If it walks like a branch and talks like a branch…

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Question:

My bank (not the Holding Co.) purchased an insurance company last year located 2 miles from the bank. Agents at the insurance company can take applications for premium financing loans, make the decision to approve or deny the credit as well as generate the loan documents and close the loan at the insurance offices. No loan proceeds are distributed because they go to the underwriters to finance the insurance policy. The loan is booked on the bank's books as a commercial or consumer loan. Would this procedure be considered as a branch operation of the bank?

Answer:

12 CFR 5.30 defines a branch (below). While it sounds as though they were striving to establish a Loan Production Office, the act of closing the loan onsite alters that regardless of where the funding actually occurs. This is based on OCC rules, but you should check with your agency's rules to see if you have issues to be addressed. It may be that an unauthorized branch is operating unless this is recognized as an extension of your branch, 2 miles away.

It also sounds as though your loan policy needs to this these agents as "lenders" with loan authority, if not done already.

12 CFR Section 5.30 Branch includes any branch bank, branch office, branch agency, additional office, or any branch place of business established by a national bank in the United States or its territories at which deposits are received, checks paid, or money lent.

OCC Handbook for Safety and Soundness, Loan Production Offices
Examiners should be alert for two practices that the interpretive ruling does not allow. The first practice is originating and approving loans at a loan production office, while disbursing funds from a main office or a branch. Disbursing funds from the main office or a branch does not satisfy the interpretive ruling since the loans are approved at the loan production office.

First published on BankersOnline.com 8/11/03