For the purposes of this chapter, the following words and phrases shall have the following meanings:

(1) INSURANCE PREMIUM FINANCE COMPANY. A person engaged in the business of entering into premium finance agreements.

(2) PREMIUM FINANCE AGREEMENT. An agreement by which an insured or prospective insured promises to pay to a premium finance company the amount advanced or to be advanced under the agreement to an insurer or to an insurance agent or broker in payment of premiums on an insurance contract together with a service charge, as authorized and limited by this chapter.

(3) LICENSEE. A premium finance company holding a license issued under this chapter.

(4) PERSON. An individual, partnership, association, business corporation, nonprofit corporation, common law trust, joint-stock company, or any other group of individuals however organized.

(5) INSURANCE CONTRACT. The policy or contract of insurance which is the subject of premium financing under this chapter.

A premium finance agreement may provide for the payment by the insured of the delinquency charge of $1.50 to a maximum of five percent of the delinquent installment which is in default for a period of five days or more. If the default results in the cancellation of any insurance contract listed in the agreement, the agreement may provide for the payment by the insured of a cancellation charge of $5.00 in the case of a consumer insurance premium finance agreement and $15.00 in the case of a commercial insurance premium finance agreement.

(a) When a premium finance agreement contains a power of attorney enabling the premium finance company to cancel any insurance contract or contracts listed in the agreement, the insurance contract or contracts shall not be cancelled by the premium finance company unless such cancellation is effectuated in accordance with this section.

(b) Not less than 10-day written notice shall be mailed to the insured, at his last known address as shown on the records of the premium finance company, of the intent of the premium finance company to cancel the insurance contract unless the default is cured within such 10-day period.

(c) After the notice in subsection (b) of this section has expired, the premium service company may thereafter request, in the name of the insured, cancellation of such insurance contract by mailing to the insurer a notice of cancellation, and the insurance contract shall be cancelled as if such notice of cancellation had been submitted by the insured himself, but without requiring the return of the insurance contract. The premium service company shall also mail a notice of cancellation to the insured at his last address as set forth in its records, and such mailing shall constitute sufficient proof of delivery.

(d) All statutory, regulatory and contractual restrictions providing that the insurance contract may not be cancelled unless notice is given to a governmental agency, mortgagee or other third party shall apply where cancellation is effected under the provisions of this section. The insurer shall give the prescribed notice in behalf of itself or the insured to any governmental agency, mortgagee or other third party on or before the second business day after the day it receives the notice of cancellation from the premium finance company and shall determine the effective date of cancellation taking into consideration the number of days' notice to complete the cancellation.

(a) Whenever a financed insurance contract is cancelled, the insurer shall return whatever gross unearned premiums are due under the insurance contract to the premium finance company, either directly or via the agent or surplus lines broker placing the insurance, for the account of the insured or insureds as soon as reasonably possible, but in any event no later than 30 days after the effective date of cancellation.

(b) In the event that the crediting of return premiums to the account of the insured results in a surplus over the amount due from the insured, the premium finance company shall refund the excess to the insured or the agent or surplus lines broker, within 30 days after receipt by the premium finance company with the check or draft made payable to the agent or surplus lines broker and to the insured, provided that no refund shall be required if it amounts to less than one dollar ($1).

No filing of the premium finance agreement shall be necessary to perfect the validity of such agreement as a secured transaction as against creditors, subsequent purchasers, pledges, encumbrances, successors or assigns.

When a premium finance company has complied with the licensing provisions of this chapter, it shall not be subject to any other licensing or regulatory agency of the State of Alabama other than the Department of Insurance.

(a) The amount of premium financed, more specifically referred to as 'the principal balance' in paragraph c. of subdivision (3) of subsection (a) of Section 27-40-8, shall be sent to the insurance company or companies, or the agent or surplus lines broker.

(b) All drafts, checks, or other orders of payment issued for premiums financed shall be issued by or on behalf of the premium finance company and shall be mailed, delivered, or otherwise transmitted directly to the insurance company or its agent, or surplus lines broker. Any check, draft, or other order or form of payment to any insurance agent, insurance broker, managing general agent, or other person, when issued shall be presumed to have been issued by the duly authorized agent of the premium finance company which provided the checks or drafts to the person issuing the same for the purpose of issuance of such instrument.

(c) Notwithstanding anything to the contrary in this section, the insurance company shall not be relieved of any of its duties or responsibilities with respect to the cancellation of any insurance contract which is subject to the premium finance agreement.

No premium finance company and no employee of such a company shall pay, allow, or offer to pay or allow in any manner whatsoever to the insurance agent, insurance broker, or managing general agent, or any employee of any of the aforesaid, or to any other person, either as an inducement to the financing of any insurance contract with the premium finance company, or, after any such contract has been financed, any rebate whatsoever, either from the service charge for financing specified in the premium finance agreement or otherwise, or shall give or offer to give any valuable consideration or inducement of any kind directly, but a premium finance company may purchase or otherwise acquire a premium finance agreement, provided that it conforms to the provisions of this chapter, in all respects, from another premium finance company on such terms and conditions as may be mutually agreed upon.

Any premium finance company which enters into a premium finance agreement under this chapter shall notify the insurer whose premiums are being financed of the existence of the agreement within a reasonable period of time, not to exceed 30 days after the date the agreement is accepted by the premium finance company.

Prior to the due date of the first installment payable under a premium finance agreement, the premium finance company holding the agreement shall deliver to the insured, or mail to him at his or her address as shown in the agreement, a copy thereof.

The provisions of this chapter shall not apply with respect to any of the following:

(1) Any insurance company licensed to do business in this state.

(2) Any banking or other financial institution regulated by the state, or savings and loan association, or credit union authorized to do business in this state, or any national banking institution or federal savings and loan association incorporated under the laws of the United States and located within this state.

(3) A charge for insurance in connection with an installment sale of a motor vehicle or boat or mobile home.

(4) The financing of insurance premiums in this state in accordance with the provisions of this title relating to rates of insurance.

(5) Any insurance agent or agency licensed in Alabama that charges a collection fee on unpaid balances for insurance premiums under Section 27-12-17 or under the Alabama Consumer Credit Act.

(a) No person shall engage in the business of financing insurance premiums in this state without first having obtained a license as a premium finance company from the commissioner. Any person who shall engage in the business of financing insurance premiums in this state without first having obtained a license as provided herein shall be guilty of a misdemeanor and upon conviction shall be punished by a fine of not more than $1,000.00 or by imprisonment for not more than one year, or both.

(b) The annual license fee shall be $200.00; provided, that an insurance agency which finances its own business of less that $150,000.00 in premiums annually shall pay a fee of $50.00. The fee for said license shall be paid into the Insurance Department Examination Revolving Fund and the same is hereby appropriated for that use.

(c) The person to whom the license or the renewal thereof may be issued shall file sworn answers subject to the penalties of perjury to such interrogatories as the commissioner may require. The commissioner shall have authority at any time to require the applicant fully to disclose the identity of all stockholders, partners, officers and employees and he may in his discretion refuse to issue or renew a license in the name of any firm, partnership or corporation if he is not satisfied that any officer, employee, stockholder or partner thereof who may materially influence the applicant's conduct meets the standards of this section.

(a) Upon the filing of an application and the payment of the license fee the commissioner shall make an investigation of each applicant and shall issue a license if the applicant is qualified in accordance with this section. If the commissioner does not so find, he shall, within 30 days after he has received such application, at the request of the applicant, give the applicant a full hearing.

(b) The commissioner shall issue or renew a license as may be applied for when he is satisfied that the person to be licensed:

(1) Is competent and trustworthy and intends to act in good faith in the capacity involved by the license applied for;

(2) Has a good business reputation and has had experience, training or education, so as to be qualified in the business for which the license is applied for; and

(3) If a corporation, is a corporation incorporated under the laws of this state or a foreign corporation authorized to transact business in this state.

(a) The commissioner may revoke or suspend the license of any premium finance company when, and if, after complaint and investigation, it appears to the commissioner that:

(1) Any license issued to such company was obtained by fraud;

(2) There were any misrepresentations in the application for the license;

(3) The holder of such license has otherwise shown himself untrustworthy or incompetent to act as a premium finance company;

(4) Such company has violated any of the provisions of this chapter; or

(5) No license shall issue or remain in force if any principal of the licensee has been convicted of a crime involving moral turpitude.

(b) Before the commissioner shall revoke, suspend or refuse to renew the license of any premium finance company, the aggrieved person shall be entitled to a hearing in accord with administrative procedures in effect in this state or if no such administrative procedures are set out, then in the same manner as provided in Section 27-2-28 et seq. In lieu of revoking or suspending the license for any of the causes enumerated in this section, after hearing as herein provided, the commissioner may subject such company to a penalty of not more than $200.00 for each offense but not more than a maximum of $5,000.00 in the event multiple violations occurred, when in his judgment he finds that the public interest would not be harmed by the continued operation of such company. The amount of any such penalty shall be paid by such company to the commissioner.

(c) If the commissioner refuses to issue to any person a license as a premium finance company, or he revokes, suspends or refuses to renew the license of any premium finance company or he imposes a penalty on such company, after a hearing as provided under subsection (b), the applicant or licensee may appeal from such refusal to issue a license or from such adjudication in accordance with Section 27-2-32 et seq.

(a) Every licensee shall maintain records of its premium finance transactions and the said records shall be open to examination and investigation by the commissioner. The commissioner may at any time require any licensee to bring such records as he may direct to the commissioner's office for examination.

(b) Every licensee shall preserve its records of such premium finance transactions including cards used in a card system, if any, for at least three years after making the final entry in respect to any premium finance agreement. The preservation of records in photographic form shall constitute compliance with this requirement.

The commissioner shall have authority to make and enforce such reasonable rules and regulations as may be necessary in making effective the provisions of this chapter, but such rules and regulations shall not be contrary to nor inconsistent with the provisions of this chapter.

(a) The contents and style of the premium finance agreement shall be as follows:

(1) It shall be dated, signed by the insured or an authorized representative and the printed portion thereof shall be in at least eight-point type.

(2) It shall contain the name and place of business of the insurance agent negotiating the related insurance contract, the name and residence, or place of business, of the insured as specified by the insured, the name and place of business of the premium finance company to which payments are to be made, a description of the insurance contracts involved and the amount of the premium therefor.

(3) It shall set forth the following items where applicable:

a. The total amount of the premiums.

b. The amount of the down payment.

c. The principal balance, that being the difference between items a and b.

d. The amount of the service charge.

e. The balance payable by the insured, that being the sum of items c and d.

f. The number of installments required, the amount of each installment expressed in dollars, and the due date or period thereof.

g. The annual percentage rate (APR) charged.

(b) The items set out need not be stated in the sequence or order in which they appear, and additional items may be included to explain the computations made in determining the amount to be paid by the insured.

(a) For the purpose of this section, 'consumer insurance premium finance agreement' means an insurance premium finance agreement as defined in Section 27-40-1 wherein the insurance contracts which are the subject of the premium finance agreement are for personal, family, or household purposes or where the premiums for those agreements are two thousand dollars ($2,000) or less. For the purpose of this section, 'commercial premium finance agreement' means any insurance premium finance agreement other than a consumer premium finance agreement.

(b) A premium finance company shall not charge, contract for, receive, or collect a service charge other than in accordance with the following provisions:

(1) The service charge is to be computed on the balance of the premium due, after subtracting the down payment made by the insured in accordance with the premium finance agreement, from the effective date of the insurance for which the premiums are being advanced, to and including the date when the final installment of the premium finance agreement is payable.

(2) The service charge per consumer insurance premium finance agreement shall be a maximum of nine dollars ($9) per one hundred dollars ($100) per annum plus an additional charge, which shall not exceed $15.00 per premium finance agreement, which additional charge need not be refunded.

(3) The service charge for a commercial insurance premium finance agreement shall be as agreed to by the parties to the agreement.

(c) Notwithstanding the provisions of any premium finance agreement, any insured may prepay the obligation in full at any time. In such event he shall receive a credit or refund under the rule of 78ths or the sum of the digits principle as follows: The amount of the refund or credit shall be as great a proportion of the finance charge originally contracted for as the sum of the periodic time balances of the debt scheduled to follow the date of prepayment bears to the sum of all the periodic time balances of the debt, both sums to be determined according to the scheduled payment originally contracted for. No refund of less than $1.00 need be made. If such prepayment is made by the debtor other than on a scheduled payment date, the nearest scheduled payment date shall be used in such computation. If, in addition to the service charge, an additional charge was imposed, such additional charge need not be refunded, nor taken into consideration in computing the credit refund.