A federal court decision that limits national bank sales of insurance outside of small towns to credit-related products is "troublesome," but could set the stage for the reversal of two long-standing appeals court decisions contrary to existing precedent that the industry has wanted to attack for some time, sources said.

The decision Judge June Green handed down March 23 says national bank insurance sales are limited to small towns unless they are credit-related, and also says the Comptroller of the Currency exceeded its authority in declaring crop insurance a "credit-related" product.

Staffers at the OCC said the agency would appeal the ruling.

The decision was based on two precedents, set in 1968 and 1989. The courts held that Sec. 92 of the National Bank Act, which says that, "in addition to all other powers" banks are allowed to sell all types of insurance from offices in places of 5,000 or fewer, is an implied bar on national bank insurance sales outside of small towns.

Acting Comptroller Julie Williams had based her interpretation allowing Iowa national banks to sell crop insurance on another provision of the National Bank Act, Sec. 24(7th), the incidental powers clause. In approving the Iowa banks’ application, Williams had ruled that sale of such insurance is part of, or incidental, to the business of banking. But, in her decision, Green said that ruling "appears limited to a certain type of insurance known as ‘credit life’ and does not purport to stand for the notion that Sec. 24 (7th) can be used to authorize the sale of all insurance by national banks everywhere." But, she said, "crop insurance protects the farmer, not the lender, and is therefore not credit-related."

But David Roderer, a Washington banking lawyer, calls the decision "troublesome," and contrary to the Supreme Court’s 1995 ruling that the Comptroller has the authority under the incidental powers clause to reinterpret the National Bank Act to fit changing market conditions affecting national banks.

While troublesome, Roderer said, the Green decision allows banks and the Comptroller an opportunity to have appeals courts revisit the two older decisions, which the banking industry universally believes are contrary to the 1995 precedent.