Can a North Carolina consumer-finance company sell new types of credit insurance to its borrowers, including joint accident and health policies and single or dual interest motor vehicle physical damage coverage?

Plain-English summary

North Carolina's Consumer Finance Act (Article 15 of Chapter 53) puts tight constraints on what a licensed consumer finance company can do at the same location as its lending business. The statute is two-layered. G.S. § 53-189(a) lists the specific kinds of credit insurance that licensees can sell. G.S. § 53-172(a) then prohibits any other business at the same office unless the Commissioner of Banks authorizes it under G.S. § 53-172(b). G.S. § 53-178 reinforces the limit by barring licensees from collecting "any other charges or insurance commissions" except those specifically authorized.

The opinion addressed two new questions for 1993. First, whether licensees could sell the newly defined "credit joint accident and health insurance" under G.S. § 58-57-5(7a) (added by Session Laws 1993, Chapter 226). Second, whether licensees could sell single or dual interest motor vehicle physical damage insurance on nonfleet private passenger vehicles under G.S. § 58-57-100(a), without first getting Commissioner of Banks authorization under G.S. § 53-172(b).

Senior Deputy Attorney General Ann Reed and Special Deputy Attorney General Henry T. Rosser answered yes to the first and no to the second.

On credit joint accident and health insurance: G.S. § 53-189(a) (as amended by Chapter 226, § 14) authorized licensees to sell credit accident and health insurance among the listed categories. New subsection (7a) of G.S. § 58-57-5 defined "joint accident and health coverage" as "credit accident and health insurance covering two or more debtors." The Commissioner of Insurance had advised that joint coverage was "simply another form of accident and health insurance" and that all licensees already authorized to sell credit accident and health insurance would be able to sell the joint form as well. The opinion adopted that reading: the joint coverage is not a separate category requiring new statutory authorization; it is a sub-form of an already-authorized category. The licensee still needs the underlying license from the Department of Insurance under G.S. § 58-33-25(c) to sell accident and health insurance, but no additional Commissioner of Banks authorization is required.

On single or dual interest motor vehicle physical damage insurance: the analysis went the other way. G.S. § 53-189(a) lists only "credit life, credit accident and health, credit unemployment, and credit property insurance" as the credit insurance categories licensees can sell under Article 57 of Chapter 58. Motor vehicle physical damage insurance, even on a private nonfleet vehicle, is not on that list. G.S. § 53-178 forecloses additional categories absent Commissioner of Banks authorization under G.S. § 53-172. Therefore, a consumer finance licensee may not sell single or dual interest motor vehicle physical damage insurance on its premises without the Commissioner of Banks first authorizing it as "other business" under G.S. § 53-172(b).

The opinion also rejected the argument that G.S. § 58-57-100(a) by itself authorized the sale. Section 58-57-100(a) is part of Article 57 of Chapter 58, which "imposes terms, conditions, and limitations on the sale of credit single or dual interest motor vehicle physical damage insurance, rather than as authorizing the sale of such insurance." Authority to sell insurance comes from Article 33 of Chapter 58 (the agent-licensing article), not from the credit-insurance article. The credit-insurance article tells you how to sell once you have the underlying authority; it does not create the authority.

The practical result was a two-step approval for a consumer finance company that wanted to add motor vehicle physical damage coverage at its lending offices: first, get the Commissioner of Banks to authorize the other business under G.S. § 53-172(b); second, get the Department of Insurance to issue an automobile physical damage insurance license under G.S. § 58-33-25(c)(7). Without both, the sale was unlawful.

Currency note

This opinion was issued in 1993. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Both the Consumer Finance Act and Chapter 58's insurance licensing and credit insurance articles have been amended significantly since 1993. The list of credit insurance categories in G.S. § 53-189(a) has been adjusted, the Commissioner of Banks' authorization process under G.S. § 53-172(b) has its own administrative rule structure, and the Department of Insurance's licensing categories have been reorganized. Anyone designing a modern consumer finance insurance program should verify the current statutory categories and the current Commissioner of Banks and Department of Insurance practices, not rely on the 1993 cross-references in this opinion.

Common questions

Q: Why did joint accident and health get a yes when motor vehicle physical damage got a no?
A: Because joint accident and health is a sub-form of an already-authorized category (credit accident and health), while motor vehicle physical damage is a different category altogether. The statutory list in G.S. § 53-189(a) already included credit accident and health. Joint coverage just extends the same form to two or more debtors. Motor vehicle physical damage is its own thing.

Q: Does a consumer finance company need separate insurance licensing in addition to its lending license?
A: Yes. The Consumer Finance Act license under Article 15 of Chapter 53 authorizes the lending business. The insurance license under Article 33 of Chapter 58 authorizes the agent to sell insurance. Both are required, and the Department of Insurance can refuse the insurance license even if the lending license is current.

Q: What does the Commissioner of Banks consider when deciding whether to authorize 'other business' under G.S. 53-172(b)?
A: The statutory standard is whether "the other business would not be contrary to the best interests of the borrowing public." That is a public-interest test, not a market-competition test. The Commissioner has discretion to weigh whether the proposed cross-selling poses risks of pressure, tying, or conflict of interest with the lending relationship.

Q: Could a licensee sell motor vehicle physical damage insurance from a separate office?
A: The opinion addressed only on-premises sales. A truly separate office, with separate personnel and separate accounting, would not face the G.S. § 53-172(a) "other business in the same office" prohibition. But the licensee still needs the insurance license to sell the coverage anywhere, and the Department of Insurance applies its own rules to that separate-office arrangement.

Q: What kind of penalties were on the line for unauthorized sales?
A: The opinion did not enumerate penalties, but unauthorized other business at a consumer finance office could subject the licensee to license suspension, revocation, or civil penalty under the Commissioner of Banks' enforcement authority. Unauthorized insurance sales could trigger Department of Insurance enforcement against the agent and the company.

Q: What was 'single interest' versus 'dual interest' motor vehicle physical damage insurance?
A: Single interest covers only the lender's interest in the vehicle as collateral. Dual interest covers both the lender's interest and the borrower's interest in the same vehicle. The opinion treated both forms the same way for purposes of the G.S. § 53-172 / § 53-189 analysis. Both are forms of credit motor vehicle physical damage insurance under Article 57.

Background and statutory framework

North Carolina's Consumer Finance Act dates to the 1950s. Its core structural choice is to limit consumer finance companies (high-rate small loans) to their core business plus a defined list of related insurance products. The legislative concern was that combining a small-loan business with general retail or insurance sales at the same location would let the licensee pressure borrowers into add-on purchases. The statutory limit in G.S. § 53-172(a) on "other business" at the same office is the operational form of that concern; the Commissioner of Banks' authorization power in G.S. § 53-172(b) is the safety valve.

The credit insurance list in G.S. § 53-189(a) operates the same way. The legislature picked a finite set of insurance categories tied closely to the lending relationship (credit life, credit accident and health, credit unemployment, credit property). Sales of those categories at the consumer finance office are statutorily authorized. Other insurance categories sit outside the safe harbor and require either separate Commissioner of Banks authorization or sales from a separate office.

Article 33 of Chapter 58 is the broader insurance licensing regime. Anyone selling insurance in NC needs an Article 33 license, period. G.S. § 58-33-1 makes Article 33 the gateway. The credit-insurance article (Article 57) and the lines-of-business article (G.S. § 58-33-25) sort out what the license authorizes the holder to sell.

The opinion's split answer reflects how these regimes interact. Reading the Consumer Finance Act and Article 57 together, the question becomes whether the proposed insurance product fits within an already-authorized category in G.S. § 53-189(a). If yes, the licensee needs the Department of Insurance license but not new Commissioner of Banks authorization. If no, the licensee needs both, because adding a new category of insurance at the lending office is "other business" under G.S. § 53-172.

Citations

• G.S. § 53-172 (other business on consumer finance premises)
• G.S. § 53-172(b) (Commissioner of Banks' authority to permit other business)
• G.S. § 53-178 (limits on charges and insurance commissions)
• G.S. § 53-189(a) (credit insurance categories licensees may sell)
• G.S. § 58-33-1 (scope of agent-licensing Article)
• G.S. § 58-33-25(c) (license categories)
• G.S. § 58-33-25(c)(7) (automobile physical damage insurance license)
• G.S. § 58-57-5(7a) (definition of joint accident and health coverage)
• G.S. § 58-57-100(a) (single or dual interest motor vehicle physical damage insurance)
• Article 57 of Chapter 58 of the General Statutes (credit insurance)
• Session Laws 1993, Chapter 226 (Consumer Finance Act and credit insurance amendments)
• Session Laws 1993, Chapter 409, § 1.1 (license amendments)
• Session Laws 1993, Chapter 504, § 22 (license amendments)

Source

• Landing page: https://ncdoj.gov/opinions/consumer-finance-act-authority-of-act-licensees-to-sell-certain-types-of-insurance/

Original opinion text

• (1)
• Whether a licensee under the Consumer Finance Act may sell credit joint accident and health insurance, as defined in G.S. § 58-57-5(7a); and
• (2)
• Whether a licensee under the Consumer Finance Act may sell credit single or dual interest motor vehicle physical damage insurance on nonfleet private passenger motor vehicles on the same premises where the licensee makes consumer finance loans, without first having obtained authorization of the Commissioner of Banks to conduct other business on the consumer finance premises under G.S. § 53-172(b)?

We have received a copy of the letter to you from Commissioner of Insurance Jim Long, dated October 5, 1993, in which he responds to questions posed by you regarding the two types of insurance referred to above. We have also consulted with Assistant Attorney General Fran DiPasquantonio, who is this Office's resident expert in insurance matters. Mr. DiPasquantonio, in turn, consulted with several members of the staff of the Department of Insurance. The opinions set out in this letter are consistent with the information received from Commissioner Long, the Department of Insurance, and Mr. DiPasquantonio.

I. Credit Joint Accident and Health Insurance

It is our opinion that licensees under the Consumer Finance Act (the Act) have statutory authority to sell credit joint accident and health insurance. Licensees are authorized by G.S. § 53-189(a), as amended by Session Laws 1993, chapter 226, section 14, to sell, among other things, credit accident and health insurance. In order to sell such insurance, licensees under the Act must first obtain a license from the Department of Insurance to sell accident and health insurance pursuant to G.S. § 58-33-25(c). Licensees under the insurance laws who have obtained a license to sell accident and health insurance may sell credit accident and health insurance subject to the provisions of Article 57, General Statutes Chapter 58. In G.S. § 58-57-5, as amended by Session Laws 1993, chapter 226, section 2, new subsection (7a) defines "joint accident and health coverage" as, in pertinent part, "credit accident and health insurance covering two or more debtors…." Commissioner Long advises that credit joint accident and health insurance is simply another form of accident and health insurance and that "[a]ll licensees currently authorized by license issued by the Department of Insurance to sell credit accident and health insurance will be able to solicit and sell joint credit and health (disability)." (Letter of Commissioner Long to Commissioner Graham, dated October 5, 1993.) It follows, therefore, that licensees under the Act who are currently licensed to sell credit accident and health insurance will also be authorized to sell credit joint accident and health insurance.

II. Single or Dual Interest Motor Vehicle Physical Damage Insurance

The issue is whether licensees under the Consumer Finance Act may sell, on the premises where they conduct a consumer finance business, single or dual interest motor vehicle physical damage insurance on nonfleet private motor vehicles, pursuant to G.S. § 58-57-100(a), without first having obtained authorization from the Commissioner of Banks pursuant to G.S. § 53-172(b) (1992 Cumulative Supplement). It is our opinion that they may not.

The types of insurance which licensees under the Act may sell are limited to "[c]redit life, credit accident and health, credit unemployment, and credit property insurance" which "may be written in accordance with the provisions of Article 57 of Chapter 58 of the General Statutes." G.S. § 53-189(a), as amended by 1993 Session Laws, chapter 226, section 14. It is provided by G.S. § 53-178 (1992 Cumulative Supplement), inter alia, that:

No further or other charges or insurance commissions shall be directly or indirectly contracted for or received by any licensee except those specifically authorized by this Article or by the Commissioner [of Banks] under G.S. 53-172.

G.S. § 53-172 provides, in pertinent part:

(a) No licensee shall conduct the business of making loans under this Article within any office, suite, room, or place of business in which any other business is solicited or transacted…. (b) Notwithstanding subsection (a) of this section, the Commissioner [of Banks] may authorize in writing the solicitation and transaction of other business in any office, suite, room, or place of business in which a licensee is conducting the business of making loans if the Commissioner [of Banks] determines that the other business would not be contrary to the best interests of the borrowing public.

It is our opinion, therefore, that since single or dual interest motor vehicle physical damage insurance is not mentioned in G.S. § 53-189(a), and since insurance that may be sold under the Act is limited by G.S. § 53-178 to that set out in G.S. § 53-189(a) unless the sale of other insurance is authorized by the Commissioner of Banks pursuant to G.S. § 53-172(b), a licensee under the Act may not sell single or dual interest motor vehicle physical damage insurance unless so authorized by the Commissioner of Banks.

An inquiry has been made whether the provisions of G.S. § 58-57-100(a) authorize licensees under the Act to sell single or dual interest motor vehicle physical damage insurance. In our opinion, it does not. Authority to sell insurance derives, originally, from a license issued by the Department of Insurance pursuant to Article 33 of Chapter 58, which Article governs the qualifications and procedures for the licensing of agents, brokers, limited representatives, adjusters, and motor vehicle damage appraisers. This Article applies to any and all kinds of insurance and insurers under Articles 1 through 67 of this Chapter. G.S. § 58-33-1. An automobile physical damage insurance license may be obtained pursuant to G.S. § 58-33-25(c)(7), as amended by Session Laws 1993, chapter 504, section 22 and chapter 409, section 1.1.

Sales of various forms of credit insurance under a license issued by the Department of Insurance must be made under the terms, conditions, and limitations specified in Article 57 of Chapter 58. We construe the provisions of G.S. § 58-57-100, therefore, as imposing terms, conditions, and limitations on the sale of credit single or dual interest motor vehicle physical damage insurance, rather than as authorizing the sale of such insurance. Licensees under the Act who wish to sell credit single or dual interest motor vehicle physical damage insurance on the premises in which they operate their consumer finance business may do so only pursuant to authority granted by the Commissioner of Banks under G.S. § 53-172(b), not under authority of G.S. § 58-57-100; and such sales must be made under the terms, conditions, and limitations imposed by the latter statute, after the seller has obtained the appropriate license from the Department of Insurance.

We hope that this fully responds to the issues set out in your September 24 letter, but if you have any questions, please contact us.

Ann Reed Senior Deputy Attorney General

Henry T. Rosser Special Deputy Attorney General