Opposition Brief — Chase Manhattan Bank, N. A. v. American Land Title Ass'n

Nos. 92-182, 92-645

IN THE

Supreme Court of the United

OCTOBER TERM, 1992

THE CHASE MANHATTAN BANK, N.A.,

Petitioner,

V.

AMERICAN LAND TITLE ASSOCIATION, et a/.,

Respondents.

STEPHEN R. STEINBRINK,

ACTING COMPTROLLER OF THE CURRENCY, ef a.,

Petitioner,

Vv.

AMERICAN LAND TITLE ASSOCIATION, et a.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

BRIEF IN OPPOSITION

SHELDON E. HOCHBERG *

CHARLES G, COLE

SUSAN M. DAMPLO

STEPTOE & JOHNSON

1330 Connecticut Ave., N.W.

Washington, D.C. 20036

(202) 429-3000

Attorneys for Respondents,

American Land Title Association,

New York State Land Title

Association

November 12, 1992 * Counsel of Record

WILSON - Eres PRINTING Co... IN« 789.0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

Whether national banks may engage in the title insur-

ance agency business outside of the limitations established

by Congress in 12 U.S.C. 92, the only statutory enactment

to address the permissible scope of insurance agency

les by national banks?

i .

il

RULE 29.1 LISTING OF PARENT COMPANIES,

SUBSIDIARIES AND AFFILIATES

Respondent American Land Title Association (“ALTA”)

is a non-governmental corporate body. ALTA is a non-

profit corporation founded in 1907, It is organized and

existing under the laws of the District of Columbia and

is the national association of the land title industry.

ALTA has &pproximately 2,300 members, including title

insurance agents and title insurance companies, which do

business in all 50 states, including the State of New York.

ALTA has no parent companies, subsidiaries, or affiliates

that have issued shares to the public.

Respondent New York State Land Title Association

(“NYSLTA”) is an unincorporated organization organ-

ized in 1921 as the statewide association of the land title

industry in the State of New York. NYSLTA has ap-

proximately 250 regular members, including title insur-

ance agents and title insurance companies, doing business

in New York. NYSLTA has no parent companies, sub-

sidiaries or affiliates that have issued shares to the public.

TABLE OF CONTENTS

QUESTION PRESENTED

RULE 29.1 LISTING OF PARENT COMPANIES,

SUBSIDIARIES AND AFFILIATES

TABLE OF AUTHORITIES

STATEMENT OF THE CASE

A. The Genesis of Section 92

B. The Saron and Heimann Decisions

a

The OCC’s Title insurance Ruling and the In-

stant Litigation

—

_

. The Decision Below

REASONS FOR DENYING THE WRITS

I. REVIEW OF THE DECISION BELOW IS

NOT NEEDED TO RESOLVE WHETHER

SECTION 92 EXISTS

Il. THE DECISION BELOW DOES NOT WAR.-

RANT REVIEW BY THIS COURT

A. There Is No Conflict Among the Circuits on

the Relationship of Section 92 to the Inci-

dental Powers of National Banks Under Sec

tion 24 (Seventh)

B. The Decision Below Raises No Issue of Im-

portance That Merits Review by This Court

C. There Is No Error in the Second Circuit's

Decision That Warrants Review

D. Reversal of the Decision Below Would Not

Resolve This Litigation

CONCLUSION

iv

TABLE OF AUTHORITIES

CASES Page

American Ins. Ass’n v. Clarke, 865 F.2d 278 (D.C.

RIK ID corsa. calaecaddsaieanaoaettaaeaasetertemetamaaie 12

American Land Title Ass’n v. Clarke, 968 F 2d

Te ARUE RU INGE sehcasscacanthientecciinsapansidshaconacctsaml passim

Arnold Tours, Inc. v. Camp, 472 F.2d 427 (1st Cir.

+ Re clint eet tte oy apn ie Res nnn are ER Raskin 21

Chevron, U S.A. Inc. v. Natural Resources De-

fense Council, Inc., 467 U.S. 837 (1984) ............ 6, 20

Commissioner v. First Sec. Bank, 405 U.S. 394

First Nat'l Bank v. Missouri, 263 U.S. 640

DMP cheer cua ivan'co aso ae anatase cites cat cetenen coe oa 20

First Nat'l Bank v. Smith, 436 F. Supp. 824 (S. D.

Tex. 1977), modified, 610 F.2d 1258 (5th Cir.

Re Ae eee apm a RRMA DiC Poms HE RRCME eae Lee A 15

First Nat'l Bank v. Taylor, 907 F.2d 775 (8th

Cir.), cert. denied, 111 S. Ct. 442 (1990) .......... ; 18

First Wisconsin Corp., 75 Fed. Res. Bull. 31

(1989), aff'd, American Land Title Ass’n v.

Board of Governors, 892 F.2d 1059 (D.C. Cir

1989) ..... ee ee Cn eI TT ene Re ee eet Cy EN 16

Independent Bankers Ass’n of Am. . Heimann,

613 F.2d 1164 (D.C. Cir. 1979), oe denied,

449 U.S. 823 (1980) ... ae _ passim

Independent Ins. Agents of Am., Inc. v. Board of

Governors, 736 F.2d 468 (8th Cir. 1984) _... . 12

Independent Ins. Agents of Am. v. Clarke, 955

F.2d 731 (D.C. Cir. 1992), petitions for cert.

pending, 61 U.S.L.W. 3266 (U.S. Sept. 18, 1992)

(Nos. 92-484 & 92-507) _........ | 8, 9,10, 11

M & M Leasing Corp. v. Seattle First Nat'l Bank,

563 F.2d 1377 (9th Cir. 1977), cert. denied, |

436 U.S. 956 (1978) . am 21 |

NLRB v. United Food & Commercial W ovkere

Union, Local 23, 484 U.S. 112 (1987) 21

Sanford v. Garamendi, 284 Cal. Rptr. 897 (Ct.

App. 1991) .............. 12

Saron v. Georgia Ass'n of Indep p. Ine. Age nts, Ine.

399 F.2d 1010 (5th Cir. 1968) passim

Texas & Pac. Ry. v. Pottorff, 291 U.S. 245 (1934) 20

A a ee |

TABLE OF AUTHORITIES—Continued

Page

Variable Annuity Life Ins. [;3: 2). Clarke, 786 F.

Supp. 639 (S.D. Tex. 1991), appeal pending, No.

92-2010 (5th Cir.) 12

STATUTES

12 U.S.C. 24 (Seventh) (1988 & Supp. II 1990) passim

12 U.S.C. Ja passim

12 U.S.C. 1843 (¢c) (8) (A) (1988) 16

FEDERAL REGULATIONS AND MATERIALS

OCC Staff Interpretive Letter No. 368, printed in

[1985-87 Transfer Binder] Fed. Banking L.

Rep. (CCH) © 85,538 (July 11, 1986) 5

12 C.F.R. §§ 2.1-2.7 (1992) 13

Disposition of Credit Life Insurance Income (Final

Regulation), 42 Fed. Reg. 48,518 (1977) 13, 14,15

Disposition of Credit Life Insurance Income (Pro-

posed Rulemaking) 41 Fed. Reg. 29.846 (1976) 13, 14

2 Fed. Res. Bull. 73 (Feb. 1916) 2

MISCELLANEOUS

03 Cong. Rec. 11,001 (1916) 3,12

Symons, The ‘“‘Business of

Perspective, 51 Geo. Wash.

! r’’ in Historical

L. Rev. 676 (1983) 21

|

—~

~

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

Nos. 92-482. 92-6 15

THE CHASE MANHATTAN BANK, N.A..

Pe titione rs

)

AMERICAN LAND TITLE ASSOCIATION, et al..

Re sponde nts.

STEPHEN R. STEINBRINK,

ACTING COMPTROLLER OF THE CURRENCY, et al..,

me Petitioner.

Ve

AMERICAN LAND TITLE ASSOCIATION, et al..

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

BRIEF IN OPPOSITION

STATEMENT OF THE CASE

This brief is submitted by respondents American Land

Title Association and New York State Land Title Asso-

ciation (collectively “ALTA”) in opposition to the peti-

tions for writ of certiorari filed by the Acting Comptroller

of the Currency and the Office of th

tne Comptroller of the

Currency (collectively “OCC”) in case No. 92-645 and

‘hase Manhattan Bank, N.A. (“Chase”) in case

(

No. 92-482. The primary issue raised by the petitions

2

is whether 12 U.S.C. 92 limits the authority of national

banks to engage in the title insurance agency busizess.

The conclusion of the court of appeals that the statute

has this effect does not merit review. It raises no con-

flict with the hoiding of any other circuit court and is

consistent with the language and legislative history of

section 92, and with prior judicial precedent.

A. The Genesis of Section 92

In 1863, Congress first established the powers of na-

tional banks in legislation that later became known as

the National Bank Act. In addition’to granting certain

express powers, the legislation granted national banks

the power to exercise “all such incidental powers as shali

be necessary to carry on the business of banking.” 12

U.S.C. 24 (Seventh) (1988 & Supp. IT 1990) (hereafter

“section 24 (Seventh)”). Over the next half century,

numerous Supreme Court decisions addressed and delin-

eated those powers that had been granted by Congress

in the 1863 legislation and in subsequent amendments.

In February of 1916, the Federal Reserve Board pub-

lished a memorandum from its counsel regarding the

authority of national banks to engage in insurance agency

activities. 2 Fed. Res. Bull. 73-74.' It concluded that a

national bank had no express power to engage in such

activities and that no such authority could be derived

from the incidental powers provision of section 24 (Sev-

enth). According to the Board, “[a]ny such extension of

the powers of national banks must be left to the consid-

eration of Congress.” /d. at 74, App., infra, at 3a.

Four months later, in June 1916, Comptroller of the

Currency John Williams wrote to the Congress recom-

mending that it enact legislation, a draft of which was

enclosed with the Comptroller’s letter, that would grant

insurance agency powers to national banks located in

This memorandum is reproduced at App., infra, la-3a.

3

small towns. 53 Cong. Rec. 11,001 (1916).2 His letter

confirmed that, under existing law (specifically referring

to the incidental powers provision) and Supreme Court

precedent, “|n]ational banks are not given either ex-

pressiy nor by necessary implication the power to act as

agents for insurance companies .... It is certainly clear

that the Comptroller of the Currency has no right to

authorize or permit a national bank to exercise powers

not conferred upon it by law.” App., infra, at 6a. In

proposing that Congress’ grant of insurance agency pow-

ers “should be limited to banks in small communities.”

he reiterated that it would be “unwise and _ therefore

undesirable to confer this privilege generally upon banks

in large cities.” App., infra, at 7a.

After increasing the small town population limit from

3,000 to 5,000, Congress enacted the legislation proposed

by the Comptroller. This legislation was codified at 12

U.S.C. 92 thereafter “section 92”), and remains today

the only legislative grant of insurance agency powers

to national banks.

B. The Saxon and Heimann Decisions

Almost fifty years later, in the early 1960’s, an

advisory committee established by Comptroller of the

Currency John Saxon concluded that national banks

should have broader insurance agency powers and rec-

ommended that Congress enact legislation granting na-

tional banks the power to act as insurance agents in

connection with their loan transactions. Instead of seek-

ing the necessary legislation, Comptroller Saxon con-

verted the panel’s recommendation into an administrative

ruling, which purported to determine that national banks

already had such authority pursuant to their “incidental”

powers. That ruling was struck down by the Fifth Cir-

cuit in Saxon v. Georgia Ass'n of Indep. Ins. Agents, Inc.,

“ The full text of the Comptroller’s letter, as printed in the Con-

gressional Record, is set out in App. infra, at 4a-8a.

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5

C. The OCC’s Title Insurance Ruling and the Instant

Litigation

[In 1986, the OCC issued an interpretive ruling that

a national bank may act as agent in the sale of title

‘nsurance in any community regardless of population if

such activities are undertaken in transactions involving

the bank’s loans. OCC Staff Interpretive Letter No. 368,

repriuted in [1985-87 Transfer Binder] Fed. Banking

L. Rep. (CCH) © 85,538 (July 11, 1986), reprinted in

Chase Pet. App. 53a-44a.° The ruling relied extensively

on the Hetmann decision, not only to justify the conclu-

sion that the sale of title insurance was incidental to

banking, but also to reject the applicability of section 92

and the Sawon decision to title insurance. Chase Pet.

App. at 41a-43a. Based on this ruling, in 1989 the OCC

approved the establishment by petitioner Chase of two

operating subsidiaries with authority to issue owner’s

and lender’s title insurance policies in transactions in-

volving residential and commercial mortgage loans made

by Chase and its affiliates. Chase Pet. App. at 30a-32a.

Shortly thereafter ALTA initiated this action to obtain

judicial review of the 1986 ruling on title insurance and

the 1989 approval of the Chase application. The com-

plaint urged that the OCC’s ruling and approval be set

aside as unlawful in that they permitted a national bank

to engrge in title insurance agency activities that are

(a! prohibited to them by section 92, and (b) not author-

ized by section 24 (Seventh) or any other provision of

law. After the filing of cross-motions for dismissal and

summary judgment, the district court granted the de-

* The version of OCC Interpretive Letter No. 368 reprinted in the

pendix to the OCC petition at 35a-45a omits eight paragraphs

from the letter. These omitted paragraphs, which should have

peared before the carryover paragraph on page 42a of the OCC

petition, appear on pages $9a-12a of the appendix to the Chase

petition

>

)

»*

fendants’ motion to dismiss.*° The district court found

that it was rational for the OCC to conclude that title

insurance agency activities were within the incidental

nowers of national banks, it was not arbitrary and

capricious for the OCC to conclude that section 92 was

not a limitation on those powers, and the OCC’s determi-

nation that title insurance differs from the forms of

insurance addressed in section 92 was rational. OCC

Pet. App. at 29a-30a,

D. The Decision Below

A unanimous panel of the Second Circuit reversed.

OCC Pet. App. at la-l8a: American Land Title Ass’ ,

Clarke, 968 F.2d 150 (2d Cir. 1992). With regard to

the contentions raised by the parties below,’ the Second

Circuit first addressed and rejected ALTA’s suggestion

that the principles set forth in Chevron, U.S.A., Inc. v.

Natural Resources Defense Council, Ine., 467 U.S. 837

(1984), were not applicable to interpretive rulings, such

as the OCC’s 1986 ruling on title insurance, on which

there had been no opportunity for notice and_ public

comment. The court concluded that the principles of

Chevron were applicable and proceeded to apply them.

]

then focused on the language and legislative

history of section 92. It concluded that the legislative

history tin particular, the letter from Comptroller Wil-

ae eae ie

ms) supported its finding

g that the statutory language

precluded national banks from acting as insurance agents

outside the provision’s geographical restrictions. OCC

"Chase had previously been granted leave to intervene a

defendant

* Before addressing the parties’ contentions, the court first con

cluded that section 92 remains valid law. The court felt compelled

to address this issue in light of the decision in Independent Th

igents of Am. v. Clarke, 955 F.2d 731 (D.C. Cir. 1992), petition:

for cert. pending, 61 U.S.L.W. 3266 (U.S. Sept. 18, 1992) (Nos. 92

184 & 92-507), which was handed down after oral argument in the

ALTA case and which had concluded that section 92

18. OCC Pet. App. at 3a-lla; 968 F.2d at 151-54

Pet. App. at 12a-15a; 968 F.2d at 155-56. It also found

that this analysis of congressional intent was fully con-

sistent with the Fifth Circuit’s analysis in Savon. Id.

at 15a; 968 F.2d at 156.

The court next addressed and rejected the OCC’s con-

tentions that Hetmann and not Saxon was the determina-

tive precedent. OCC Pet. App. at 15a-17a; 968 F.2d at

156-57. The court determined that the conclusion in

/1eimann was based on the nature of credit life insurance

“rather than on the issue of whether section 92 impliedly

operates as a bar to certain national bank activity.” *

The court did not disagree with the Heimann court’s

authorization of credit life insurance activities. Rather,

the Second Circuit concluded that Heitmann’s discussion

of the applicability of section 92 to credit life insurance

Was not persuasive on whether section 92 was applicable

to a national bank’s title insurance agency activities. /d.

at 17a; 968 F.2d ai 157.

Finally, having concluded that section 92 applied to

the powers of national banks to engage in title insurance

agency activities, the Second Circuit determined there

Was no need for it to address the scope of the incidental

powers provision of section 24 (Seventh).” “[E]ven if

the general grant of power contained in section 24 (Sev-

ith) were sufficiently broad to encompass the title in-

surance agency business, so construed the statute would

ave to vield to the specific limits on insurance activity

In section 92.” OCC. Pet. App. at 18a; 968 F.2d at 157.

*OCC Pet. App. at 16a; 968 F.2d at 156. The court below also

noted that “Heimann’s persuasiveness is further eroded by _ it

‘ant analysis of section 92 and its failure to discuss the

legislative history.” Jd. at 17a; 968 F.2d at 157

‘ALTA had argued that even if section 92 did not preclude th

OCC’s 1986 determination that national banks had the in idental

ower to engage in the title insurance agency business. that dete

nination would be contrary to Supreme Court and lower court

precedent on the proper scope of the incidental powers of national

banks

8

REASONS FOR DENYING THE WRITS

The Chase petition seeks review of the decision below

on two issues: (1) whether section 92 was repealed in

1918, and (2) the effect of section 92 on the ability of

national banks to engage in insurance agency activities,

such as citle insurance agency activities, that the OCC

has determined to be incidental to banking under section

24 (Seventh). The OCC petition seeks review on only

the second issue. The decision below does not warrant

review on either of these issues.

None of the parties to this case has ever argued that

section 92 has been repealed. The Second Circuit con-

sidered the point after oral argument only because of the

D.C. Circuit decision in Independent Ins. Agents of Am.

v. Clarke, 955 F.2d 731 (D.C. Cir. 1992), petitions for

cert. perding, 61 U.S.L.W. 3266 (U.S. Sept. 18, 1992)

(Nos, 92-484 & 92-507). As the OCC petition recognizes,

there is no need for the Court to grant review of the

Second Circuit decision in order to address and _ resolve

whether section 92 still exists.

Similarly, there is no need for the Court to grant

review on the interpretation of section 92. Petitioners

assert that a conflict exists among the circuits on the

interpretation of section 92 as a limit on the insurance

agency activities of national banks. In fact, there is no

conflict. Only two circuits have ever squarely addressed

the effect on section 92 on determinations by the Comp-

troller that national banks can engage in the insurance

agency business under their “incidental” powers: the

Second Circuit in the decision below and the Fifth Cir-

cuit in Savon. Both decisions concluded that, with respect

to the insurance agency activities at issue in the respec-

tive cases, the Comptroller could not authorize national

banks to engage in such activities outside the limitations

established by Congress in section 92.

The only appellate court decision cited by petitioners

that presents even an apparent conflict with the decision

4)

below is Heimann. No real conflict exists, however, be-

tween that decision and the ALTA and Savon decisions.

Heimann did not purport to make a definitive interpre-

tation of section 92 in firding that credit life activities

were so integral to national bank loan activities as to be

permissible. Moreover, the concern expressed by peti-

tioners—that the decision below would jeopardize the

long-standing and widespread involvement of national

banks in various forms of credit-related insurance—is

unfounded. The decision below addressed only whether

national banks can engage in the title insurance agency

business.

Finally, there is no error in the decision below war-

ranting review. The Second Circuit properly applied

relevant principles of statutory interpretation (or, in

the case of the OCC’s misguided ejusdem generis conten-

tion, rejected irrelevant principles). In any event, the

court’s interpretation of section 92 as applying to title

insurance has not been shown to be of sufficient moment

to merit a separate hearing before this Court.

The petitions in this case should be denied or, if neces-

sary, should be held pending resolution of the petitions in

the //AA case. If the Court denies those petitions, or

grants review of the D.C. Circuit decision in the /JAA

case and concludes that section 92 remains enacted law,

it should then deny the writs requested here.'”

I. REVIEW OF THE DECISION BELOW IS NOT

NEEDED TO RESOLVE WHETHER SECTION 92

EXISTS

In Independent Ins. Agents of Am. v. Clarke, 955 F.2d

731 (D.C. Cir. 1992), petitions for cert. pe nding, 61

U.S.L.W. 3266 (U.S. Sept. 18, 1992) (Nos. 92-484 &

Tf the Court affirms the D.C. Circuit decision, it should grant

the petitions here, vacate the decision below, and remand the case

back to the Second Circuit for reconsideration in light of the Court’s

decision in JJAA.,

10

92-507) (“IIAA”), the D.C. Circuit concluded that sec-

tion 92, which was enacted in 1916, had been repealed in

1918. This decision was handed down in February 1992,

after oral argument had been held before the Second Cir-

cuit in the instant case. While the parties below had

recognized that section 92 was no longer codified in the

U.S. Code, the existence or repeal of section 92 was not

an issue in the case. The parties had neither briefed

nor argued that issue. Because of the /JAA decision,

however, the Second Circuit felt compelled to address

the repeal issue. The Second Circuit disagreed with the

D.C. Circuit and concluded that section 92 was not re-

pealed in 1918. OCC Pet. App. at 3a-lla; 968 F.2d at

151-54.

The Chase petition suggests that review of the decision

below is needed in order to resolve a conflict between the

two circuits regarding the continued existence of section

92. Chase Pet. at 12. As the Solicitor General has im-

plicitly recognized, this case is not the appropriate ve-

hicle for review of the issue of the existence of section

92. Entertaining the same question in both the //AA case

and the instant case would involve duplicative and bur-

densome argument that would be of little benefit to the

Court.

In addition, even if the Court were to determine in

the JJAA case that section 92 was repealed in 1918, the

basis for the decision below in the instant case would

still remain. As the Second Circuit recognized, Congress’

enactment of the provision demonstrated that section

92 was understood and intended as the sole statutory

authority for the insurance agency activities of national

banks. The repeal of section 92 would not cast doubt

on that conclusion, but would merely suggest that Con-

gress had concluded that even this limited insurance

agency authority was inappropriate for national banks.

Indeed, it is not even clear that the instant case would

provide a full and adversarial presentation of the issue

11

of the existence of section 92. The OCC petition contends

that it is the JIAA decision, not the Second Circuit deci-

sion. that is in error on this issue. OCC Pet. at 9. The

OCC petition pointedly declines to raise the existence or

repeal of section 92 as an issue that justifies this Court’s

review of the Second Circuit decision. Clearly, the OCC

will not argue in this case that section 92 has been

repealed. The Chase petition, while asserting a conflict

between the Second Circuit and the D.C. Circuit, fails

to indicate what position Chase would take regarding

whether section 92 exists. Thus, it is possible that, as

in the court below, no party in this case will argue that

section 92 has been repealed.

In short, there is no reason for the Court to grant

review of the decision below in order to address whether

section 92 was repealed.

Il. THE DECISION BELOW DOES NOT WARRANT

REVIEW BY THIS COURT

The Second Circuit’s decision on the application of

section 92 to the title insurance agency activities of

national banks does not raise a conflict among the cir-

cuits or any other issue that merits this Court’s review.

A. There Is No Conflict Among the Circuits on the

Relationship of Section 92 to the Incidental Powers

of National Banks Under Section 24 (Seventh)

Only two circuit courts, the Second Circuit in the case

below and the Fifth Circuit in Sawon, have examined

whether section 92 limits the scope of insurance agency

activities by national banks other than with respect to the

sale of credit-related insurance. Both circuits, after a

thorough examination of the language and legislative

history of section 92, reached identical conclusions.

Other than the Heimann decision, the other appellate

court decisions cited by petitioners either did not address

12

section 92 or did so by way of dicta.'’ The lower court

decisions cited by petitioners are likewise not in conflict

with the Second Circuit’s interpretation of section 92."

The petitions seek to create a conflict by contending

that the Second Circuit’s reading of section 92 is incom-

patible with Heimann. OCC Pet. at 10; Chase Pet. at

16-17. An examination of Heimann and the OCC rule-

making at issue in that case makes evident that there

is no conflict. The unique factors that led the D.C. Cir-

cuit in Heimann to conclude that national banks could

sell credit life insurance outside the limitations of section

92 are not relevant to title insurance agency activities.

1! American Ins. Ass’n v. Clarke, 865 F.2d 278 (D.C. Cir. 1988)

did not discuss or even mention section 92.

The footnote in Independent Ins. Agents of Am., Inc. v. Board of

Governors, 736 F.2d 468. 477 n.6 (8th Cir. 1984 ), sugyvests. without

explanation or analysis, that Saron may have been wrongly decided

because the legislative history of section 92 indicates that Congress

was only concerned with providing small town banks an additional

source of profits, not°with prohibiting city banks from selling insur-

ance. The court’s unsupported statement is clearly in error in light

of the Comptroller’s 1916 letter to the Congress (“It would be un

wise and therefore undesirable to confer this privilege generalls

upon banks in large cities... .’). 53 Cong. Ree. 11,001 (1916

App., infra, at 7a.

12 Variable Annuity Life Ins. Co. v. Clarke, 786 F. Supp. 629

(S.D. Tex. 1991), appeal pending, No. 92-2010 (Sth Cir.), affirmed

the OCC’s determination that section 92 did not apply to the sale of

annuity contracts by national banks because such contracts were

“primarily financial instruments, not insurance.” Jd. at 641. That

determination, even if upheld on appeal by the Fifth Circuit, would

be distinguishable from the ALTA and Savon decisions, which in

volved insurance products.

Sanford v. Garamendi, 284 Cal. Rptr. 897 (Ct. App. 1991), in

volved provisions of state law, not section 92. While one statutors

provision at issue was patterned after section 92 the court's inter

pretation of that provision was influenced by the legislative histor

of that state law provision and the existence of another p

of California banking law authorizing state banks to engaye in anv

business activity not prohibited by state law. Jd. at 903. There is

no comparable provision in the National Bank Act

These factors, discussed immediately below, were ad-

dressed at length in ALTA’s brief to the Second Circuit.

They demonstrate why Heimann concluded that. credit

life insurance was “|u]|nlike other forms of insurance.”

613 F.2d at 1170. They also demonstrate why the Second

Circuit properly concluded that Heimann was limited to

the credit life context and was not persuasive on whether

section 92 was applicable to a national bank’s title in-

surance activities."

First, credit life insurance, unlike title insurance or

automobile or homeowners insurance. is a product that

exists solely for the protection of credit grantors. Credit

life insurance “has no appeal whatsoever to persons not

simultaneously borrowing from the bank.” Final Rule-

making, 42 Fed. Reg. at 48,518 col. 3. In concluding that

Savon did not apply to credit life, the Comptroller noted

that other types of insurance were “commonly sought by

the public outside the credit granting process.” Jd. at

18,519 col. 1. Although title insurance, like automobile

and homeowner’s insurance, is customarily required by)

banks to protect the collateral for their loans, title insur-

ance, unlike credit life insurance, is purchased by owners

of real estate and others quite apart from the credit

second, credit life insurance would not be available

unless credit grantors, such as national banks. sold the

‘These factors also distinguish credit life insuranee from t}

types of property ‘casualty insurance at issue in Saron

Phe ¢ lit life insurance regulati Heimay !

oditir t 32.0.7 & zZ.i-2.4 (1992 I}

Which Facto Wel Iiscu 1 by (omy Her are D

p fion of Credit Life I srernice Tne ‘ yy 1 Reyu Lio! . a2

Fed. Reg. 4%,51% L977 hereafter “Final Rulemaking”

Disposition ("; Life Th “7 / Proy i R r

ie y I 29,846 (1976 herea Proposed Rulema t

14

insuranece.'' It is issued solely to protect the lender and

serves the same purpose as “additional collateral, a co-

maker or a guarantor.” See Final Rulemaking, 42 Fed.

Reg. at 48,518 col. 2. In this economic sense, credit life

insurance can be viewed as part of the loan repayment

terms.

Third. national banks were almost universally involved

in the sale of credit life insurance at the time of the OCC’s

eredit life rulemaking.'® Thus, the OCC rulemaking re-

viewed in Heimann was not authorizing natienal banks

to engage in a new activity. It was merely regulating an

activity that was already being engaged in by most

national banks. In contrast, national banks were not

engaged in the title insurance agency business before the

OCC’s 1986 ruling on title insurance.

“*

Fourth, unlike the work of a title insurance agent, a

bank that sells credit life insurance performs only d

minimis clerical work. In acting as an agent to enrol]

borrowers in its credit life insurance program, the bank

undertakes little administrative work and essentially none

of the investigation and risk evaluation activities tha

tle insurance agents and agents for other lines of in-

.:

|

4 See Final Rulemaking, 42 Fed. Reg. at 48,518 col. 2 ‘credit

insurance is “peculiarly related to the business of banki:

erally available from insurance agencies unaffiliated

al institutions’); id. at col. 3 n3 (“Congress rec

reditors are virtually the only source of credit life insurance”

Ti?

In contrast, title insurance has been and continues t

1a wide range of independent title insurance agencies

bers of respondent associations, and would cor

} ] » ’

the n irketplace If itl il

imi gency busines

C 1 R ) ’ 1] } Tt OG » ( ]

ry j '

15

surance perform.'’ Indeed, one could wel] distinguish

Heimann on the basis that the role a bank plays in the

sale of credit life insurance cannot be considered to be

that of an insurance “agent” within the meaning of sec-

tion 92. At least one district court that has examined

the activities of national banks in selling credit life in-

surance has come to this conclusion. See First Nat’l Bank

Smith, 436 F. Supp. 824, 831-33 (S.D. Tex. L977),

modified, 610 F.2d 1258, 1262 (5th Cir. 1980) (discus-

lon of section 92 vacated as unnecessary to resolution

OI Case),

Moreover, a bank that. sells credit life insurance per-

forms no activities and exercises no discretion over the

scope of policy protection that can give rise to conflicts of

16

interest. This is not the case when a bank acts as agent

in the issuance of title insurance policies insuring its own

mortgage loans. A title insurance agent issues policies on

behalf of its insurance company after a thorough search

and examination of the relevant title-related records and

ments. As a title insurance agent issuing policies on

its own loans, a bank faces an inherent conflict of inter-

est between its interest as an insured in obtaining the

broadest policy coverage and its obligations to minimize

the exposure to undue risks of the title insurance com-

pany for which it is acting as a policy-issuing agent.

7

Goce

In sum, it is apparent why the Second Circuit con-

cluded that the Heimann analysis, while relevant to credit

life insurance, did not apply to title insurance.'* Neither

the decision below nor Sawon compels the conclusion that

HTeimann was wrong with regard to the credit life activi-

ties at issue in Heimann. Nor does Heimann compel the

conclusion that Savon or the decision below was wrong

with regard to the property /casualty and title insurance

agency activities addressed in those cases. There is no

conflict between Heimann and the decision below.

B. The Decision Below Raises No Issue of Importance

That Merits Review by This Court

The Second Circuit’s determination that national banks

are precluded from the title insurance agency business

outside of small towns raises no issue of overriding im-

portance that merits this Court’s review.

‘The Bank Holding Company Act, while generally prohibiting

nk holding rcompanics from “providling | insurance as a princi}

nt, or broker,” also recognizes an exception for such credit

ted insurance, 12 U.S.C. 184306) (8) CA 198s See Heimann,

613 b.2d at 1170 n.19. In contrast, the Federal Reserve Board hi:

determined that tithe Insurance is encompassed in the Bank Holdin

Company Act’s prohibitions on insurance activitie See First Vi

Corp., 7 Fed, Res. Bull. 81, 82 (1989), aff'd, American Land

Tithe Ass'n Board of Governors, 892 F.2d 1059 (D.C. Cir. 1989

17

Other than Chase, only a handful of national bank

1

tarted title insurance agency operations in reliance

on the OCC’s 1986 title insurance ruling.'’ Prior to that

ruling, there is no evidence that national banks had been

engaged in the title insurance agency business.“’ Thus,

the determination of the court below will not affect the

existing activities of many national banks. If, as the OC

suggests (OCC Pet. at 16-17), it would be

national banks to be able to }

their borrowers, such a policy decision should rly be

eft to Congres

The petitions exaggerate the scope of the decision below

in claiming that the decision “directly threaten

into question” the ability of nationa} banks to sell eredit

life insurance and other types of specialized credit-relat

insurance and products that national banks have lone

offered to their customers. Chase Pet. at 18: OCC Pet.

lv. The decision below relates only to title insura

The Second Cireuit ha not determined that ection 92

prohibits national banks from selling credit life insurance

‘In re ponse to a recent Freedom of Informat O! Act)

} if ( iatlo al hear tha } y !

! Lite 1! ]} nee eT O} } , fay

( ted t} 1 Oe not n ? rs val r

( lq l! ate } ) T j tie nial } ) ( | }

f 17) | rt il ! act Lie | ro! I! Or? (

i ti del i} nave rece Cu a re 4

‘ renee ene per Tic

The OCC | tit , ; t; +} t ri r) | ( ‘ .

rectly in 1916,” implying that section 92 ¢ d not

tended by Conyre to foreclose activiti« that nat nal bey

ey yed in at the time OCC Pet. at 14 n.5. Wh; fate bar

L con ini In certain cite were ! |

; t t tir t} ‘ } ( 4

j | | y nen diy 1c} j t ()('{ }

It of the | lu ot y { {

r |) ys , hich } i {

{} t tit] my] ’ t fits ,

l ( rrance Chase Pet \ f (

18

or any of these other types of insurance cited by the

petitions.

The petitions raise concerns about a conflict that may

never arise. There is no reason to believe that a chal-

lenge to the credit life insurance activities approved by

the OCC in 1977 and upheld in Heimann could be insti-

tuted at this late date. This would also be true of the

other types of credit-related insurance, such as a credit

disability insurance, mortgage life and disability insur-

ance, and involuntary unemployment insurance, that have

long been permitted by the OCC.’ If a future circuit

court decision should create a real conflict with Heimann

by holding that national banks may not sell credit-related

insurance outside of the limitations of section 92, this

Court can address and resolve such a conflict at that time.

Until then, there is no reason for the Court to correct a

theoretical conflict that may never arise and is clearly

not raised by the holding below.

C. There Is No Error in the Second Circuit’s Decision

That Warrants Review

The petitions also allege that the Second Circuit's deci-

sion merits review because of several alleged errors made

by the court in reaching its decision on the interpretation

of section 92. OCC Pet. at 11-16; Chase Pet. at 19-24.

While the Court does not sit to correct the errors of

courts below, in fact the Second Circuit did net err and

its decision represents a proper construction of the lan-

guage and history of the statute.

21 See Chase Pet. at 15. Similarly, the authority of national banks

to sell debt cancellation contracts is not affected by the decision

helew. Such contracts involve an additional charge to the borrower

in return for the bank's obligation to cancel the unpaid balance of

the lean in the event of the borrower's death. In this regard, they

perform a function similar to credit life insurance. See First Nat'l

Bank v. Taulor, 907 F.2d 775, T76 (8th Cir.), cert. denved, TLDS. Ct.

442 (1990) (upholding OCC authorization for national banks to

sell such contracts). Seetion 92 was not an issue in that case and

nothing in the decision below is in conflict with that decision.

19

First, petitioners suggest that the court ignored the

introductory language to section 92 (“In addition to the

powers now vested by law in national banking associa-

tions . ”), which the petitions contend reflects Con-

gress’ intent to make clear that section 92 was supple-

mentary to the insurance powers conveyed by section 24

(Seventh. OCC Pet. at 12; Chase Pet. at 19-21. This

interpretation of the introductory language to section 92

makes no sense in light of Comptroller Williams’ conclu-

sion, expressed in the same letter that recommended en-

actment of section 92, that no such powers existed under

section 24 (Seventh) or any other provision of law. It is

absurd to read this language, which was drafted by

Comptroller Williams, as reflecting Congress’ desire to

preserve incidental powers that the Comptroller had told

Congress did not exist.”

Second, the court below properly applied the interpre-

tive principle of expressio unius est exclusio alterius

‘“expression of one thing is the exclusion of another”)

to conclude, as did the Saxon court, that Congress in-

tended section 92 to prohibit national banks in towns of

over 5,000 inhabitants from engaging in the insurance

agency business. OCC Pet. at 13; Chase Pet. at 22-23.

Applheation of the principle might be questioned in a case

where there were strong indications of contrary legisla-

tive intent or where a court simply cited an express, but

limited, grant of powers and concluded, from this limited

grant alone, that Congress intended to preclude any

broader powers. This is not how the court below applied

this principle of statutory construction. The court below

applied the expressio unius principle only after concluding

that the legislative history demonstrated that Congress

“2 Indeed, in light of the legislative history, the introductory lan-

yuage is better understood as a “finding” by the Congress that the

powers “vow vested by law in national banking associations” did

not include the power to engage in the insurance agency business.

20

understood that national banks had no other insurance

powers.>"

Third, the OCC petition contends that the court below

“overlooked” the maxim of ejusdem generis when it con-

cluded that the language of section 92 ‘which applies to

national banks acting as “agent for any fire, life, or other

insurance company”) applied to title insurance. OCC Pet.

at 13-14. The court below did not ‘‘overlook” this maxim,

since its relevance and application to the language of

section 92 was urged upon the court below by the OCC

and contested by ALTA. OCC Br. at 20-21; ALTA

Reply Br. at 5-7. Rather, the court apparently concluded

that the OCC’s ejusdem generis argument added so little

to the OCC’s general position that section 92 did not

apply to title insurance that the argument did not war-

rant any separate discussion.

Finally, the petitions contend that the court below

failed to give proper deference to the OCC’s interpretation

of section 92 under Chevron, U.S.A., Inc. v. Natural Re-

sources Defense Council, Inc., 467 U.S. 887 (1984). OCC

Pet. at 16; Chase Pet. at 20-22. Deference to an agency

interpretation under Chevron is only relevant if the court

cannot determine congresional intent. If the court is able

“to determine congressional intent, using ‘traditional tools

of statutory construction,” then ‘that interpretation

“8 This Court, in construing the powers of national banks, has

similarly recognized that a congressional grant of limited powers

in a particular area reflects the denial of broader powers in that

area. See, e.y., Teras & Pac. Ry. v. Pottorff, 291 U.S. 245, 258

(1934) (amendment to National Bank Act granting power to pledge

assets to secure deposits of governmental entities “indicates that

Congress believed that the original act had not granted general

power to pledge assets to secure deposiis”); First Natl Bank v

Missour?, 263 U.S. 640, 657 (1924) (rejecting argument that na

tional banks have the incidental power to establish branch offices in

view of express provision that the business of a national bank shall

be transacted at ‘an office or banking house located in the place

specified in its organizational certificate” ).

21

must be given effect, and the regulations at issue must be

fully consistent with it.’ NLRB v. United Food & Com-

mercial Workers Union, Local 23, 484 U.S. 112. 123

(1987). In this case the court properly determined and

applied Congress’ intent and had no need to proceed to

the second step of Chevron.

In sum, the decision below committed no error, and

certainly none that merits review by this Court.

D. Reversal of the Decision Below Would Not Resolve

This Litigation

Even if the Court were to review and reverse the deci-

sion of the court below on the section 92 issue, its judg-

ment would not necessarily resolve this case. There is a

second critical issue that the court below concluded it did

not have to address: whether the OCC’s determination

that title insurance agency activities were within the in-

cidental powers of national banks under section 24

(Seventh) was contrary to law or otherwise an abuse

of discretion. Even if the court below were wrong in its

analysis of section 92, it is highly likely on remand to

conclude that, even apart from section 92, the OCC’s title

insurance ruling was in excess of law."* Accordingly, the

*# An analysis of relevant precedent of this Court demonstrates

that section 24 (Seventh) authorizes the entry of national banks

into a new line of business only when the new activities are (l) a

form of, or functionally equivalent to, deposit taking, credit grant-

ing, and credit exchanging activities, or (2) reasonably necessary

to enable national banks to perform those activities more effectively

or efficientiv. See generally Symons, The “Basiness of Banking” in

Historical Pe rspective, 51 Geo. Wash. L. Rev. 676 (1983). ALTA’s

brief to the court below developed this analysis at length. The

decisions of courts of appeal on this issue. including the cases

chiefly relied on by the OCC in determining that. title Insurance

g, Arnold Tow s, Ine

Camp, 472 F.2d 427 (1st Cir. 1972) and M & M Leasing Corp.

Seattle First Nat'l Bank, 5623 F.2d 1377 (9th Cir 1977), cert. denied,

186 U.S. 956 (1978), are consistent with this analysis of Supreme

Court precedent.

agency activities were incidental to bankin

Court’s time and effort in resolving the section 92 issue

would not resolve this litigation.**

CONCLUSION

For all the foregoing reasons, this case is not appro-

priate for review. Pending a decision in the JiAA case,

the Court should defer its resolution of the instant peti-

tions. If the Court denies the petition in the //AA case

or reverses the D.C. Circuit’s judgment in that case, it

should deny the petitions for writ of certiorari here. If

the Court affirms the judgment in the //JAA case, it

should remand this case to the court below for reconsid-

eration in light of that opinion.

Respectfully submitted,

SHELDON E. HOCHBERG *

CHARLES G. COLE

SUSAN M. DAMPLO

STEPTOE & JOHNSON

1330 Connecticut Ave., N.W.

Washington, D.C. 20036

(202) 429-3000

Attorneys for Respondents,

American Land Title Association,

New York State Land Title

Association

November 12, 1992 * Counsel of Record

* Indeed, tl resolution of the section 92 issue would not resolve

the questions that mav arise in other banking cases on the proper

| | ? or’? st dard ! ] not evel

! al

APPENDIX

la

APPENDIX

h EDERAL I

|

SERVE BULLETIN

FEBRU:

a0

SRUARY 1916

PAGES 73-74

Right of a National Bank to Write Insurance Through

Its Officers.

National banks have no express or implied power to

write fire, cyclone, liability, or other kinds of insurance,

or to receive the profits from insurance contracts entered

into by its officers.

JANUARY 13, 1915.

SIR: The question has been raised whether, it is lawful

for the officers of a national bank to write fire, cyclone,

liability, and other kinds of insurance. al] the profits

derived from such business being turned into the bank.

The powers of national banks are defined by section

5136, United States Revised Statutes Article VII of which

provides:

To exercise by its board of directors. or duly au-

thorized officers or agents, subject to law, all such

— ntal ier as shall be necessary to carry on

e business of banking; by discounting and negotiat-

ing promissory notes, drafts. bills of exchange, and

other evidences of debt; by receiving deposits; by

buying and selling exchange, coin, and bullion; by

loaning money on personal security; and by obtain-

ing, issuing, and circulating notes according to the

provisions of this title.

The power to write insurance, act as insur: ance agent

broker, is not specifically enumerated in this section,

and unless such business can be considered as incidental

to some of the enumerated powers of national banks it

ix illegal and prohibited by implication as clearly as if

‘ , ? , ~ 7 +} he |

‘ ; " i ef

’ ? y +}

4 ) ii Lit r,t

t-) t ! at i | hess i 3

{ { ’ 5 | } Y) ? rs 137 '

4.itt bial ¥ C Wil ere et (]

, - ’ + 7

ire ] ess IS e) *¢ \ d ~ al 1) ]

—

. + } | ‘ rar hy ¢ yrs 1+ ;

: f banking which it was authorized

1+ ) } Yn 1) leyurr faa) )y et .

| { ( ‘ DANK Ca laWLTULYV = al is

( n ( ng larn mortgages ror a commission

} why + yy \ y + + ) +}

{ ~ ercelVel Wnyv ] laAVY No al ] S

‘ ‘

same capacity in selling any otner species OF property

e p

) ) T) na hank 6] t in

pels { ne natlonai DANK al oes no l

r) ah Nea ry yy)? li ¢ 1 whoyize n

t Lis U I? \ l1eCessa \ 1m }) ICaLliO}#l, au LOT IZ lla

‘ ,

+ , ry « , + ‘ + ‘ ‘wor ; . Vea +s 4 » + : ae 7

loOnNal DANKS to act as DrokKers 1n negotiating tne sal

— ond — ¢ exnein Dey . 4 |

)] CCurivies, ang 1 Ss generally ipree( Na (

,

) iT \ ncaa a } a} } ino

( aa NN 4li\ €Clivta | su¢ i DNuUsiness

It is no part of the business of a national bank

to engage in the selling of stocks for anybody. It

Was a transaction outside of its regular banking

business and not within its chartered powers.

Nor can we perceive it IS In anywise necessary

the 1}}" ce of their exist Yer - an anv '

) ne purpose l neir existence, Or 1h any sense

‘

- . } rae 4 +} oo . . +] » . +

newMental QO ne DUSINESS ney are empowered 0

‘conduct, that they should become bond brokers or be

. 1 } 4 Llsorn +1 ; —

very species of obligations issued

~

yy the innumerable corporations, private and munici-

3a

By analogy it would seem that writing insurance on

commission is in no sense incidental to any of the enumer-

ated powers of a national bank.

It is contended that the national bank, in the instance

under consideration, is not acting as agent for the insur-

ance company, but that its officers write the insurance in

their individual capacities and turn in all the profits

to the bank.

If the bank receives all the profits of writing the insur-

ance, its officers are, in substance, acting as agents for

the bank, and the bank is estopped to deny that it is

engaging in the insurance business.

In Schuyler National Bank 7. Gadsden (191 U.S., 451)

it was held that the taking of real-estate security by the

president of a national bank in his individual name for

the benefit of the bank was in legal effect but the taking

of security by the bank itself, and the president acted as

its agent.

Where a national bank retains and enjoys the proceeds

of a transaction, it is estopped to deny that the act of

the officer who enters into the transaction is its own.

(Peoples Bank v. National Bank, 101 U.S., 181.) Na-

tional banks, as such, must of necessity act through their

officers or other agents.

Inasmuch, therefore, as this class of business does

not come within either the expressed or implied powers

of national banks, an administrative board or officer can

not authorize it. Any such extension of the powers of

national banks must be left to the consideration of

Congress.

Respectfully,

M. C. ELLIOTT, Counsel.

To Hon. C. S. HAMLIN,

Governor Federal Reserve Board.

4a

LETTER FROM COMPTROLLER WILLIAMS

53 CONG. REc. 11,001 (1916)

TREASURY DEPARTMENT,

COMPTROLLER OF 1HE CURRENCY,

Washington, June 8, 1916.

My DEAR SENATOR:

The original national-bank act of February 25, 1863,

as re-enacted by the act of June 3, 1864, authorizing the

formation of national banks throughout the country, pro-

vided that no national bank should be authorized with a

capital of less than $50,000 in any place; that in a place

with a population exceeding 6,000 the capital of the bank

should not be less than $100,000, and further provided

that no national bank with a capital of less than $200,000

should be organized in any place having a population of

over 50,000.

Later on it became manifest that there were many

country towns and villages which needed banking facili-

ties but which did not have sufficient business to justify

the organization of national banks with a capital of as

much as $50,000. To extend the benefits of banking facili-

ties to these small places the national-bank act was

amended by the act of March 14, 1900, so as to authorize

the organization in towns and villages with a population

not exceeding 2,000 of banks with a minimum capital of

$25,000.

Since this amendment to the bank act went into effect

there have been organized throughout the country 3,084

national banks having a capital of $25,000. Four hundred

and thirty-eight of these $25,000 banks have either failed

or gone into liquidation, some have increased their capital,

and the number of such banks with a capital cf $25,000

now in operation is 2,079, or 27 per cent of the total num-

ber of national banks.

5a

The average deposits (individual and bank) at this

time of all $25,000 banks is $178,138, or 7.13 times their

capital and 4.6 times their capital, surplus, and profits.

A country bank with $25,000 capital and with the aver-

age deposits is able, with good management, to lend its

money at rates authorized by law and at the same time

to return a reasonable dividend to its shareholders. But

there are many banks located in country communities

where the small deposits which the banks receive may

make it somewhat difficult for the banks to charge on

their loans only the rates of interest permitted by law

and at the same time yield a satisfactory revurn to share-

holders, and in many such cases banks have been tempted

to exact excessive and in some cases grossly usurious

rates on accommodations which they extend to local bor-

rowers. It is unfortunately true that in many other

cases banks have been demanding usurious rates of in-

terest even though they had more than the average de-

posits and although adherence to the legal rates would

still yield them liberal dividends on their shares.

For some time I have been giving careful consideration

to the question as to how the powers of these smal] na-

tional banks might be enlarged so as to provide them with

additional sources of revenue and place them in a position

where they could better compete with local State banks

and trust companies which are sometimes authorized

under the law to do a class of business not strictly that

of commercial banking.

Under Section 5736, United States Revised Statutes,

the busines of national banks at this time is limited to

the exercise of “such incidental powers as shall be neces-

sary to carry on the business of banking by (a) discount-

ing and negotiating promissory notes, drafts, bills of

exchange or other evidences of debt; ‘b! receiving de-

posits; (c) buying and selling exchange, coin, and bullion;

(d) loaning money on personal security; (e) obtaining,

issuing, and circulating notes according to the provisions

of this title.”

6a

Under the Federal reserve act the banks are further

authorized under specified restrictions to make certain

Joans on real estate.

National banks are not given either expressly nor by

necessary implication the power to act as agents for in-

surance companies or as brokers or agents for others in

procuring or making real estate loans.

The courts have uniformly held that such corporations

can exercise only those powers which are expressly

granted or which are necessarily incidental to powers that

are granted.

As stated by Mr. Justice Harlan, in delivering the

opinion of the United States Supreme Court in the case

of Logan County National Bank v. Townsend (139 U.S.,

67):

“It is undoubtedly true, as contended by the defendant,

that the national banking act is an enabling act for all

associations organized under it, and that a national bank

can not rightfully exercise any powers except those ex-

pressly granted by that act, or such incidental powers as

are necessary to carry on the business of banking for

which it was established.”

Again in the case of National Bank v. Matthews (98

U.S., 625!, Mr. Justice Swan, in delivering the opinion

of the court, said:

“Section 5136 does not in terms prohibit a loan on real

estate, but the implication to that effect is clear. What

is so implied is as effectual as if it were expressed.”

It is certainly clear that the Comptroller of the Cur-

rency has no right to authorize or permit a national bank

to exercise powers not conferred upon it by law.

My investigations lead me respectfully to recommend to

Congress an amendment to the nationai-bank act by which

national banks located in villages and towns having a

7a

population of not exceeding 3.000 may be permitted to act

as agents for insurance companies in the placing of poli-

cies of insurance—fire, life, ete—and that they may also

be authorized to act as agents for the negotiation of loans

on farms or other real estate in their respective sections

of the country, where they may be in position to have

some direct knowledge as to the value of the property

upon which such loans are to be secured.

It seems desirable from the standpoint of public policy

and banking efficiency that this authority should be lim-

ited to banks in small communities. This additional in-

come will strengthen them and increase their ability to

make a fair return to their shareholders, while the new

business is not likely to assume such whereas as to dis-

tract the officers of the bank from the principal business

of banking. Furthermore in many small places the

amount of insurance policies written or mortgages to be

placed on commission is not sufficient to take up the en-

tire time of an insurance broker, and the bank is not

therefore likely to trespass upon outside business natur-

ally belonging to others.

I think it would be unwise and therefore undesirable

to confer this privilege generally upon banks in large

cities where the legitimate business of banking affords

ample scope for the energies of trained and expert bank-

ers. I think it would be unfortunate if any movement

should be made in the direction of placing the banks of

the country in the category of department stores. The

business is one requiring training, skill, and application,

and I think that the profession of banking would suffer

if there should be a departure from the principles which

should govern and have heretofore governed.

I inclose with this a draft of a proposed amendment to

the national-banking act designed to empower national

banks located in towns of not over 3,000 population, un-

der such regulations and- restrictions as may from time

to time be approved and promulgated by the Comptroller

8a

of the Currency, to act as agents for the placing of in-

surance policies and also to act as agent in making or

procuring loans on real estate.

I respectfully recomend and urge the adoption of such

an amendment for the reasons I have given.

I am to-day writing a letter similar to this to Congress-

man Glass, chairman of the Banking and Currency Com-

mittee of the House of Representatives.

Respectfully,

JNO. SKELTON WILLIAMS,

Comptroller.

Hon. ROBERT L. OWEN,

United States Senate.