Indep. Ins. Agents of Am. v. Hawke

• Decision Date: 16 May 2000
• Docket Number: No. 99-5158,99-5158
• Parties: (D.C. Cir. 2000) Independent Insurance Agents of America, Inc., et al., Appellees v. John D. Hawke, Jr., Comptroller of the Currency, and the Office of the Comptroller of the Currency, Appellants
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 638

211 F.3d 638 (D.C. Cir. 2000)

Independent Insurance Agents of America, Inc., et al., Appellees v. John D. Hawke, Jr., Comptroller of the Currency, and the Office of the Comptroller of the Currency, Appellants

No. 99-5158

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 21, 2000

Decided May 16, 2000

Appeal from the United States District Court for the District of Columbia(No. 98cv00562)

Douglas B. Jordan, Special Counsel, U.S. Department of Treasury, argued the cause for appellants. With him on the briefs were Robert B. Serino, Deputy Chief Counsel, L. Robert Griffin, Director, Horace G. Sneed, Assistant Director, and F. Thomas Eck, IV, Senior Trial Attorney.

Chrys D. Lemon, John J. Gill and Michael F. Crotty were on the brief for amici curiae American Bankers Association and Association of Banks in Insurance.

Scott A. Sinder argued the cause and was on the brief for appellees.

Before: Sentelle, Henderson and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Circuit Judge Henderson concurs in the result.

Sentelle, Circuit Judge:

In 1864, Congress granted national banks the power to "exercise ... all such incidental powers as shall be necessary to carry on the business of banking." Act of June 3, 1864, ch. 106, S 8, 13 Stat. 99, 101 (codified at 12 U.S.C. S 24 (Seventh) (1994)). Fifty-two years later, Congress enlarged that grant by conferring the power to act as general insurance agents to national banks located in towns with a population not in excess of five thousand. See Act of Sept. 7, 1916, ch. 461, 39 Stat. 752, 753-54 (codified at 12 U.S.C. S 92 (1994)). In 1999, Congress further enlarged bank powers by allowing financial subsidiaries of "well capitalized and well managed" national banks to engage in a wide variety of insurance activities both as an agent and broker. Gramm-Leach-Bliley Act, Pub. L. No. 106-102, SS 103(a), 121, 113 Stat. 1338, 1342-50, 1373-81 (1999).

The Officer of the Comptroller of the Currency ("Comptroller" or "OCC"), defendant-appellant here, determined in 1997 that all national banks may sell as agent general casualty insurance to protect against the risk of crop loss, under sole authority of the original 1864 grant of power. Appellees, Independent Insurance Agents of America, Inc., National Association of Professional Insurance Agents, Inc., National Association of Life Underwriters, National Association of Mutual Insurance Companies, and Crop Insurance Research Bureau (collectively "IIAA"), filed suit in the district court claiming that this interpretation was incorrect as a matter of law. The district court agreed and granted summary judgment for appellees in an order signed March 23, 1999. See Independent Ins. Agents of Am., Inc. v. Hawke, 43 F. Supp. 2d 21 (D.D.C. 1999). The Comptroller appeals, joined by two associations representing banking interests as amici curiae. We affirm.

I. Background

A. History

National banks, being creatures of statute, possess only those powers conferred upon them by Congress. See Texas & Pac. Ry. Co. v. Pottorff, 291 U.S. 245, 253 (1934); First Nat'l Bank of Charlotte v. National Exch. Bank of Baltimore, 92 U.S. 122, 128 (1875). The National Bank Act of 1864, Act of June 3, 1864, ch. 106, 13 Stat. 99 (codified as amended in scattered sections of 12 U.S.C.), as amended, provides for the chartering of national banks. As part of this statutory regime, 12 U.S.C. S 24 (Seventh) confers the following powers upon national banks:

[National banks shall have the power] [t]o exercise ...all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating 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 obtaining, issuing, and circulating notes....

12 U.S.C. S 24 (Seventh) (1994). The most pertinent phrase to this case is "all such incidental powers as shall be necessary to carry on the business of banking"; the following enumeration of powers is only illustrative and the Comptroller may authorize additional activities if encompassed by a reasonable interpretation S 24 (Seventh). See Nations Bank v. Variable Annuity Life Ins. Co., 513 U.S. 251, 258 n.2 (1995) ("VALIC"); American Ins. Ass'n v. Clarke, 865 F.2d 278, 281-82 (D.C. Cir. 1988).

The Comptroller's authority to confer "all such incidental powers as shall be necessary to carry on the business of banking" has been interpreted to mean powers "convenient or useful in connection with the performance of one of the bank's established activities pursuant to its express powers...."Arnold Tours, Inc. v. Camp, 472 F.2d 427, 432 (1st Cir. 1972).Whether a particular banking device's nomenclature harkens to traditional banking activities is not dispositive. Instead, the "powers of national banks must be construed so as to permit the use of new ways of conducting the very old business of banking." M&M Leasing Corp. v. Seattle First National Bank, 563 F.2d 1377, 1382 (9th Cir. 1977).

For example, in M&M Leasing, the Ninth Circuit upheld the Comptroller's determination that national banks may "lease" personal property when the transaction is functionally identical to a secured loan. See id. at 1380, 1383. Similarly, in American Insurance Association, we held that national banks may offer "municipal bond insurance" which was actually the functional equivalent of a standby letter of credit, a traditional banking device. See 865 F.2d at 281-84.

In Independent Bankers Ass'n of America v. Heimann, 613 F.2d 1164 (D.C. Cir. 1980), we recognized the right of national banks to offer "credit life insurance." That product names the bank as beneficiary, not the bank customer, and is a principal form of security for consumer loans. We noted that "[u]nlike other forms of insurance coverage ... credit life insurance is a limited special type of coverage written to protect loans." Id. at 1170. Because credit life insurance is "essential where ordinary loans on personal security are involved" and does not "involve the operations of a general life insurance business," we approved of the activity. Id.; see also First Nat'l Bank of Eastern Arkansas v. Taylor, 907 F.2d 775 (8th Cir. 1990) (upholding authority of banks to sell "debt cancellation contracts" to extinguish loan debts in the event of death).

Even in light of the interpretations of S 24 (Seventh) upheld in the above cases, however, when the OCC has undertaken to authorize national banks to sell general forms of insurance it has run into trouble. In 1916, Comptroller John Skelton Williams asked Congress to augment the powers of national banks to offer insurance. In his view, national banks located in "country towns and villages" were in need of additional sources of revenue and should be allowed to more fully compete with state chartered banks. Citing § 24 (Seventh), the Comptroller noted a hurdle to his goal: "National banks are not given either expressly nor by necessary implication the power to act as agents for insurance companies...." To resolve this situation, the Comptroller asked Congress to grant insurance agency power to national banks, but only those located in small towns. In his view, "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 bankers." 53 Cong. Rec. 11,001 (1916).

Congress acted on the Comptroller's request. It passed an amendment to the Federal Reserve Act, Act of Sept. 7, 1916, ch. 461, 39 Stat. 752 (codified at 12 U.S.C. S 92 (1994)), which provides:

In addition to the powers now vested by law in the national banking associations organized under the law of the United States any such association located and doing business in any place the population of which does not exceed five thousand inhabitants ... may, under such rules and regulations as may be prescribed by the Comptroller of the Currency, act as the agent for any fire, life, or other insurance company authorized by the authorities of the State in which said bank is located to do business in said State, by soliciting and selling insurance and collecting premiums on policies issued by such company....

12 U.S.C. S 92. Briefly put, this statute authorizes only those national banks located in towns of 5,000 or less to sell insurance as an agent.

In light of this statutory framework, both the Fifth and Second Circuits have rejected attempts by the Comptroller to authorize all national banks to sell insurance, purportedly under the authority of the incidental powers clause of § 24 (Seventh). See Saxon v. Georgia Ass'n of Indep. Ins. Agents, Inc., 399 F.2d 1010 (5th Cir. 1968); American Land Title Ass'n v. Clarke, 968 F.2d 150 (2d Cir. 1992) ("ALTA")¹.

In Saxon, the Comptroller decided, without further congressional authorization, that " '[i]ncidental to the powers vested in them under 12 U.S.C. Section[ ] 24 ..., National Banks have the authority to act as agent in the issuance of insurance which is incident to banking transactions.' " Saxon, 399 F.2d at 1012 (quoting O.C.C. Ruling No. 7110). The ruling was not limited to locales of less than 5,000 persons. A group of insurance agents brought a declaratory judgment action asking the court to hold the Comptroller's ruling unlawful. On appellate review, the Fifth Circuit held that S 24 (Seventh) could not confer general insurance powers when considered in conjunction with the implications of S 92.See id. at 1013-16. Judge Thornberry's concurrence shed light on the basic dilemma: "From an economic standpoint, it may be unfortunate that this Court is interfering with the expansion of national banks ..., but the banks should look to Congress, not the Comptroller." Id. at 1021 (Thornberry, J., concurring...