Magazine article American Banker

Judge Limits Insurance Sales from Small Towns

Magazine article American Banker

Judge Limits Insurance Sales from Small Towns

Article excerpt

WASHINGTON -- In a setback for the industry's push to gain insurance powers, a federal magistrate judge in Indiana said banks must limit insurance sales to residents of small towns where they operate branches.

The decision contradicts a clear industry victory in July 1993, when the U.S. Court of Appeals for the District of Columbia ruled that banks may sell insurance anywhere from a branch in a small town.

U.S. Magistrate Judge V. Sue Shields, in NBD Bank v. Bennett, said Congress never intended to give national banks the ability to sell insurance to residents of an entire state.

Rather, she said, the National Bank Act allowed banks to sell insurance from branches in towns with fewer than 5,000 residents because Congress wanted to give national banks an incentive to maintain their small-town branches.

To let a bank sell insurance to residents outside the small town, as NBD proposed, defeats the purpose of the law because banks would only need to maintain a single branch in a single small town to reap the benefits of statewide insurance sales, she said. The decision was handed down Tuesday but did not become widely known until late Thursday.

NBD Bank spokesman Richard Johnson declined to comment, saying he had not yet seen the decision.

Magistrate judges, the lowest-level federal jurist, do not normally try cases. But in this instance, both sides agreed in writing to allow the magistrate judge to proceed. The parties can appeal to U. …

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