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Each depositor insured to at least $250,000 per insured bank

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4000 - Advisory Opinions

Bank Sale of Automobile Warranty Is Not Within Scope of Traditional Banking Activities


February 10, 1986

Wayne V. Wright, Regional Attorney

This will respond to your letter of December 17, 1985 wherein you request our advice regarding the permissibility of your bank selling a warranty in conjunction with the use of *** automotive products. Although *** of your office was able to provide additional information in our phone conversation the week of January 27, 1986, we are still unclear as to the exact relationship the bank would have to it's potential customers and to ***. In our conversation, *** compared your bank's role that in which the bank sells credit life insurance to ensure repayment of a loan it makes. We are unconvinced that this situation is comparable. The sale of a credit life insurance policy for the balance of a loan is a traditional banking practice which adds substantially to the security of the credit extended. This proposed activity of the bank (selling an automobile warranty) does not appear to be within the scope of traditional banking activities and is only tenuously connected to adding additional security to credit extended. Additionally, there are unresolved questions regarding whether the bank's potential liability in this transaction might violate Part 332 of the FDIC rules and regulations (12 C.F.R Part 332).

We believe that the first step which you must pursue in seeking to establish this activity in your bank must be to request a determination from the Commissioner of Banking for *** whether or not this activity is permitted under applicable state law. If this activity is permitted by the Commissioner under *** law, and we receive a clarification of the bank's potential liability in this situation, we will then be better able to make a determination regarding whether or not this activity would violate any rules or regulations which the FDIC administers.

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