The Office of the Comptroller of the Currency has knocked down another restriction on sales of insurance by banks.
In a controversial move, the agency recently gave national banks broad authority to base their insurance operations in urban areas. The ruling is expected to save banks money, particularly small banks in towns with more than 5,000 people.
"I need the insurance office to be in my area," said L. Edward Schuler, executive vice president and chief operating officer of Community National Bank of Sarasota County in Venice, Fla. "We have two branches serving south Sarasota County, and it isn't possible for us to open an insurance agency far away."
Community National's request sparked the OCC's decision, issued in a Feb. 27 letter to Florida insurance regulators. Though Venice has a population of 17,000, the $52 million-asset bank wants to open an insurance office in neighboring Nokomis, a community with 3,500 residents.
Florida officials balked at Community National's application, filed in September, because Nokomis is not incorporated and a recently enacted state law requires bank insurance offices to be based in "cities of 5,000 or less."
Mr. Schuler said state officials are being unfair. "Nokomis is a separate community with its own ZIP code, a volunteer fire department, and a community center," he said.
In response to a Jan. 23 request from Florida officials, OCC Chief Counsel Julie L. Williams spelled out the agency's thinking for the first time.
She noted that the National Bank Act stipulates bank insurance offices may be based in any "place" that, according to the latest 10-year census, has fewer than 5,000 residents.
That means not only incorporated towns and cities qualify, but also so- called "census designated places," unincorporated areas that the Census Bureau has identified. A census designated place may be in a rural area or a suburb of an metropolitan area.
Though Ms. Williams said the ruling should come as no surprise, banking attorneys were delighted with the new guidance.
"Because of uncertainty and timidity, most banks traditionally have located facilities in small towns away from urban areas," said David Roderer, a partner with Goodwin, Procter & Hoar law firm in Washington.
For example, the former Barnett Banks Inc., which won a Supreme Court battle to sell insurance to customers throughout Florida, based its insurance operation in remote Belleview, more than 100 miles from its Jacksonville headquarters.
"The fight over where banks can sell insurance is over now," said Ronald R. Glancz, a partner with the Washington office of Venable, Baetjer, Howard & Civiletti. "Banks will have no trouble locating insurance offices somewhere in their territory."
For example, banks can serve Washington customers by setting up an office in Ashton-Sandy Spring, Md., a census designated place with 3,092 residents. Customers in Knoxville, Tenn., could buy insurance from an office in the Karns community, population 1,428.
But the OCC's latest move has riled insurance trade groups and some lawmakers, who argue the agency has overstepped its authority in the past 10 years by expanding banks' power to sell annuities and insurance.
"I think this is going to light a tremendous furor," predicted Rep. Richard Baker, R-La.
Robert Rusbuldt, lobbyist for the Independent Insurance Agents of America, said his group may sue the agency. "We are still reviewing the implications and our legal options," he said.
