# OCC Interpretive Letter No. 724: Bank can sell vehicle service contracts to customers who use home equity loan proceeds to purchase a vehicle, and the maturity of the service contract may be different from the maturity of the loan. (04/22/96) > Federal · Agency guidance · In force URL: https://www.frixlaw.com/law-library/statutes/OCC_INT0724 ## Section - **Citation:** OCC Interpretive Letter No. 724 - **Heading:** Bank can sell vehicle service contracts to customers who use home equity loan proceeds to purchase a vehicle, and the maturity of the service contract may be different from the maturity of the loan. (04/22/96) - **Jurisdiction:** Federal - **Kind:** Agency guidance - **Status:** In force - **Text as of:** August 14, 2026 - **Source:** Compiled text - **Location:** OCC Interpretive Letters / Bank can sell vehicle service contracts to customers who use home equity loan proceeds to purchase a vehicle, and the maturity of the service contract may be different from the maturity of the loan. (04/22/96) ## Text Office of the Comptroller of the Currency Interpretations - Letter 724 Published in Interpretations and Actions May 1996 Cites: G 12 U.S.C. 24(7)46 April 22, 1996 [ ] Dear [ ]: This is in response to your letter of April 3, 1996, concerning the sale by national banks in Ohio of vehicle service contracts to their loan customers. Interpretive Letter No. 671, July 10, 1995, reprinted in [Transfer Binder 1994-95] Fed. Banking L. Rep. (CCH) 83,619, opined that a national bank's sale of such contracts to its vehicle loan and lease customers would be incidental to its secured lending activity and therefore permissible under 12 U.S.C. 24(Seventh). That letter responded to a specific proposed program which was described in the bank's inquiry as having the following features: (1) the term of the vehicle service contract would not exceed the term of the automobile loan or lease; (2) the contract would cover preexisting mechanical defects in the vehicle, but it would not pay for expenses related to scheduled maintenance or routine repairs; (3) the bank would not underwrite the vehicle service contracts or provide repair services; and (4) the bank would be a master contract holder for all vehicle service contracts sold to its vehicle loan and lease customers. You are familiar with this letter, and ask if two variations are possible for your Ohio national bank clients engaged in selling such vehicle service contracts to their loan customers. First, may a bank sell such a contract to its customer who purchases his or her vehicle with proceeds derived from a home equity line of credit offered by the bank, rather than from a standard vehicle loan? Second, may the term of the vehicle service contract be different from the term of the loan used to purchase the vehicle? In my opinion, these two differences in detail should not be deemed to prevent the bank lender from selling a vehicle service contract to its borrower who is using the loan proceeds to buy the vehicle line of credit offered by the bank, rather than from a standard vehicle loan? Second, may the term of the vehicle service contract be different from the term of the loan used to purchase the vehicle? In my opinion, these two differences in detail should not be deemed to prevent the bank lender from selling a vehicle service contract to its borrower who is using the loan proceeds to buy the vehicle. Such a sale is still incidental to the bank's secured lending activity under 12 U.S.C. 24(Seventh). As to the first variation, Interpretive Letter No. 671, supra, reasons that when a bank enters into a vehicle loan or lease arrangement with its customer, the sale of a service contract protecting the vehicle in the event of a mechanical breakdown is related to the underlying credit transaction in two ways -- such a service contract protects the bank's collateral, and makes it more likely that the borrower will continue to be able to make timely repayments on the credit. You indicated to me by telephone that your bank clients sometimes, but not always, take a security interest in the vehicle when their borrowers utilize proceeds from a home equity line of credit to purchase the vehicle. When the bank does take such a security Interpretations - Letter 724 (1 of 2) interest in the vehicle, then both points from Interpretive Letter No. 671, supra, remain relevant, i.e., the bank is protecting its interest in the collateral, and its interest in the borrower being able to repay on time. Even when the bank takes no security interest in the vehicle, though, the second point about the bank having an interest in the borrower's repayment capability not being negatively impacted by damage to the vehicle still applies. Therefore, the sale of the service contract is an incident of the bank's lending activity. I also do not think that the term of the vehcile service contract must always be matched to the term of the loan, regardless of the situation though, the second point about the bank having an interest in the borrower's repayment capability not being negatively impacted by damage to the vehicle still applies. Therefore, the sale of the service contract is an incident of the bank's lending activity. I also do not think that the term of the vehcile service contract must always be matched to the term of the loan, regardless of the situation. You indicate that sometimes the home equity lines of credit being offered by your bank clients have no specific repayment term. Even when they do, the service contract term and the loan term which are most appropriate for the customer may not always be identical. If the borrower wants to purchase a vehicle service contract of a particular term, say four or five years, there seems to be no good reason why this should not be possible to do, even if the loan might be of a different term or no term at all. This answer assumes that the bank's customer is making the decision, based upon his or her own circumstances and preference. I trust this reply is responsive to your inquiry. Very truly yours, /s/ William B. Glidden Assistant Director Bank Activities and Structure Division Interpretations - Letter 724 (2 of 2) ## Nearby sections - [OCC Interpretive Letter No. 719 Letter concludes that an ESOP is a "company' for purposes of 12 U.S.C. 371c and that an ESOP that controls at least 25% of a bank's voting stock is an "affiliate" under sec. 371c (supersedes existing OCC interpretive letter #261). (10/26/89)](https://www.frixlaw.com/law-library/statutes/OCC_INT0719.md) - [OCC Interpretive Letter No. 720 Group of affiliate national banks may collectively own, through operating subsidiaries, minority interest in a merchant credit card processing subsidiary. (01/26/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0720.md) - [OCC Interpretive Letter No. 722 A national bank may invest CIF assets in mutual funds, including mutual funds that pay the bank a servicing fee, without the bank having to reduce its trustee fees, if the bank concludes, based upon a reasoned opinion of trust counsel, that such an arrangement is authorized by applicable state law, is consistent with the trust instrument, is appropriate for the particular trust accounts, and is consistent with OCC regulations, including in particular 12 C.F.R. 9.18(b)(12). (03/12/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0722.md) - [OCC Interpretive Letter No. 724 Bank can sell vehicle service contracts to customers who use home equity loan proceeds to purchase a vehicle, and the maturity of the service contract may be different from the maturity of the loan. (04/22/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0724.md) - [OCC Interpretive Letter No. 725 National bank to establish an operating subsidiary to engage in permissible derivatives-related activities. (05/10/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0725.md) - [OCC Interpretive Letter No. 726 Letter concerns the application of the Community Reinvestment Act (CRA) regulations to financial institutions' support of microenterprise lending programs. (06/21/96).](https://www.frixlaw.com/law-library/statutes/OCC_INT0726.md) - [OCC Interpretive Letter No. 730 Letter concludes that loans proposed by the bank to an unaffiliated distributor of mutual funds would not be subject to interaffiliate lending restrictions contained in 12 U.S.C. 371C. 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Therefore, receiver of an uninsured federal branch or agency does not have the right to interfere with the rights of secured creditors, including application of collateral held in U.S. to obligations of a non-U.S. office of the bank. (06/19/96).](https://www.frixlaw.com/law-library/statutes/OCC_INT0733.md) - [OCC Interpretive Letter No. 736 Lending limit exception for participations not limited to banks. Non-banks may act as participants. (07/25/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0736.md) - [OCC Interpretive Letter No. 737 Huntington National Bank's acquisition of minority interest in a limited liability company providing stored value systems. (08/19/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0737.md) - [OCC Interpretive Letter No. 738 National bank's participation in a guaranty issued by an agent for a syndication of lenders with respect to their borrower's letter of credit reimbursement obligations to another bank or financial institution is permissible under I.R. 7.1016. (08/14/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0738.md) - [OCC Interpretive Letter No. 740 Letter advises the Bank as follows: 1) The question of whether "salary" as used in 12 C.F.R. 2.4 includes an officer's base salary, bonuses, director's fees and/or any other compensation paid by the Bank must be determined by the Bank's management; 2) the question of whether the payment bonuses for credit life sales under 12 C.F.R. 2.4 is based on salary received by the recipient in a calendar year, a fiscal year, or any 12-month period must be determined by the Bank's management; and 3) pursuant to 12 C.F.R. 2.4, if the Bank's CEO is a loan officer and the CEO participates in the bonus plan under which payments based on credit life insurance sales are made, the CEO must be included in averaging the salaries of loan officers that participate in the Bank's bonus or incentive plan. (08/19/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0740.md) - [OCC Interpretive Letter No. 741 National bank may acquire majority interest in company which operates call center facility which operates programs by which potential customers for new or used automobiles may access databases containing information on the used and new car inventories of numerous automobile dealerships in its metropolitan area. (08/19/96)](https://www.frixlaw.com/law-library/statutes/OCC_INT0741.md) --- Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/OCC_INT0724. Check the current official text before relying on it. Not legal advice.