Opposition Brief — Chase Manhattan Bank, N. A. v. American Land Title Ass'n
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Nos. 92-182, 92-645
IN THE
Supreme Court of the United
OcTOBER TERM, 1992 ~
THE CHASE MANHATTAN BANK, N.A..
Petitioner,
Wa
AMERICAN LAND TITLE ASSOCIATION, et a/.,
Respondents.
STEPHEN R. STEINBRINK,
ACTING COMPTROLLER OF THE CURRENCY, ef al.,
Petitioner,
Vv.
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
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
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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
activities 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 approximately 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 jarent 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
C. The OCC’s Title Insurance Ruling and the In-
stant Litigation
D. 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
(iil)
Page
iv
TABLE OF AUTHORITIES
CASES Page
American Ins. Ass’n v. Clarke, 865 F.2d 278 (D.C.
Cir. 1988) AP REE Ul Shh eA AN 12
American Land Title Ass’n v. Clarke, 968 F.2d
RE a As Se ee Ra halen Bee passim
Arnold Tours, Inc. v. Camp, 472 F.2d 427 (1st Cir.
ae; “INE -c6 isaac achenscaces Neca ietbliics peal tatecipase eiewaeieuasts 21
Chevron, U.S.A.., Inc. v. Natural Re sources De-
fense Council, Inc., 467 U.S. 837 (1984) ............ 6, 20
Commissioner v. First Sec. Bank, 405 U.S. 394
(1972) ee Save Bhs Bea lS EO 15
First Nat'l Bank v. Missouri. 263 U.S. 640
§..! ) oe shaacs duickicedrelscckennaeaacdis AE lak. 20
First Nat'l Bark v. Smith, 436 F. Supp. 824 (S.D.
Tex. 1977), modified, 610 F.2d 1258 (5th Cir.
1980) ...... ae, bch ate Seats aes EN 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 2
Board of Governors, 892 F.2d 1059 (D.C. Cir.
|__| RE NE REE Rana RE) CURR REAPS oe en RN Mae PAD 16
Independent Bankers Ass’n of Am. v. Heimann,
613 F.2d 1164 (D.C. Cir. 1979), cert. denied,
449 U.S. 823 (1980) _. TIN Ye ne 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) _............. weve we eb
M & M Leasing Corp. v. Seattle First Nat'l Bank,
563 F.2d 1377 (9th Cir. 1977), cert. denied,
436 U.S. 956 (1978) - ae 21
NLRB v. United Food «& “Commercial W "orkers ;
Union, Local 23, 484 U.S. 112 (1987) ............ 21
Sanford v. Garamendi, 284 Cal. Rptr. 897 (Ct.
le SO ee ee eee ere 12
Saxon v. Georgia Ass'n of Indep. Ins. Agents, Inc.,
399 ¥.2d 1010 (5th Cir. 1968) _... passim
Texas & Pac. Ry. v. Pottorff, 291 U.S. 245 (1934) . 20
TABLE OF AUTHORITIES—Continued
Page
Variable Annuity Life Ins. Co. v. Clarke, 786 F.
Supp. 639 (S.D. Tex. 1991), appeal pe nding, No.
92-2010 (5th Cir.) 12
STATUTES
12 U.S.C. 24 (Seventh) (1988 & Supp. II 1990) passim
12 U.S.C. 92 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) >)
12 C.F.R. $§ 2.1-2.7 (1992) 13
Disposition of Credit Life Insurance Income (Final
tegulation), 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
53 Cong. Rec. 11,001 (1916) 3, 12
Symons, The “Business of Banking” in Historical
Perspective, 51 Geo. Wash. L. Rev. 676 (1983)... 21
IN THE
Suyprenwe Court of the United States
OCTOBER TERM, 1992
Nos. 92-482, 92-645
THE CHASE MANHATTAN BANK, N.A.,
Petitioner,
V.
AMERICAN LAND TITLE ASSOCIATION, et al.,
Respondents.
STEPHEN R. STEINBRINK,
ACTING COMPTROLLER OF THE CURRENCY, et al.,
Petitioner,
if
AMERICAN LAND TITLE ASSOCIATION, ef 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 the Comptroller of the
Currency (collectively “OCC”) in case No, 92-645 and
by The Chase 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 business.
The conclusion of the court of appeals that the statute
has this effect does not merit review. It raises no con-
flict with the holding 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 ‘fall such incidental powers as shall
be necessary to carry on the business of banking.” 12
U.S.C. 24 (Seventh) (1988 & Supp. IT 1990) thereafter
“section 24 (Seventh)”). Over the next half century,
numerous Supreme Court decisions addressed and delin-
eated those powers that had been granied 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 (Sew
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. Ree. 11,001 (1916).° His letter
confirmed that, under existing law (specifically referring
to the incidental powers provision) and Supreme Court
precedent, “|n]jational banks are not given either ex-
pressly 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.
399 F.2d 1010 (Sth Cir. 1968) tSawon’), which held
that the Comptroller could not expand the insurance
agency powers of national banks beyond the express and
limited powers Congress had granted in section 92.°
In 1980, the D.C. Cireuit in nde pendent Bankers Ass'n
ot Am. vo. Heimann, 613 F.2d 1164 (D.C. Cir. 1979),
cert, denied, 449 U.S, 823 (1980) (“Hetmann’), upheld
regulations promulgated by the Comptroller to eliminate
conflicts of interest in the sale of credit life insurance
by national bank directors, officers, and stockholders. These
regulations were intended to ensure that the bank itself,
and not its principals, received the profits from the near-
universal involvement by national banks in selling credit
life insurance to their borrowers. The challenge to the
regulations involved, iit part, whether a national bank
could be an agent for the sale of credit life insurance
In the tace of section 92. Based on the record in that
rulemaking, the D.C. Circuit concluded that credit life
insurance Was so different from other forms of insurance
that section 92 and the Sawon decision did not constitute
a basis for invalidating the Comptroller’s conflict of in-
terest regulations. /d. at 1170."
c
A
h
n
Banks have the authority to act as agent in the issuance of insurances
Which is Incident to banking transactions.” 399 F.2d at 1012
The full text of the ruling and its background is set out in the
Savon decision
Credit life insurance is one type of credit-related insurance that
Insures the lender of repayment of the outstanding balance due or
i loan in the event of the death of the debtor. All forms of credit
related insurance, such as credit disability and involuntary unem
plovment imsurance, basically relate to the terms and conditior
under which a borrower's obligation to repay a loan will be deemed
satisfied,
C. The OCC’s Title Insurance Ruling and the Instant
Litigation
In 1986, the OCC issued an interpretive ruling that
ional 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
he bank’s loans. OCC Staff Interpretive Letter No. 368,
«eproited iv {1985-87 Transfer Binder] Fed. Banking
La Rep. (CCH) © 85,5388 (July 11, 1986), reprinted in
Chase Pet. App. 33a-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
‘tly thereafter ALTA initiated this action to obtair
judicial review of the 1986 ruling on title insurat
Ife9 approval of the Chase application. T]
urged that the OCC’s ruling and appro.
side as unlawful in that they permitted a nati
» engugve in title Insurance agency activities
a} }} ‘hibited to them by section 92, and (b) not
ed bx section 24 (Seventh) or any other provisi
iw. Af he filing of cross-motions for dismissa
summary judgment, the district court granted the de-
‘he ve on of OCC Interpretive Letter No. 368 reprinted in t}
ux to the OCC petition at 35a-45a omits eight
from the letter. These omitted paragraphs, which should hav
d before the carryover paragraph on page 42a of the OC
ear on pages 59a-12a of the appendix to the Chass
ty
fendants’ motion to dismiss.*° The district court found
that it was rational for the OCC to eonelude that title
Insurance agency activities were within the incidental
powers 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-18a; American Land Title Ass'n v
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 Chevren, U.S.A., Inc. v.
Natural Re SOUPEeS Defe nse Council, Tne., 467 US. 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
Cherron were applicable and proceeded to apply them.
The court then focused on the language and legislative
history of section 92. It concluded that the legislative
history (‘in particular, the letter from Comptroller Wil-
liams) supported its finding that the statutory language
ional banks from acting as insurance agents
outside the provision’s geographical restrictions. OCC
+
1. q ? ~«
preciundea nat
"Chase had previously been granted leave to intervene as a
defendant
efore addressing the parties’ contentions. the court first con
cluded that section 92 remains valid law. The court felt compell
to address this issue in light of the decision in Independent Ih
Agents of Am. v. Clarke, 955 F.2d 731 (D.C. Cir. 1992). petition:
for cert. pending, 61 U.S.L.W. 38266 (U.S. Sent. 18, 1992 Nos. 92
184 & 92-507), which was handed down after oral argrment in th
ALTA ¢ i hich had conc] ed that ( go ;
In 1918. OCC Pet. App. at lla; 968 F.2d at 151-54
cad
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 Saxon. Td.
at 15a; 968 F.2d at 156.
The court next addressed and rejected the OCC’s con-
tentions that Heimann and not Sawon was the determina
ive precedent. OCC Pet. App. at 15a-17a; 968 F.2d
156-57. The court determined that the conclusion in
Heimann 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 Heimann’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 at 157.
+
Finally, having concluded that section 92 apphed to
the powers of national banks to engage in title insurance
ugency 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-
enth) were sufficiently broad to encompass the title in-
surance agency business, so construed the statute would
have 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 thi provision’
legislative history.” Id, at 17a; 968 F.2d at 15%
‘ALTA had argued that even if section 92 did not) reclude the
OCC’s 1986 determination that national banks had the incide i]
power to engage in the title insurance agency busine ss, that dete)
tie would be contrar to Suprem ( rt d lowe) rt
lent on the proper scope e mnemde | Vo) I
RS SE ST eR a SRR ee earner
9 0)
REASONS FOR DENYING THE WRITS
The Chase petition seeks review of the decision below
on two Issues: (1) whether section 92 was repealed in
LOLS, ~: (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 Pune i to be incidental to banking under section
“4 (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 Inde pendent Ins. Agents of Am.
“. Clarke, 955 F.2d 731 (D.C. Cir. 1992). petitions for
cert, pending, 61 U.S LW. 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 resolv
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 activilies 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
CG
‘low is Heimann. No real conflict exists, however, be-
tween that decision and the ALTA and Savoy decisions.
Heimonn did not purport to make a definitive interpre-
tation of section 92 in finding that credit life activities
Were so integral to national bank loan activities as to be
permissible. Moreover, the concern expressed by peti-
lioners—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 inte rpretation (or, in
the case of the OCC’s misguided ejusde ne gee ris 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
‘Oo 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 /IAA case. If the Court denies those petitions, or
grants review of the D.C. Circuit decision in the IAA
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) , pe titions for cert, pe nding, 61
U.S.L.W. 3266 (U.S. Sept. 18, 1992) (Nos. 92-484 &
‘If the Court affirms the D.C. Circuit decision, it should grant
the sighing here, vacate the decision be low, and remand the case
back to the Second Cire ult for reconsideration in light of the Court's
decision in IL. 1A,
10
92-507) (“ITAA”), the D.C. Cireuit 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
un issue in the case. The parties had neither briefed
nor argued that issue. Because of the //AA 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 J7AA 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 imsurance
agency authority Was inappropriate for national banks.
Indeed, it is not even clear that the instant case would
provide a full and aaversarial presentation of the issue
11
of the existence of section 92. The OCC petition contends
that it is the TAA 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 Savon, 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 Hetmann 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.
1l 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), sugvests. 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. Rec. 11,001 (1916):
App., infra, at 7a.
12 Variable Annuity Life Ins. Co. v. Clarke, 786 T. Supp. 639
(S.D. Tex. 1991), appeal pending, No. 92-2010 (5th 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 Sawon 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 statutory
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 provision
of California banking law authorizing state banks to engage in any
business activity not prohibited by state law. Jd. at 903. There is
no comparable provision in the National Bank Act.
13
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
J2 was applicable to a national bank’s title in-
surance activities."
section
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
{8,518 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
granting process.
Second, credit life insurance would not be available
unless credit grantors, such as national banks, sold the
}
‘These factors also distinguish credit life insurance from the
types of property casualty insurance at issue in Savon
The credit life insurance re LL10
Codi tle t i2 C.F 2.1-2.7 (1992 Che len iy notices it
Which these ictors were discussed by the Comptroller are Dis-
pe fion of Credit Life Insurance Income Final Re gulation), 42
Fed. Reg. 48,518 1977 hereafter “Final Rulemaking’). and
Disposition of Credit Life Insurance Income ‘Proposed Rulemak-
1] Fed. R 29,846 (1976 hereafter “Proposed Rulemak-
14
insurance.'! 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
n the sale of credit life insurance at the time of the OCC’s
credit life rulemaking.’’ Thus, the OCC rulemaking re-
viewed in Heimann was not authorizing national 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
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 that
itle insurance agents and agents for other lines of in-
M4 See Final Rulemaking, 42 Fed. Reg. at 48,518 col. 2 (credit lift
surance is “peculiarly related te the business of banking and not
erally available trom insurance agencies unaffiliated with finan
chal institutions’): td. at col. 3 3 nB “Congress recognized that
reditors are virtually the only source of credit life insurance”
In contrast, title insurance has been and continues to be availabl
from a wide range of independent title insurance agencies, such a
the members of respondent associations, and would continue to be
readily available in the marketplace if national banks did not engage
in the title insurance agency business.
See Proposed Rulemaking, 41 Fed. Reg. at 29,847 col. 1 (Com;
troller’s conclusion influenced by the widespread availability of
eredit life imsurance at commercial banks throughout the Unite
Stite and nl thereto urves b\ national bank examiners of 2.901
ational banks indicated that fewer than 20 were not) providing
credit life insurance) Cemphasis supplied
15
surance perform." Indeed, one could well 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?! Bank
Smith, 436 F. Supp. 824, 831-33 (S.D. Tex. 1977).
modified, 610 F.2d 1258, 1262 (5th Cir. 1980) (discus-
sion of section 92 vacated as unnecessary to resolution
of 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
' See Final Rulemaking, 42 Fed. Reg. at 48,518 col. 83 (banks
engayed in selling credit life insurance do not engage in risk in-
vestigation or evaluation or other functions typically performed by
an independent insurance agent) ; id. at 48,521 col. 2 (“the admin-
istrative cost of producing credit life in urance Income is close to
neviligible”’ See also Commissioner v First Se C. Bank. 105 U.S.
394, 397 (1972 “The cost to each of the Banks for the actual time
devoted to explaining and processing the |eredit lift Insurance Wa
less than $2,000 per year, characterized by the courts below as
‘negligible.’ ’’),
i The Smith case. like Heimann, involved a Challenge to an OCC
directive (issued before the OCC’s credit life regulations wer prom
}
ulgated) that the bank, rather than its officers. realize any finan
clal benefits to be derived from the sale of ere dit life insurance. The
hifth Circuit noted that the district court had resolved the pur
orted conflict: between section 92 and the OCC’s 4 rective “by
determining that the handling of credit lift Dy the banks does no
constitute the bank or its employees ‘agents’ as that term is used
In section 92." 610 F.2d at 1262.
The appellate court: concluded, however. that the district court
aid not have to decide this issue because the OCC’. directive onl
required the bank to stop the practice of allowing it office) to
receive credit: life commissions, but did not require the bank itself
to become a credit life ayent. Jd. According) the Fifth Circuit
ited those parts of the lower court opinion that pertained to
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
documents. As a title insurance agent issuing policies on
igs 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.
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 Savon compels the conclusion that
Heimann was wrong with regard to the credit life activi-
ties at issue in Heimann. Nor does Heimann compel the
eonclusion that Sawon 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.
1S The Bank Holding Company Act, while generally prohibiting
bank holding companies from “provid[ing] insurance as a principal,
agent, or broker,” also recognizes an exception for such credit-
related insursnee, 12 U.S.C. 1843(¢)(8)(A) (1988). See Heimann,
612 F.2d at 1170 n.19. In contrast, the Federal Reserve Board has
determined that title insurance is encompassed in the Bank Holding
Company Act’s prohibitions on insurance activities. See First Wis-
cope'n Corp., 7 Fed. Res. Bull. 31, 32 (1989), aff'd, American Land
Title Ass'n v. Board of Governors, 892 F.2d 1059 (D.C. Cir. 1989).
17
Other than Chase, only a handful of national banks
have started 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 OCC
suggests (OCC Pet. at 16-17), it would be desirable for
national banks to be able to provide title insurance to
their borrowers, such a policy decision should properly be
left to Congress.
The petitions exaggerate the scope of the decision below
in claiming that the decision “directly threatens” or “calls
into question” the ability of national banks to sell credit
life insurance and other types of specialized credit-related
insurance and products that national banks have long
offered 0 their customers. Chase Pet. at 18: OCC Pet. at
17. The decision below relates only to title insurance.
The Seeond Circuit has not determined that section 92
prohibits national banks from selling credit life insurance
In response to a recent Freedom of Information Act request
for information on national banks that have received approval to
establish title insurance agency operating subsidiaries, the OCC
has indicated that it does not maintain records in a manner that
would indicate how many national banks have received annroval to
engage in particular activities. From information provided in
response to previous FOTA requests, ALTA believes that fewer
than six other national banks have received approval to establish
title insurance agency operations.
“" The OCC petition states that “many banks provided title insur-
ance directly in 1916,” implying that section 92 could not have been
intended by Congress to foreclose activities that national banks were
engaged in at the time. OCC Pet. at 14 0.5. While state banks and
trust companies in certain cities were engaged in title insurance
activitics at that time, there has never been any evidence that
national banks were engaged in such activities. As the OCC has
noted, as a result of the failure of many of these state financi:!
institutions in the Depression, which also resulted in the failure of
their affiliated title companies, “[mlost states now restrict. banks
from engaging in title insurance.” Chase Pet. App. at 36a.
1
io 4)
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 severa! 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 not err and
its decision represents a proper construction of the lan-
guage and history of the statute.
' See Chase Pet. at 15. Similarly, the authority of national banks
to sell debt cancellation contracts is not affected by the decisior
helow. Such contracts involve an additional charge to the borrower
in return for the bank’s obligation to cancel the unnaid balance of
the loan in the event of the borrower's death. In this regard. the
perform a function similar to credit life insurance. See First Net’l
Bank v. Taulor, 907 F.2d 775, T76 (8th Cir.), cert. denied, 111 8. Ct
1442 (1990) (upholding OCC authorization for national banks to
sell such contracts). Section 92 was not an issue in that ease and
nothing in the decision below is in conflict with that decision
+
(Yr) ry)? + + > ] .) ‘ ® +} «+ . 2+ 3 1 Ov —
gress inten O Make Clea Nat section V2 Was
mentary to the insurance powers conveyed by se
i . ‘ ‘ 726 _ 7s). ‘ P . ) « ( +)
Seventh OCC Pet. at 12: Chase Pet. at 19-21
intarnratatinn ’ the introductory lancuag
l erpretation oj ne introductory anguave » SEC
YQ lac ° ed . ‘ = : 7)
makes no sense in light of Comptroller William
s10n, expressed in the same letter nat recomment
+ 3 + . + ~ , 1. * I ]
iciment OF section Q?. nat no s ch powers existed
. Nn 2A (Seventh } or any oth Yr DFOVISIO? f law
: 4
ibsurd to read this language, which was draft
' . +aer1] ° VATS) . " 4s — ]
Comptroller Williams, as reflecting Congress’ di
preserve incidental powers that the Comp er |
> | 4 nd
meress did not exist
Q 1d. th +t helow ly onniied +)
second, the court below properly applied the in
ve principie of ( DreSSIO } S Csi ere al
ss “ 41 ]
expression of one thing is the exclusion of !
— se ; ‘
O CO! ude, ~ did ne Na ) court, ti ..-% ? 7
endeg “Crys nN GY? TO Ve } ib T nati ar h; n | ~ a
».000 inhabitants from eno: no 7? ,
. : ’ 44 ‘ ) ] |
gency business. OCC Pr at 1 Chase Pe
\) ; ) f ; y\e*)) 1} 4 n c + hy ‘ ~ , ’
: mys t ‘ were ct} ne pal cations of ) } ‘
i | ’ t “¢ i ] T ~ \ ? ? | \
ai i, ran Ol powers and con aed, I l tnls
rant alone. th: Congress intended to nr
ha qer powers Tr} IS SS no? how Tne co )}V"7 VW
} . nringe nile ot . + ite ry Oy? STYr.u ; y 4
‘ ] th, 4 j »\) ’ )
De
tat
roductory 1:
loners
wh 1c
suggest that the court
; iwe to section 92 (“In ade
powers now vested by law in national bank
1O
4S
lit
nored
ion to
h the petitions contend reflects Con-
g}
con
, :
re (]
-
]
ed
~1)°*
)} +
id
Q)
he)
,
>»)
,
S|
4
}
}
())
7
20)
understood that national banks had no other insurance
powers,”
Third, the OCC petition contends that the court below
i+
“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,
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
. wr +4 —s - ‘ y «¢ liaat? >
since its reievance and application to
that the OCC’s cjusdem qeneris argument added so little
to the OCC’s general position that section 92 did not
ipply to title insurance that the argument did not war-
rant any separate discussio?
Finally, the petitions contend that the court below
ed to give proper deference to the OCC’s interpretation
f s n 92 under Chevron, U.S.A., Inc. v. Natural Re-
De te (" cil, Ine., 467 U.S. 837 (1984). OCC
lt Chase Pe t PO-22. Deference to an agenc\
nt f I Cnevro S oniv reievant lI tne cou)
etermine congresiona! inte If the court is able
) rs oy ~ ’ ’ ) ls ’ { ) (} , 2 OisS
. } ’ ) t , the) t} t interpreta on
‘ ‘ ; 4 J _
Ny
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 US. 112, 123
(1987). In this case the court properly deter.»ined 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 thi entry of national banks
into a new line of business only when the new activities are (1) 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 activitic more effectivels
or efficie if tly. See qeneraliuv Sy mons, The “Bu } of Bar Mo) gq’ an
Historical Perspective, 51 Geo. Wash. L. Rev. 676 (1983). ALTA’s
brief to the court below develons ! this analvsi it length. The
decisic of ! of appeal « } the ca
ct f} } ed } } Oo ( ] , '
ct } l to | i ]
(a 472 F.2d 427 (1 Cir. 1972 Ved MI nag ¢
ttle First Natl B 963 F.2d 1377 (9th Cir. 1977). cert
M36 I _ $6 1978 l I ‘ SI
Courts time and effort in resolving the section 92 issue
nwt mnt on leom thse latacpatsam 2
would not resolve this litigation.
CONCLUSION
For all the foregoing reasons, this case is not appro-
priate for review. Pending a decision in the JJAA 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 /JJAA 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
I section 92 issue would not resolv
ur ‘ { ! I the) i? as n the proper
f ‘ } , ’ qi re , j e I Tl \t ve I
? ‘ } }
APPENDIX
. eatin Wiese
la
APPENDIX
FEDERAL RESERVE BULLETIN
FEBRUARY 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, all 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
incidental powers as shal! be necessary to carry on
the 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 insurance agent
or 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
is illegal and prohibited by implication as clearly as if
.
“aa
by expression. Logan County National Bank v. Town-
send, 139 U.S., 67.)
In Farmers & Merchants National Bank v. Smith (77
Fed., 129) it was held that it is not within the powers
of a national bank to engage in the business of selling
mortgage bonds on commission.
Circuit Court Judge Thayer, on page 137, said:
The brokerage business is entirely distinct from
the business of banking which it was authorized to
transact. If a national bank can lawfully act as a
broker in selling farm mortgages for a commission,
no reason is perceived why it may not act in the
same capacity in selling any other species of property,
real or personal. The national bank act does not, in
terms, or by necessary implication, authorize na-
tional banks to act as brokers in negotiating the sale
of securities, and it is generally agreed that they
can not lawfully engage in such business.
In Pepperday v. Citizens National Bank (183 Pa. St.,
919, 524) the Supreme Court of Pennsylvania said:
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.
In Weckler v. First National Bank (42 Md., 581) the
court said, on page 598:
Nor can we perceive it is in anywise necessary
to the purpose of their existence, or in any sense
incidental to the business they are empowered to
conduct, that they should become bond brokers or be
allowed to traffic in every species of obligations issued
by the innumerable corporations, private and munici-
pal, of the country.
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 THE CURRENCY,
Washington, June 8, 1916.
My DEAR SENATOR:
The original national-bank act cf 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 nat aal-bank act was
amended by the act of March 14, 19 , so as to authorize
the organization in towns and villag+s with a population
not exceeding 3,000 of banks with « 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 of $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
‘apital 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 return 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 small 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; (ec) 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
loans 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 national-bank act by which
national banks located in villages and towns having a
fa
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
sheuld 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
oa
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 :
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