The decades-long legal battle between the banking and insurance industries is about to heat up again. The spark this time comes from the Office of the Comptroller of the Currency's decision to let Magna Bank retain its insurance operations when it converted from a Missouri-chartered bank to a national bank.
The conversion prompted howls of protest from the insurance industry because the OCC said Magna could continue selling insurance from agencies located throughout the state, regardless of the size of the community. Though Missouri-chartered banks hold this power, national banks are restricted to selling insurance from places with fewer than 5,000 residents.
The dispute, as in all the past major legal fights between the two industries, comes down to how much discretion the OCC has to interpret the National Bank Act.
The American Council of Life Insurance, in a filing this week with a federal appeals court here, said this time the OCC went too far. The National Bank Act, as previously interpreted by the agency, requires banks that convert to national charters to divest big-city insurance operations within a set amount of time, the group said. The OCC erred in November 1995 when it ruled Magna could keep its insurance operations indefinitely, the ACLI wrote.
Retention of all the insurance agencies also runs contrary to Congress' intent when it enacted the law, the ACLI said. Without divestiture, the group said, the OCC is creating two classes of national banks-those with broad insurance powers and those that had to follow restrictions in the National Bank Act. That is contrary to Congress' intent to have a single class of national banks with equal powers, the group wrote.
"Magna's retention of insurance subsidiaries overrides specific and well-settled congressional limitations on such activities by national banks," the group wrote in its Dec. 21 brief. "The comptroller's interpretation of his authority should be rejected."
The OCC, in earlier filings with the court, mounted a full-court press to crush the case, which already has been rejected by a lower court judge.
In a Nov. 23 brief, the agency said nothing in the National Bank Act prevents it from letting a converting bank retain big-city insurance operations indefinitely.
"They are reading into the statute that there must be a time limit" on retaining these insurance agencies, OCC chief counsel Julie L. Williams said in an interview. "But the statute doesn't say anything about that."
Even if there is some doubt of the law's meaning, the court should defer to the OCC's interpretation of the act, the agency said in its brief. This is similar to arguments the agency successfully used in the Supreme Court to win the Valic and Barnett Banks Inc. cases, which respectively gave national banks the right to sell annuities and offer insurance from small towns.
The agency also has tried to dismiss the suit, arguing Magna's Oct. 9 acquisition by Union Planters Bank renders the case moot because the new bank must divest the insurance operations within two years. The court deferred a decision on the motion until after it hears arguments in the case on Feb. 11.
The American Bankers Association, the Association of Banks-in-Insurance, the Bankers Roundtable, and the Missouri Bankers Association support the OCC's position.
Michael F. Crotty, the ABA's deputy general counsel, said these groups also urged the court to word its ruling carefully so that it does not inadvertently set a precedent that would hamper future efforts to expand the power of banks to sell insurance. Insurance sales by banks in towns with more than 5,000 residents are not expressly prohibited by the law, the groups write. Rather, the OCC has never decided if other sections of the National Bank Act permit such sales, they said. The court should not inadvertently state that the law bars big-city insurance sales, they wrote.