Yes, the referral fees would be prohibited kickbacks, because your institution does not hold an insurance producer license under Illinois law. However, with proper licensing, you may be able to accept the referral fees. The Illinois Insurance Code permits financial institutions to accept referral fees from licensed insurance companies, provided that both the financial institution and at least one officer or director of the financial institution hold insurance producer licenses.

Because your institution does not hold any full insurance producer licenses, you may want to consider obtaining “limited lines” producer licenses. This type of license would allow you to receive commissions for and to sell credit life and other types of credit insurance policies while avoiding some of the stringent pre-licensing, examination, and continuing education requirements that apply to licensees with full insurance producer licenses.

We also note that subject to Illinois law’s licensing requirements, federal law would permit a financial institution to receive a referral fee for mortgage life insurance, unless your institution requires borrowers to purchase mortgage life insurance. Regulation X exempts services related to mortgage life insurance from the definition of “settlement service,” meaning that mortgage life insurance is not subject to RESPA’s prohibition on referral fees for settlement services, provided that the lender does not require borrowers to purchase the insurance as a condition of the loan.

For resources related to our guidance, please see below:

• 215 ILCS 5/500-80(a) (an insurer or insurance producer may not pay valuable consideration to a person for selling, soliciting, or negotiating insurance if that person is required to be licensed and is not so licensed)

• Illinois Department of Insurance Letter Re: Companies Authorized to Transact Credit Insurance Business in Illinois (explains the Illinois licensing requirements for banks and other institutions selling insurance)

• 215 ILCS 5/500-100(a)(8) (adding credit life and other types of credit insurance to the classes of insurance permitted for limited lines producer licenses)

• Illinois Department of Insurance FAQs about Banks Selling Insurance

• 12 CFR 1024.14(b) (prohibition on referral fees)

• 12 CFR 1024.2 (definition of “settlement service” with exception for “provision of services involving mortgage life, disability, or similar insurance designed to pay a mortgage loan upon disability or death of a borrower, but only if such insurance is required by the lender as a condition of the loan”)