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Letter 31: Branch Banking; Loan Production Offices

It has come to my attention that some Wisconsin banks have been asked to participate in a loan program which would utilize the services of the agents of insurance carriers in substantially the following fashion:

1. The insurance agent would indicate to prospective loan applicants that financial services are available through the participating bank. The insurance agent would assist the customer in completing a loan application form. These forms would be furnished by the participating banks.

2. The insurance agent would relay the credit data to the participating banks by telephone and request approval of the loan.

3. If the loan is approved, the insurance agent will complete any promissory notes, disclosure statements, security agreements or other necessary documents based on instructions from the bank.

4. The insurance agent would have the customer sign the appropriate documents and would tender to the customer checks or drafts evidencing the loan proceeds.

5. The participating bank may be required to pay a commission to the agent or the insurance company in consideration for the agent's assistance with each completed loan.

It is the position of this Office that a loan program of this variety constitutes branch banking. The plan involves the use of non-bank employees as agents for the bank to close loan transactions and disburse proceeds away from the bank's chartered premises or authorized branches. The Attorney General of Wisconsin has reviewed a loan program which contains these same elements and has also concluded that the practice constitutes branch banking. 49 OAG 9 (1960).

In order to avoid any further misunderstandings with respect to banking activities of this variety, bank management is requested to advise this Office of any request to participate in similar programs.

Bkg. Ltr. #31, September 4, 1979 Commissioner Mildenberg