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Bank v. Bennett

October 4, 1995






Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. IP94-862-C--V.

Before COFFEY, EASTERBROOK, and RIPPLE, Circuit Judges.

EASTERBROOK, Circuit Judge.

Sue Shields, Magistrate Judge.



NBD Bank operates a branch in Corydon, Indiana. Because Corydon has fewer than 5,000 inhabitants, 12 U.S.C. sec. 92 permits NBD to act as agent for the sale of insurance:

[A]ny [national bank] association located and doing business in any place the population of which does not exceed five thousand inhabitants, as shown by the last preceding decennial census, may, under such rules and regulations as may be prescribed by the Comptroller of the Currency, act as the agent for any fire, life or other insurance company authorized by the authorities of the State in which said bank is located to do business in said State, by soliciting and selling insurance and collecting premiums on policies issued by such company . . . .

In 1963 the Comptroller issued a regulation specifying that sec. 92 applies to branches as well as to banks that have their sole offices in small towns. 12 C.F.R. sec. 7.7100. So although NBD is a big bank, with operations in several states, it is entitled to sell insurance from the Corydon branch.

Sell insurance to whom? Indiana believes that the answer is "to the inhabitants of Corydon." Its Commissioner of Insurance issued NBD a geographically limited license. Believing that it is entitled to act as agent throughout Indiana, NBD filed this suit for a declaratory judgment to that effect. NBD has the support of the Comptroller, who on May 26, 1994, sent NBD a letter declaring that Indiana's understanding of sec. 92 is incorrect. NBD also has the support of the only court of appeals that has considered this question. In 1986 the Comptroller's office announced that sec. 92 limits the location of the sales office, not the location of insureds. After extended preliminaries, see United States National Bank of Oregon v. Independent Insurance Agents of America, Inc., 113 S. Ct. 2173 (1993), the District of Columbia Circuit concluded that the Comptroller's view must be respected. See Independent Insurance Agents of America, Inc. v. Ludwig, 997 F.2d 958 (D.C. Cir. 1993), relying on Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). A magistrate judge, presiding by consent of the parties under 28 U.S.C. sec. 636(c)(1), disagreed with Independent Insurance Agents and granted summary judgment for the Commissioner. 874 F. Supp. 927 (S.D. Ind. 1994). "To whom" is the only question we need consider; Indiana does not contend that the McCarran-Ferguson Act, 15 U.S.C. secs. 1011-15, gives it authority to curtail activities authorized by sec. 92. Compare Barnett Bank of Marion County, N.A. v. Gallagher, 43 F.3d 631, 636-37 (11th Cir. 1995) (McCarran-Ferguson Act supersedes sec. 92), cert. granted, No. 94-1837 (Sept. 27, 1995), with Owensboro National Bank v. Stephens, 44 F.3d 388 (6th Cir. 1994) (sec. 92 not affected by McCarran-Ferguson Act).

Just as the Comptroller observed, sec. 92 prescribes the location of the bank, not the location of its customers. Any national bank "located and doing business in any place the population of which does not exceed five thousand inhabitants" may act as agent for the sale of an insurance company authorized to do business in the state. To the extent the statute implies anything about the location of insureds, it is that the customers must reside in a place in which the insurer is authorized to do business; the bank acts as the insurer's agent.

That sec. 92 does not mention clients does not necessarily mean that the bank's customers can come from the far reaches of the globe. Interpretation is a contextual enterprise. Statutory words take color from their many contexts -- often neighboring sentences and sections, and frequently the economic transactions the words are designed to affect. Section 92 identifies a line of business in which national banks may engage. What of their other lines of business? May banks take deposits from persons located outside their home bases? Make loans to residents of other cities and states? If the answer is "yes," then the absence of any customer limitations in sec. 92 implies equal freedom; but if banks may do deposit-and-loan business only close to home, then the absence of a reference to customers in sec. 92 implies that banks are similarly confined when acting as insurance agents.

May NBD's Corydon branch take deposits from the residents of neighboring Crandall? May it make loans to residents of New Albany, some 20 miles to the east? May it issue credit cards to residents of Louisville, Kentucky, across the Ohio River from New Albany? These questions have ready answers. Ever since the founding of the United States, banks have transacted business across state and local borders. See Bank of Augusta v. Earle, 38 U.S. (13 Pet.) 519 (1839). By 1864, when Congress enacted the National Bank Act, interstate banking was a flourishing business, a subject much remarked in the debates. Marquette National Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299, 315-19 (1978), recounts this history. Today banks in New York join with banks in Texas to make syndicated loans secured by real estate in Alaska; banks in Illinois issue letters of credit to Portuguese corporations in order to facilitate shipments between Brazil and Japan; banks in Arizona issue credit cards to residents of Maine; the citizens of North Dakota can put their assets in trusts managed by banks in Florida and write checks on banks in Hawaii; and banks resell their loans to packagers (including public bodies such as GNMA) who trade the securities on international financial exchanges. These transactions simultaneously facilitate commerce, increase competition to the benefit of consumers, and help banks diversify their portfolios (reducing the risk of failure).

The only serious challenge to these practices during this century was rebuffed in Marquette National Bank. A portion of the National Bank Act permits a national bank to charge any rate of interest that is proper under the laws of the state "where the bank is located". 12 U.S.C. sec. 85. A bank with premises in Nebraska, which allowed interest rates to reach 18 percent, issued credit cards to residents of Minnesota, which capped interest rates at 12 percent. The Supreme Court first explained that this trans-border transaction was entirely proper and then held that a bank is "located" for purposes of sec. 85 where its physical facilities may be found, rather than where its customers live. Responding to the complaint of a Minnesota Bank that did not appreciate the competition, the Court wrote:

Omaha Bank cannot be deprived of this [physical] location merely because it is extending credit to residents of a foreign State. Minnesota residents were always free to visit Nebraska and receive loans in that State. It has not been suggested that Minnesota usury laws would apply to such transactions. Although the convenience of modern mail permits Minnesota residents holding Omaha Bank's [credit cards] to receive loans without visiting Nebraska, credit on the use of their cards is nevertheless similarly extended by Omaha Bank in ...

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