The Office of General Counsel issued the following opinion on March 21, 2003, representing the position of the New York State Insurance Department.
Re: Referral of Bank Customer to Affiliated Insurance Agency
Question Presented:
May a national bank that is providing a loan to a customer under the SBA Loan Guaranty Program,1 the terms of which require the borrower to maintain life insurance as a condition of obtaining the loan, refer the customer to an insurance agency that is an affiliated company of the bank?
Conclusion:
A national bank that is providing a loan to a customer under the SBA Loan Guaranty Program, the terms of which require the borrower to maintain life insurance as a condition of obtaining the loan, may refer the customer to an insurance agency that is an affiliated company of the bank provided that the affiliate status is disclosed, and that the customer is informed in writing that his or her choice of insurance provider shall not affect the banks credit decision or credit terms in any way.
Facts:
No specific facts were presented other than that which appear in the question presented.
Analysis:
N.Y. Ins. Law § 2502(a)(2) (McKinney Supp. 2003) states:
Banks, trust companies, savings banks, savings and loan associations, and national banks shall not extend credit, lease or sell property of any kind, or furnish any services, or fix or vary the consideration for any of the foregoing, on the condition or requirement that the customer obtain insurance from the bank, trust company, savings bank, savings and loan association, or national bank, its affiliate or subsidiary, or a particular insurer, agent or broker, provided, however, that this prohibition shall not prevent any bank, trust company or national bank from engaging in any activity described in this subdivision that would not violate section 106 of the Bank Holding Company Act Amendments of 1970, as interpreted by the Board of Governors of the Federal Reserve System. This prohibition shall not prevent a bank, trust company, savings bank, savings and loan association, or national bank from informing a customer that insurance is required in order to obtain a loan or credit, that loan or credit approval is contingent upon the customer's procurement of acceptable insurance, or that insurance is available from the bank, trust company, savings bank, savings and loan association, or national bank; provided, however, that the bank, trust company, savings bank, savings and loan association, or national bank shall also inform the customer in writing that his or her choice of insurance provider shall not affect the bank, trust company, savings bank, savings and loan association, or national bank's credit decision or credit terms in any way. Such disclosure shall be given prior to or at the time that a bank, trust company, savings bank, savings and loan association, national bank or person selling insurance on the premises thereof solicits the purchase of any insurance from a customer who has applied for a loan or extension of credit. (emphasis added)
Section 104(d)(2) of the GLBA provides in pertinent part:
(A) In general
In accordance with the legal standards for preemption set forth in the decision of the Supreme Court of the United States in Barnett Bank of Marion County N.A. v. Nelson, 517 U.S. 25 (1996), no State may, by statute, regulation, order, interpretation, or other action, prevent or significantly interfere with the ability of a depository institution2, or an affiliate3 thereof, to engage, directly or indirectly, either by itself or in conjunction with an affiliate or any other person, in any insurance sales, solicitation, or cross-marketing activity.
(B) Certain State laws preserved
Notwithstanding subparagraph (A), a State may impose any of the following restrictions, or restrictions that are substantially the same as but no more burdensome or restrictive than those in each of the following clauses;
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(viii) Restrictions prohibiting the extension of credit or any product or service that is equivalent to an extension of credit, lease or sale of property of any kind, or furnishing of any services or fixing or varying the consideration for any of the foregoing, on the condition or requirement that the customer obtain insurance from a depository institution or an affiliate of a depository institution, or a particular insurer, agent, or broker, other than a prohibition that would prevent any such depository institution or affiliate
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(II) from informing a customer or prospective customer that insurance is required in order to obtain a loan or credit, that loan or credit approval is contingent upon the procurement by the customer of acceptable insurance, or that insurance is available from the depository institution or an affiliate of the depository institution. (emphasis added)
15 U.S.C.A. § 6701(d)(2) (West Supp. 2002)
Hence, a national bank that is providing a loan to a customer under the SBA Loan Guaranty Program, the terms of which require the borrower to maintain life insurance as a condition of obtaining the loan, may refer the customer to an insurance agency that is an affiliated company of the bank provided that the affiliate status is disclosed, and that the customer is informed in writing that his or her choice of insurance provider shall not affect the banks credit decision or credit terms in any way, pursuant to N.Y. Ins. Law § 2502(a)(2) (McKinney Supp. 2003) and Section 104(d)(2)(B)(ix) of the GBLA (15 U.S.C.A. § 6701(d)(2)(B)(ix) (West Supp. 2002)).
1 The SBA Loan Guaranty Program is operated by the U.S. Small Business Administration, an agency of the federal government, to assist small business enterprises. The SBA Loan Guaranty Program provides a financial guaranty to qualified, eligible businesses to enhance their ability to obtain long-term capital financing from the private sector.
2 Section 104(g) of the GBLA defines "depository institution" as follows: "The term depository institution (A) has the meaning given the term in section 3 of the Federal Deposit Insurance Act ("FDIA"); and (B) includes any foreign bank that maintains a branch, agency, or commercial lending company in the United States." 15 U.S.C.A. § 6701(g) (West Supp. 2002). Section 3 of the FDIA states: "The term depository institution means any bank or savings association." 12 U.S.C.A. § 1813(c)(1) (West 2001). 12 U.S.C.A. § 1813(a)(1) and (b)(1) (West 2001) provide the following definitions: "(a)(1) The term bank - (A) means any national bank, State bank, and District bank, and any Federal branch and insured branch; (B) includes any former savings association that (i) has converted from a savings association charter; and (ii) is a Savings Association Insurance Fund member. . . . (b)(1) The term savings association means (A) any Federal savings association; (B) any State savings association; and (C) any corporation (other than a bank) that the Board of Directors and the Director of the Office of Thrift Supervision jointly determine to be operating in substantially the same manner as a savings association."
3 12 U.S.C.A. § 1813(w)(6) (West 2001) states: "The term affiliate has the meaning given to such term in section 1841(k) of this title." 12 U.S.C.A § 1841(k) (West 2001) states: "For purposes of this chapter, the term affiliate means any company that controls, is controlled by, or is under common control with another company."