dealer-related insurance agency, and Mr. Tom Holzer, the sole shareholder of a corporate installment seller licensed by the Financial Institutions Bureau ("Bureau") under the Motor Vehicle Sales Finance Act ("Act"), Act No. 27 of the Extra Session of 1950, MCL 492.101 et seq.; MSA 23.628(1) et seq., a declaratory ruling on the applicability of the Act to Mrs. Holzer's proposed investment in a corporate installment seller licensed under the Act. Section 63 of the Administrative Procedures Act of 1969, MCL 24.263; MSA 3.560(163), 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 492.102(17); MSA 23.628(2)(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 and supplemental letter 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 Mrs. Connie Holzer is the sole shareholder, director, and chief officer of Connie Lee Agency, Inc. ("Connie Lee"), a Michigan corporation, which is a licensed credit-life insurance agency. Connie Lee, which is located in Farmington Hills, Michigan, is the dealer-related agency that provides group insurance to Tom Holzer Ford, Inc. ("Holzer Ford"). Connie Lee does not provide insurance to any other installment seller. Mrs. Holzer is not a shareholder, director, officer, or other employee of Holzer Ford, and has no interest in Holzer Ford. Holzer Ford, a Michigan corporation, is licensed by the Bureau under the Act as an installment seller. Holzer Ford, which is located in Farmington Hills, Michigan, is in the business of selling new and used motor vehicles. With the credit purchase of a vehicle, Holzer Ford offers its customers the opportunity to purchase group credit insurance. On December 19, 1997, the Commissioner of the Bureau received a letter from Mr. Michael S. Freud, counsel for Mr. and Mrs. Holzer, requesting a declaratory ruling that the Act as amended by 1995 PA 166, effective April 1, 1996, would permit Mrs. Holzer to acquire shares of stock in Holzer Ford. 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 Act. 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:MCL 492.102(2) and (4); MSA 23.628(2)(2) and (4).. . .
"Sec. 31. . . .MCL '492.131(c); MSA ' 23.628(c).(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. . . ." 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."Pub. Acts 1970, No. 114, 2(2), codified at MCL 492.102(2) (current version at MCL 492.102(2); MSA 23.628(2)(2)). IV. DISCUSSION On December 13, 1996 the Bureau issued a declaratory ruling (see footnote below) on the same issue raised in your request, however, the factual posture of your request differs. The factual situation presented to the Bureau and addressed by the December 13, 1996 declaratory ruling involved an individual shareholder of a corporate installment seller investing in a corporate dealer-related insurance agency. In your request you have represented a similar but different transaction: an individual shareholder of a corporate dealer-related insurance agency investing in a corporate installment seller. Since your factual situation differs from that which was addressed in the December 13, 1996 declaratory ruling, the Bureau has decided to grant your request and issue a declaratory ruling. Since the question of Mrs. Holzer's qualifications to own an insurance agency is not within the purview of the Bureau, this discussion will be limited to whether Mrs. Holzer's status as an individual who is a shareholder, director, and officer of a corporate dealer-related agency would impair her ability to own in whole or in part, to become an officer or director and to receive a return on her investment from, a licensed corporate installment seller. Section 31(c) of the Act prohibits direct or indirect payment of a portion of the insurance premium received in a retail installment sale by an insurance company, agent, or broker to an "installment seller." If Mrs. Holzer were an "installment seller" for purposes of the Act, her ability to own shares of, be a director or officer of and to receive a return on an investment in a dealer-related agency would be distinctly impaired. Section 2(4) of 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 in Section 2(2) of the Act to include any individual or legal entity. Holzer Ford, as a Michigan corporation, clearly is a "person" for purposes of the Act. In addition, Holzer Ford 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 . . ." Mrs. Holzer after a transfer of Holzer Ford stock would be a shareholder and possibly become a director and officer of Holzer Ford. Mrs. Holzer, 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." After the transfer of Holzer Ford stock, Mrs. Holzer would have a shareholder's interest in and possibly become a director and officer of Holzer Ford, but if Mrs. Holzer does not engage directly in the activities of an installment seller as defined in the Act she would not be 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 individual who is an "officer, director, employee, or agent" of a corporate installment seller is no longer prohibited by the Act from owning a dealer-related agency. FOOTNOTE: 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, Declaratory Ruling of the Comm'r of the Fin. Inst. Bureau, December 13, 1996 (aff'd, Mich. Ass'n of Ins. Agents v Comm'r of Fin. Inst. Bureau, No. 97-85409-AA (30th Cir. Mich., Aug. 29, 1997)). V. CONCLUSION Based upon the facts presented, Mrs. Holzer's status as a shareholder or as an officer or director of Holzer Ford would be insufficient to render her an installment seller under the Act, and thus she would not be precluded by the Act from receiving compensation from her investment in Holzer Ford.
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