Topic: Nondeposit Investment Products
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We recently acquired a bank that sells crop insurance, and we need to add a section on crop insurance to our nondeposit investment products policy. Do you have any recommendations on where we can find a sample policy on selling crop insurance?
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We have not been able to locate a sample policy on selling crop insurance, but we submitted a request for a sample policy to our Compliance Division Advisory Committee and will provide any responses we receive. Additionally, we note that if the crop insurance sold by your bank does not include an investment component, it…
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For a monthly fee, we offer an add-on checking account product that includes three types of insurance (as well as ID protection and travel perks) — cell phone protection, accidental death and dismemberment coverage, and debit card purchase protection for items that are damaged or stolen within ninety days of purchase. Our marketing materials indicate that these insurance products are not insured by the FDIC. Do these insurance products qualify as “nondeposit investment products,” and are we prohibited from marketing this add-on product at account opening?
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If the three insurance coverages your bank is offering do not incorporate an investment component, we do not believe they would be treated as nondeposit investment products, and you would be allowed to market these products at account opening — provided the required disclosures are made. The Interagency Statement on Retail Sales of Nondeposit Investment…
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We have several questions about the Department of Labor’s (DOL) Fiduciary Rule. We offer CD IRAs and health savings accounts (HSAs). We don’t collect any custodial or periodic fees for these accounts. Are HSAs covered by the rule? How should we handle distributions from our CD IRAs? Can we refer our customers to our wealth management department (without compensating employees for these referrals)?
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The DOL rules expressly include health savings accounts in the definition of an IRA, but the new Fiduciary Rule will apply only if your bank is providing “investment advice” (as defined by the new rule) for “compensation” (as defined by the rule) in connection with the HSAs. Similarly, the Fiduciary Rule could apply to distributions…
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We have adopted a new incentive system for bank employees. We calculate incentive payments using a spreadsheet with a number of sales goals. A very small portion of the total is based on brokerage referrals. Based on my calculations, no one would earn more than $25 for the brokerage referral portion of the incentive. Is that permissible?
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While this incentive system likely will pass regulatory muster (since it will not result in payments over $25 for referrals), we recommend revising the spreadsheet to expressly state that the portion awarded for brokerage referrals will not exceed the permissible “nominal” amounts for brokerage referrals. (It also is important to note that referral fees for…
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We are a federal savings bank. Can our tellers just pass out flyers on the insurance services we provide? Also, our teller windows are about ten feet from the insurance agency. Is that enough distance?
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Yes, your tellers may pass out flyers on your insurance services, provided they do not receive referral fees if they are not licensed as insurance producers. And yes, ten feet is likely a sufficient distance, given the size of your institution, provided that you have taken steps to avoid customer confusion about whether the insurance…
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Our federal savings bank owns an insurance agency. Can our tellers receive referral fees in return for talking to customers and passing out flyers about our insurance products? The referral fee is not dependent on whether we make a sale.
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No, the tellers cannot receive referral fees unless they hold insurance producer’s licenses. The Illinois Insurance Code (“Code”) permits bank employees to provide information about insurance products, but only if they are not paid any commission, service fee, or other valuable consideration. Otherwise, the Code prohibits the payment of referral fees or commissions for selling,…
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We gave an insurance notice to customers in the past, since we provided credit insurance through an affiliate. However, we have stopped offering insurance of any kind. Do we still have to provide the notice?
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No, you should not have to provide the “credit disclosure” insurance notice if you no longer offer or sell insurance. The credit disclosure requirement applies only if you solicit, offer, or sell an insurance product or annuity in connection with an application for credit. 12 CFR 343.40(b). Because you have indicated that you no longer…
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Do our lenders need to obtain a limited lines producer license for selling credit insurance if they solicit insurance but do not get individual commissions? What about the bank itself?
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We believe that your individual lenders should obtain insurance licenses if they are soliciting or selling insurance (or doing anything beyond merely enrolling customers in insurance policies), even though they are not receiving commissions or fees for insurance sales. The Insurance Code includes an exception to its licensing requirements for employees who only enroll customers…
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We are adding a wealth management division that will be an affiliate of our institution, with a broker who will be a dual employee of the bank and a nonaffiliated investment company. How should we handle sharing customer information with the employee and other privacy issues?
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If the dual employee will be sharing your customers’ information with the nonaffiliated investment company, we believe that you would have to comply with the federal privacy notice requirements and the Illinois opt-in requirements, described below. Since you have indicated that you are looking for a form for the Illinois opt-in requirement, we recommend posting…