OCC's response to IBA clarifies banks' right to sell crop insurance

Northwestern Financial Review, Jan 24, 1998

The Office of the Comptroller of the Currency has clarified that national banks located in towns of more than 5,000 people may sell crop insurance. OCC Chief Counsel Julie Williams made the clarification in a nine-page letter to the Iowa Bankers Association. Merritt Krause, senior vice president for Iowa Bankers Insurance & Services, said the association sought the clarification more than 18 months ago after some Iowa national banks in large communities said they believed they were prohibited from selling crop insurance.

The OCC opinion immediately caught the attention of the Independent Insurance Agents of America. The organization said it is studying the OCC's opinion and may seek legal action to overturn it. A spokesperson for the IIAA said that although the association has not made a decision about whether to file a law suit, "the OCC's opinion reinforces the need to enact legislation limiting the authority of the OCC."

Williams said the Section 92 insurance restrictions of the National Bank Act, which limit insurance sales to banks located in small towns, do not apply to crop insurance sales.

"Selling crop insurance enhances a bank's ability to receive repayment of its loans; promotes a bank's lending business by making available a credit related product sought by borrowers; and enables a bank to avoid economic waste in connection with its lending activities," Williams wrote in the Dec. 29 letter.

Krause said the clarification is of national significance because there may be banks all over the country in towns with populations in excess of 5,000 that conduct a significant amount of farm lending. "This letter clarifies that they may sell crop insurance," Krause said.

IBA initiated a discussion with the OCC with a letter on April 22, 1996. Krause said IBA answered a number of OCC questions about the issue before Williams issued the OCC final opinion.

PERSONNEL

Terry D. Nielsen was named vice president of commercial lending at Washington State Bank. Nielsen most recently served as senior vice president for the Washington branch of the Mercantile Bank of Eastern Iowa.