WASHINGTON - The Comptroller of the Currency wants to revise a restriction prohibiting bank insiders from personally profiting from credit-life insurance sales.
Ford Barrett, assistant director of litigation at the Comptroller's office, told attendees at the Financial Institutions Insurance Association conference here that the agency wants to revamp the rule as part of its ongoing effort to delete and streamline outdated regulations.
"Do we still need this provision?" Mr. Barrett said last week. "We will be looking to you for the answer."
A formal reform proposal is not expected until the third quarter.
Mr. Barrett also warned bankers about several insurance brokers who are claiming that their life insurance policies for top bank executives are "OCC approved."
"The OCC doesn't endorse particular products," he said. "Any vendor who says he has the OCC's approval is misleading the bank."
The credit-life insurance rule, which dates back to 1977, requires that banks, and not its officers, pocket credit-life insurance commissions. It does allow banks to give insiders quarterly bonuses related to the sales, but those bonuses cannot total more than 5% of the officer's annual salary.
The regulation also applies to brokerage affiliates that sell credit- life insurance. These affiliates must return 20% of the insurance income to compensate the bank for the customer good will it developed.
Mr. Barrett said bankers prior to the rule were making small fortunes by pocketing the commissions from insurance sales, rather than turning the money over to the bank.
In fact, community bankers relied so heavily on the income that their trade association, the Independent Bankers Association of America, sued the Comptroller's office in 1977 to block implementation of the rule?.
"It was one of the most controversial things the OCC had done in its 100 years," Mr. Barrett said.
But, he said the agency today believes that bank insiders understand they must appropriately compensate their institutions for the good will they have with customers. If that's true, then the agency can substantially dump the rule, he said.
Karen Thomas, IBAA regulatory counsel, said her group will study the proposal. But, she also said bankers are careful of conflicts of interest. "Banks don't want to put their customers in awkward position," she said.
Ronald Glancz, a law partner at Venable, Baetjer, Howard & Civiletti, said the Comptroller's office should replace the credit-life rule with a broader policy providing guidance to bank insiders who sell any service to their institution or its customers.
"There is no reason you need a rule for credit life, but not one for insiders that have data processing that serve a bank or provide cleaning services for a bank," Mr. Glancz said. "There are no more or greater abuses for credit life than for any other type of arm's-length contract."
