[Federal Register Volume 61, Number 194 (Friday, October 4, 1996)]
[Rules and Regulations]
[Pages 51777-51782]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25158]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 2

[Docket No. 96-22]
RIN 1557-AB49


Sales of Credit Life Insurance

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
revising its

[[Page 51778]]

regulation governing national bank sales of credit life insurance and 
the disposition of credit life insurance income. This final rule is 
another component of the OCC's Regulation Review Program to update and 
streamline OCC regulations, focus regulations on key safety and 
soundness concerns and agency objectives, and eliminate requirements 
that impose unnecessary regulatory burdens on national banks. The final 
rule eliminates unnecessarily detailed provisions, reorganizes the rule 
into a more helpful format, and refocuses the regulation to better 
address areas presenting potential safety and soundness and conflict of 
interest issues.

EFFECTIVE DATE: December 31, 1996.

FOR FURTHER INFORMATION CONTACT: Stuart E. Feldstein, Assistant 
Director, Legislative and Regulatory Activities, (202) 874-5090; Karen 
E. McSweeney, Attorney, Legislative and Regulatory Activities, (202) 
874-5090. Office of the Comptroller of the Currency, 250 E Street, SW, 
Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

Background

    On September 13, 1995, the OCC published a notice of proposed 
rulemaking, 60 FR 47498 (September 13, 1995) (proposal), to revise 12 
CFR part 2--the OCC's regulation governing credit life insurance and 
the disposition of credit life insurance income. The proposal 
reaffirmed the OCC's commitment to addressing the concerns that gave 
rise to the former part 2 and did not contemplate altering the 
fundamental standards reflected in the former rule.
    As noted in the proposal, there are two principal concerns that 
part 2 is intended to address. First, part 2 is ``premised on the 
judgment that income earned from credit life insurance sales to bank 
customers by bank officers using bank premises and good will in the 
creation of bank assets (loans) should be credited to bank earnings 
rather than be paid directly to and retained by officers, directors or 
selected stockholders.'' See 42 FR 48518 (September 23, 1977). Second, 
a conflict of interest may exist when a loan officer's receipt of 
commissions for the sale of the credit life insurance is tied to the 
number of loans he or she makes. This prospect of financial reward 
based solely upon loan volume may induce loan officers to make unsound 
loans or unsound insurance recommendations to the bank's customers. \1\ 
See generally First National Bank of La Marque v. Smith, 610 F.2d 1258 
(5th Cir. 1980).
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    \1\ Additional safety and soundness concerns cited when the rule 
was adopted included that: (1) arrangements permitting employees, 
officers and directors to use bank premises and good will for 
personal profit were inimical to the trust and confidence depositors 
place in financial institutions; (2) the acquisition of a bank by 
investors who rely on the credit life insurance income to service 
their debt was inherently unsafe and unsound because it decreases 
their interest in running a profitable bank; and (3) incentives to 
increase bank profits were diminished if money was distributed other 
than through dividends. See 41 FR 29846 (July 20, 1976); 42 FR 48518 
(September 23, 1977).
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    The courts have confirmed the authority of a national bank to sell 
credit life insurance. See IBAA v. Heimann, 613 F.2d 1164 (D.C. Cir. 
1979), cert. denied, 449 U.S. 823 (1980). In Heimann, the D.C. Circuit 
stated that 12 U.S.C. 24 (Seventh) grants national banks all incidental 
powers necessary to carry on the business of banking and found that the 
sale of credit life insurance is within the incidental powers of 
national banks. As the court noted, credit life insurance is both 
commonplace and essential where ordinary loans on personal security are 
involved. Id. at 1170. The court also found that the then-current part 
2 regulations were well within the OCC's rulemaking authority. Id. at 
1171.

Comments Received and Changes Made

    The proposal revised part 2 by streamlining the overly detailed 
format of the former part 2 and reorganizing the rule into more 
readable and concise provisions. The OCC received 25 comments on the 
proposal. The commenters included 17 banks and bank holding companies, 
four trade associations, two law firms, one public interest 
organization, and one insurance company.
    The commenters generally supported the proposed changes to part 2, 
and the final rule implements most of the initiatives contained in the 
proposal, including the revised structure and format. However, many 
commenters recommended changes to specific sections. The OCC carefully 
considered each comment and has responded by making certain changes. 
The section-by-section discussion of this preamble identifies and 
discusses comments received and any changes made to the proposal. 
Distribution and derivation tables summarizing sections of former part 
2 as changed by the final rule are included at the end of this 
preamble.

Section-by-Section Discussion

Section 2.1--Authority, Purpose, and Scope

    The proposal added an ``Authority, purpose, and scope'' section 
that briefly described the objectives and scope of the regulation. This 
section also restated language from former Sec. 2.6 relating to 
national bank authority to provide credit life insurance under 12 
U.S.C. 24 (Seventh).
    The OCC received no comments on this section. The final rule adopts 
the section substantially as proposed.

Section 2.2--Definitions

    The proposal defined ``credit life insurance'' to mean ``credit 
life, health, and accident insurance.'' The OCC requested comment on 
whether the scope of this definition was appropriate. The OCC received 
11 comments on this issue. Most commenters recommended expanding the 
definition to include, for example, all types of credit-related 
insurance.
    The OCC declines, at this time, to expand the regulatory definition 
of ``credit life insurance,'' but notes that it has approved, on a 
case-by-case basis, bank sales of other types of credit-related 
insurance. The OCC recognizes that national banks are authorized to 
offer credit-related insurance other than credit life insurance 
pursuant to 12 U.S.C. 24(Seventh) and will continue to consider these 
types of credit-related insurance on a case-by-case basis.
    A number of commenters also noted that the OCC had removed language 
from the definition of credit life insurance and questioned whether the 
OCC intended to change the meaning of the definition. In addition to 
stating that credit life insurance ``means credit life, health and 
accident insurance,'' the former rule also noted that this is 
``sometimes referred to as credit life and disability insurance, and 
mortgage life and disability insurance.'' The proposal did not include 
this latter language. However, the OCC did not intend to change the 
definition of credit life insurance. Thus, to avoid any confusion, the 
final rule retains the language contained in the former rule.
    In addition, the final rule retains the definition of the term 
``bank'' contained in the former rule and makes a technical change by 
replacing the defined term ``interest'' with ``owning an interest.''

Section 2.3--Distribution of Credit Life Insurance Income

    The proposal provided that the means of distributing credit life 
insurance income must be consistent with certain requirements and 
principles identified in proposed Sec. 2.3. These requirements included 
prohibiting a director, officer, employee, or principal shareholder 
(bank insider), or an entity in which a bank insider has a voting 
interest of five percent or more, from retaining

[[Page 51779]]

commissions or other income from the sale of credit life insurance to 
loan customers of the bank, subject to certain exceptions for bonus and 
incentive plans. Proposed Sec. 2.3 also provided that it is unsafe and 
unsound for a bank insider, or an entity in which the insider has a 
voting interest of five percent or more, to take advantage of that 
business opportunity for personal profit.
    The proposal defined the term ``principal shareholder'' as any 
shareholder who directly or indirectly owns or controls an interest of 
more than five percent of the bank's outstanding shares. The OCC asked 
commenters to address whether the five percent ownership test for a 
``principal shareholder'' and for covered entities in which bank 
insiders have an interest is an appropriate ownership test to use in 
these contexts, and, if not, what alternative percentages or more 
flexible standards would be appropriate.
    The OCC received seven comments on this issue. Six commenters 
recommended increasing the ownership test to ten percent. One commenter 
stated that the definition of principal shareholder is too broad and 
should not include holding companies.
    The final rule increases the ownership test from five percent to 
ten percent. The ten percent ownership level is used to define a 
``principal shareholder'' for purposes of other safety and soundness 
regulations, and the OCC does not believe safety and soundness concerns 
require a lower threshold in the context of the part 2 definition. For 
example, a ``principal shareholder'' for purposes of insider lending 
standards is defined using a ten percent voting securities ownership 
test. 12 CFR 215.2(m)(1).
    Thus, the final rule defines a ``principal shareholder'' as any 
shareholder who directly or indirectly owns or controls an interest of 
more than ten percent of the bank's outstanding voting securities. The 
final rule also provides that it is an unsafe and unsound practice for 
any bank director, officer, employee, or principal shareholder, or any 
entity in which this person owns an interest of more than ten percent, 
who is involved in the sale of credit life insurance to loan customers 
of the national bank, to take advantage of that business opportunity 
for personal profit. In this regard, the final rule states that 
recommendations to customers to buy credit life insurance should be 
based on the benefits of the policy, not the commissions to be received 
from the sale. In addition, except as provided in Secs. 2.3(d), 2.4, 
and 2.5(b), a bank insider, or an entity in which the bank insider owns 
an interest of more than ten percent, may not retain commissions or 
other income from the sale of credit life insurance in connection with 
any loan made by that bank, and income from credit life insurance sales 
must be credited to the income accounts of the bank.
    The OCC also requested comment on situations where banks share 
space and employees with other non-bank entities. In some instances, 
the bank and another entity that uses bank premises may share employees 
to sell products, potentially including credit life insurance, to the 
bank's customers. To the extent these shared employees received 
commissions from the sale of the credit life insurance, the arrangement 
arguably fell within the prohibitions contained in the proposal.
    The OCC received one comment on this issue. The commenter 
recommended that the bank receive the profits from sales of credit life 
insurance by shared employees.
    The OCC agrees that in some cases this is the appropriate result. 
However, there are situations where the concerns underlying part 2 
would not, generally, be implicated. Accordingly, the final rule 
focuses on the objectives underlying part 2 and does not apply the part 
2 restrictions in certain cases to dual employees, provided that 
specified conditions are met. Thus, under the final rule, a director, 
officer, employee, or principal shareholder is not subject to the 
specific limits of part 2 if he or she is: (1) Employed by a third 
party that has contracted with the bank on an arm's-length basis to 
sell financial products on bank premises; and (2) not involved in the 
bank's credit decision process.
    The first requirement ensures that the third party will compensate 
the bank for the use of the bank's premises, thus addressing the 
concern that the bank be properly reimbursed for the use of its 
premises and good will. The second requirement addresses potential 
conflicts of interest that may arise when the individual selling the 
insurance is involved in the credit decision. The OCC believes that 
these conditions effectively adapt the part 2 safeguards to the dual 
employee situation.
    The proposal also requested comment on whether to retain a 
provision that permitted income from the sale of credit life insurance 
to be credited to a holding company affiliate of the bank or to a trust 
for the benefit of all shareholders, if the holding company affiliate 
or trust paid reasonable compensation to the bank for the use of its 
personnel, premises, and good will. Under the former rule, it was 
suggested that reasonable compensation meant an amount equivalent to at 
least 20 percent of the affiliate's net income attributable to the 
bank's credit life insurance sales.
    The OCC received only a few comments addressing this issue. After 
considering these comments, the OCC has decided to retain the current 
provision with a few modifications. Thus, under the final rule, income 
derived from the sale of credit life insurance to loan customers may be 
credited to an affiliate operating under the Bank Holding Company Act 
of 1956, 12 U.S.C. 1841 et seq., or to a trust for the benefit of all 
shareholders, if the holding company affiliate or trust pays reasonable 
compensation to the bank for the use of the bank's personnel, premises, 
and good will. The OCC does not believe, however, that it is 
appropriate for it to suggest what constitutes reasonable compensation 
in these arrangements. Thus, the final rule states that reasonable 
compensation generally means an amount equivalent to at least 20 
percent of the affiliate's net income attributable to the bank's credit 
life insurance sales. This provision has been transferred a new section 
2.5(b).
    The proposal also requested comment on whether to apply the 
prohibition against the retention of income derived from the sale of 
credit life insurance to sales of credit life insurance to loan 
customers of an affiliate bank. The OCC received several comments on 
this issue, which raised issues warranting further study. Therefore, 
this issue is not addressed in the final rule.

Section 2.4--Bonus and Incentive Plans

    Both the proposal and the former regulation permitted limited bonus 
and incentive arrangements for employees and officers notwithstanding 
the general prohibition against paying insiders income derived from the 
sale of credit life insurance. Bonuses and incentive payments based on 
credit life insurance sales in any one year are limited to the greater 
of five percent of the recipient's annual salary or five percent of the 
average salary of all loan officers participating in the plan. The bank 
may not pay bonuses more frequently than quarterly.
    The OCC requested comment relating to both the frequency and amount 
of the bonus and incentive payments. Specifically, the OCC asked 
commenters to address whether the periodic payment standard and the 
percentage limits are appropriate safeguards for bonus and incentive 
programs, and, if not, what alternative safeguards would deter 
inappropriate sales activities by insiders in connection with the sale 
of credit life insurance.
    The OCC received 22 comments addressing the permissible amount of

[[Page 51780]]

bonus and incentive plan payments. Nineteen commenters supported either 
eliminating or increasing the five percent limit on the amount that a 
bank may pay its employees under an incentive or bonus plan. Commenters 
recommended alternatives including: (1) Permitting any compensation 
plan approved by the bank's board of directors; (2) permitting up to 
five percent of premiums sold; and (3) expanding the percentage from 
five percent to up to ten percent. Other commenters suggested that the 
sole limitation should be the requirement contained in the proposal 
that the bank not structure its sales practices in a manner that could 
create incentives for persons selling credit life insurance to make 
inappropriate recommendations.
    Those supporting the retention of the current standards asserted 
that the five percent standard is reasonable and provides sufficient 
safeguards against abuses. One commenter stated that the five percent 
limit provides a necessary bright-line test to prevent banks from 
coercing customers.
    The OCC agrees with the reasons offered by the commenters for 
retaining the five percent limit on bonus and incentive plan payments 
based on credit life insurance sales. The OCC shares the concerns 
expressed that the prospect of increased financial reward could create 
an inappropriate incentive for salespersons to make financially unsound 
loans or to recommend insurance based on the amount of commissions paid 
rather than the benefits of the policy itself, thereby undermining the 
purpose of the regulation. Thus, the final rule retains the five 
percent limit on the amount of permissible bonus and incentive plan 
payments based on credit life insurance sales.
    The OCC also received 18 comments addressing the frequency of 
permissible bonus payments. Several commenters suggested either 
eliminating or changing to monthly the quarterly limitation on the 
frequency with which a bank could make bonus payments.
    The OCC is not aware that the frequency--as opposed to the amount--
of the bonus payments has any demonstrable relationship to the 
potential for coercing customers to purchase credit life insurance. 
Moreover, removing this requirement could reduce burden and increase 
flexibility for national banks that have separate payment procedures 
for employees selling credit life insurance. Therefore, the final rule 
removes the limitation on the frequency of bonus payments.
    The proposal also added a new provision requiring the bank to avoid 
structuring its bonus or incentive plan in a manner that could create 
incentives for persons selling credit life insurance to make 
inappropriate recommendations or sales of credit life insurance to bank 
customers. The OCC received four comments on this provision. Several 
commenters expressed concern that the provision was too vague and could 
thereby encourage litigation against banks by disaffected purchasers of 
credit life insurance.
    The OCC agrees that the proposed provision was potentially vague. 
However, the OCC believes that the issue nevertheless needs to be 
addressed. As noted in the discussion of Sec. 2.3, the OCC believes 
that encouraging a customer to buy credit life insurance on the basis 
of commissions to the seller rather than the benefits of the policy is 
an example of taking inappropriate advantage of a business opportunity 
for personal profit. This is a concern regardless of the percentage 
limitations that apply to bank insiders' and principal shareholders' 
receipt of incentive and bonus payments and, accordingly, is 
specifically referenced in Sec. 2.3 of the final rule.

Section 2.5--Bank Compensation

    The OCC has made one clarifying structural change to the final 
rule. The final rule transfers to a new Sec. 2.5(a) a concept from the 
former rule and the proposal relating to the permissibility of a bank 
insider compensating the bank for the use of bank premises, employees, 
or good will. Also, as noted earlier, Sec. 2.5(b) contains a provision 
from the former rule which allows income derived from credit life 
insurance sales to loan customers to be credited to a holding company 
affiliate or a trust for the benefit of all shareholders, provided that 
the bank receives reasonable compensation in recognition for the role 
played by its personnel, premises, and good will in the sale of the 
credit life insurance. Reasonable compensation generally means an 
amount equivalent to at least 20 percent of the affiliate's net income 
attributable to the bank's credit life insurance sales.

Other Changes

    The proposal also made a number of additional changes to the 
regulation. For example, the proposal removed former Sec. 2.5 which 
relates to director responsibilities because that issue was addressed 
in a different section of the regulation. The proposal also removed 
language in former Sec. 2.6 that contained a list of OCC approved 
methods of distributing credit life insurance income that identified 
alternatives to the assignment of commissions to the bank. The proposal 
substituted a simple statement that the means of distribution of credit 
life insurance income must be consistent with the requirements and 
principles of Sec. 2.3. The final rule adopts, substantially as 
proposed, these changes.
    The proposal also removed former Sec. 2.7, which reserved the 
Comptroller's authority to modify the applicability of part 2 based on 
the particular circumstances of the bank. The final rule removes this 
provision. However, as stated in the proposal, the OCC will continue to 
consider requests for waivers of part 2 on a case-by-case basis.

Distribution Table

    The distribution table indicates where, if applicable, each section 
of the former part 2 will appear in the final part 2.

------------------------------------------------------------------------
       Original provision         Revised provision         Comment     
------------------------------------------------------------------------
Sec.  2.1......................  Sec.  2.1(a).......  Modified.         
Sec.  2.2(a)...................  Sec.  2.1(c).......  Modified.         
Sec.  2.2(b)...................  Sec.  2.1(b).......  Modified.         
Sec.  2.3......................  Sec.  2.2..........  Modified.         
Sec.  2.4(a)...................  Secs.  2.3, 2.4....  Modified.         
Sec.  2.4(b)...................  Secs.  2.3(c),       Modified.         
                                  2.5(b).                               
Sec.  2.4(c)...................  Sec.  2.5(a).......  Modified.         
Sec.  2.5......................  Sec.  2.3(b).......  Modified.         
Sec.  2.6......................  ...................  Removed.          
Sec.  2.7......................  ...................  Removed.          
------------------------------------------------------------------------

Derivation Table

    This derivation table illustrates the former sections of part 2 
upon which the final sections are based.

------------------------------------------------------------------------
       Revised provision          Original provision        Comment     
------------------------------------------------------------------------
Sec.  2.1(a)...................  Sec.  2.1..........  Modified.         
Sec.  2.1(b)...................  Sec.  2.2(b).......  Modified.         
Sec.  2.1(c)...................  Sec.  2.2(a).......  Modified.         
Sec.  2.2......................  Sec.  2.3..........  Modified.         
Secs.  2.3(a), (b), and (c)....  Secs.  2.4(a), (b).  Modified.         
Sec.  2.3(d)...................  ...................  Added.            
Sec.  2.4......................  Sec.  2.4(a).......  Modified.         
Sec.  2.5(a)...................  Sec.  2.4(c).......  Modified.         
Sec.  2.5(b)...................  Sec.  2.4(b).......  Modified.         
------------------------------------------------------------------------

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 
U.S.C. section 605(b), the Comptroller of the Currency certifies that 
this rule will not have a significant economic impact on a substantial 
number of small entities. This final rule eliminates unnecessary or 
confusing language and restructures part 2 to clarify regulatory 
requirements. This final rule reduces, somewhat, regulatory burden on 
national banks,

[[Page 51781]]

regardless of size. This final rule has minimal impact. Accordingly, a 
regulatory flexibility analysis is not required.

Executive Order 12866

    The OCC has determined that this final rule is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded 
Mandates Act), 2 U.S.C. 1532, requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
Federal mandate that may result in the expenditure by state, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, section 205 of the Unfunded Mandates Act, 2 U.S.C. 1535, also 
requires an agency to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule. Because the OCC has 
determined that this final rule will not result in expenditures by 
state, local, and tribal governments, or by the private sector, of more 
than $100 million in any one year, the OCC has not prepared a budgetary 
impact statement or specifically addressed the regulatory alternatives 
considered. As discussed in the preamble, the final rule has the effect 
of reducing burden and increasing the flexibility of national banks, 
consistent with safe and sound banking practices.

List of Subjects in 12 CFR Part 2

    Credit, Life insurance, National banks.

Authority and Issuance

    For the reasons set out in the preamble, part 2 of chapter I of 
title 12 of the Code of Federal Regulations is revised to read as 
follows:

PART 2--SALES OF CREDIT LIFE INSURANCE

Sec.
2.1  Authority, purpose, and scope.
2.2  Definitions.
2.3  Distribution of credit life insurance income.
2.4  Bonus and incentive plans.
2.5  Bank compensation.

    Authority: 12 U.S.C. 24 (Seventh), 93a, and 1818(n).


Sec. 2.1  Authority, purpose, and scope.

    (a) Authority. A national bank may provide credit life insurance to 
loan customers pursuant to 12 U.S.C. 24 (Seventh).
    (b) Purpose. The purpose of this part is to set forth the 
principles and standards that apply to a national bank's provision of 
credit life insurance and the limitations that apply to the receipt of 
income from those sales by certain individuals and entities associated 
with the bank.
    (c) Scope. This part applies to the provision of credit life 
insurance by any national bank employee, officer, director, or 
principal shareholder, and certain entities in which such persons own 
an interest of more than ten percent.


Sec. 2.2  Definitions.

    (a) Bank means a national banking association or a bank located in 
the District of Columbia and subject to the supervision of the 
Comptroller of the Currency.
    (b) Credit life insurance means credit life, health, and accident 
insurance, sometimes referred to as credit life and disability 
insurance, and mortgage life and disability insurance.
    (c) Owning an interest includes:
    (1) Ownership through a spouse or minor child;
    (2) Ownership through a broker, nominee, or other agent; or
    (3) Ownership through any corporation, partnership, association, 
joint venture, or proprietorship, that is controlled by the director, 
officer, employee, or principal shareholder of the bank.
    (d) Officer, director, employee, or principal shareholder includes 
the spouse and minor children of an officer, director, employee, or 
principal shareholder.
    (e) Principal shareholder means any shareholder who directly or 
indirectly owns or controls an interest of more than ten percent of the 
bank's outstanding voting securities.


Sec. 2.3  Distribution of credit life insurance income.

    (a) Distribution of credit life insurance income by a national bank 
must be consistent with the requirements and principles of this 
section.
    (b) It is an unsafe and unsound practice for any director, officer, 
employee, or principal shareholder of a national bank (including any 
entity in which this person owns an interest of more than ten percent), 
who is involved in the sale of credit life insurance to loan customers 
of the national bank, to take advantage of that business opportunity 
for personal profit. Recommendations to customers to buy insurance 
should be based on the benefits of the policy, not the commissions 
received from the sale.
    (c) Except as provided in Secs. 2.4 and 2.5(b), and paragraph (d) 
of this section, a director, officer, employee, or principal 
shareholder of a national bank, or an entity in which such person owns 
an interest of more than ten percent, may not retain commissions or 
other income from the sale of credit life insurance in connection with 
any loan made by that bank, and income from credit life insurance sales 
to loan customers must be credited to the income accounts of the bank.
    (d) The requirements of paragraph (c) of this section do not apply 
to a director, officer, employee, or principal shareholder if:
    (1) The person is employed by a third party that has contracted 
with the bank on an arm's-length basis to sell financial products on 
bank premises; and
    (2) The person is not involved in the bank's credit decision 
process.


Sec. 2.4   Bonus and incentive plans.

    A bank employee or officer may participate in a bonus or incentive 
plan based on the sale of credit life insurance if payments to the 
employee or officer in any one year do not exceed the greater of:
    (a) Five percent of the recipient's annual salary; or
    (b) Five percent of the average salary of all loan officers 
participating in the plan.


Sec. 2.5   Bank compensation.

    (a) Nothing contained in this part prohibits a bank employee, 
officer, director, or principal shareholder who holds an insurance 
agent's license from agreeing to compensate the bank for the use of its 
premises, employees, or good will. However, the employee, officer, 
director, or principal shareholder shall turn over to the bank as 
compensation all income received from the sale of the credit life 
insurance to the bank's loan customers.
    (b) Income derived from credit life insurance sales to loan 
customers may be credited to an affiliate operating under the Bank 
Holding Company Act of 1956, 12 U.S.C. 1841 et seq., or to a trust for 
the benefit of all shareholders, provided that the bank receives 
reasonable compensation in recognition of the role played by its 
personnel, premises, and good will in credit life insurance sales. 
Reasonable compensation generally means an amount equivalent to at 
least 20 percent of the affiliate's net income attributable to the 
bank's credit life insurance sales.


[[Page 51782]]


    Dated: August 30, 1996.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 96-25158 Filed 10-3-96; 8:45 am]
BILLING CODE 4810-33-P