Disposition of Credit Insurance Income

PURPOSE: The practice in state-chartered banks where persons or entities other than the bank receive compensation for the sale of credit life or credit accident and health insurance can be an unsafe and unsound banking practice in that it tends to erode the fiduciary relationship between that person or entity and the bank, encourages the making of loans which are imprudent and may lead to undue pressuring of borrowers to purchase insurance. This rule assures that the bank receives the benefit from the sale of credit life or credit accident and health insurance to loan customers. (1) Definitions. (A) Bank means a state-chartered bank or trust company. (B) Interest shall include: 1. Ownership through a spouse or minor child(ren); 2. Ownership through a broker, nominee or agent; or 3. Ownership through a corporation, partnership, association, joint venture or proprietorship controlled by a director, officer, employee or principal shareholder of the bank. (C) Principal shareholder means any share holder who, directly or indirectly, owns or controls an interest of more than five percent (5%) in the bank’s outstanding shares. (D) The terms officer, director, employee and principal shareholder shall include the spouse and minor child(ren) of that officer, director, employee or principal shareholder. (2) Distribution of Credit Life and Credit Accident and Health Insurance Income. (A) Except as provided in subsection (2)(B) of this rule, no bank employee, officer, director or principal shareholder may retain or receive commissions or other income from the sale of credit life or credit accident and health insurance in connection with any loan made by the bank, nor receive or retain any bonus, salary, premium or other compensation contingent upon sales of credit life or credit accident and health insurance. This income must be paid directly to the bank or trust company, to a trust of which the beneficiaries are entitled to share the proceeds in exact proportion to their ownership of the bank or trust company, to a holding company which owns all of the stock of the bank of trust company except for directors’ qualifying shares or to an affiliate of that bank which is also wholly owned by the bank’s holding company. (B) Notwithstanding the prohibition contained in subsection (2)(A), bank employees and officers may participate in a bonus or incentive plan under which payments based on credit life insurance sales are made in cash or in kind out of the bank’s funds not more frequently than quarterly and in an amount not exceeding in any one (1) year, five percent (5%) of the recipient’s annual salary. Alternatively, bonuses paid to any one (1) individual during the year for credit life sales may not exceed five percent (5%) of the average salary of all loan officers participating in the plan and may not be paid more frequently than quarterly. All compensation under this rule shall be by board resolution which shall contain sufficient detail to permit a determination that the limits of this rule have not been exceeded. Copies of this resolution(s) shall be maintained separately for review by the Division of Finance. (3) Responsibilities of Directors. The selection of an insurance company and the agreements between the company and the bank shall be approved by an appropriate resolution of the bank’s board of directors. AUTHORITY: section 361.105, RSMo 1986.* This rule originally filed as 4 CSR 140-2.050. Original rule filed July 15, 1981, effective Jan. 1, 1982. Amended: Filed Feb. 25, 1986, effective June 1, 1986. Moved to 20 CSR 1140-2.050, effective Aug. 28, 2006. *Original authority: 361.105, RSMo 1967.