For the purposes of helping
to preserve the safety and soundness of financial institutions, the
Board of Governors of the Federal Reserve System establishes the policies
set forth below on the disposition of income
1 from the sale of credit life, health and accident,
and mortgage life insurance (credit life insurance) related to loans
made by state member banks.
1. Individual employees,
officers, directors, and principal shareholders of a state member
bank should not personally profit by retaining commissions or other
income from the sale of credit life insurance to the institution’s
loan customers. However, employees and officers may participate in
a bonus or incentive plan under which payments based in whole or in
part on credit life insurance sales are made in cash or in kind out
of the state member bank’s funds in an amount not exceeding in any
one year 5 percent of the recipient’s annual salary. Such payments
may not be made to employees and officers more often than quarterly.
2. As an accounting and operations matter, income
derived from credit life insurance sales to loan customers should
be credited to the income accounts of the state member bank and not
to the state member bank’s individual employees, officers, directors,
or principal shareholders, to their interests, or to other affiliates.
However, such income may be credited to an affiliate operating under
the Bank Holding Company Act or, in the case of an individual shareholder,
to a trust for the benefit of all shareholders, provided that the
state member bank receives reasonable compensation in recognition
of the role played by its personnel, premises, and good will in credit
life insurance sales.
23. When state insurance laws or other legal considerations preclude
a financial institution from using a particular procedure for selling
credit life insurance or from disposing of the income in a particular
manner, a state member bank that wishes to provide this service to
its loan customers shall seek and utilize an alter native method
that complies with paragraphs 1 and 2 above.
4.
The proper method for the distribution to shareholders of income derived
from credit life insurance is through a declaration of dividends in
conformity with law, rule, regulation, and prudent financial practices.
5. State member banks should be in compliance with
paragraphs 1 and 2 above within two years following publication in
the Federal Register of this policy statement. Modifications
beyond that time will be granted only when a clear hardship exists
and satisfactory assurance is provided that compliance with paragraphs
1 and 2 will be achieved within an appropriate time period. STATEMENT
of April 23, 1981; effective May 1, 1981.
