The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site -



Opinion No. 5155

March 18, 1977


Branch banking

The use of an insurance agent by a bank to solicit loans, prepare loan application forms, and disburse loan proceeds constitutes branch banking.

Richard J. Francis


Financial Institutions Bureau

Department of Commerce

Law Building

Lansing, Michigan 48913

You have requested my opinion as to whether the following described activities between a bank and an insurance company violate the Michigan branch banking laws.

1. The buyer of motor vehicle selects an automobile and obtains a price from the dealer of his choice. He then goes to the insurance agent who, pursuant to a prearranged plan between a bank and the insurance company which the insurance agent represents, arranges the financing of the vehicle through the bank.

2. The insurance agent assists the customer in completing a loan application form and relays the information, usually by telephone, to the bank.

3. The bank conducts a credit check and shortly thereafter notifies the insurance agent as to whether the loan is approved.

4. If the loan is approved, the insurance agent completes the necessary forms, including the promissory note and security instrument, and the customer executes the necessary documents.

5. The insurance agent issues a money order drawn on the bank made payable to the automobile dealer and the customer and delivers the money order to the customer.

6. The insurance agent forwards to the bank the completed documents.

7. The bank files monthly reports with the insurance company giving details of all financial transactions originated by the insurance agent.

8. The bank compensates the insurance company at the rate of ten percent of the finance charges.

9. All forms are supplied by the bank and all agreements and contracts run between the borrower and the bank.

10. The insurance company actively advertises the financing program but does not disclose the identity of the bank in any of its promotional activity.

A branch bank is defined in the Michigan Banking Code, 1969 PA 319, Sec. 5(d); MCLA 487.305(d); MSA 23.710(5)(d), as follows:

"Branch' means any branch bank, branch office, branch agency, additional office or any branch place of business at which deposits are received or checks paid or money lent. . . .'

A branch bank may only be established by a bank in the manner provided by Sec. 171 of the Banking Code, 1969 PA 319, Sec. 171; MCLA 487.471; MSA 23.710(171). (1)

The question of what constitutes a branch office of a bank has been the subject of numerous decisions by the courts. In deciding whether a national bank which established an armored car bank messenger service to receive deposits and furnish currency was engaged in branch banking, the United States Supreme Court in First National Bank of Plant City v Dickinson, 396 US 122, 135; 90 S Ct 337, 344; 24 L Ed 2d 312, 320, 321 (1969), stated:

'. . . [T]he term 'branch bank' at the very least includes any place for receiving deposits or paying checks or lending money apart from the chartered premises; it may include more. It should be emphasized that, since Sec. 36(f) (2) is phrased in the disjunctive, the offering of any one of the three services mentioned in that definition will provide the basis for finding that 'branch' banking is taking place. Thus not only the taking of deposits but also the paying of checks or the lending of money could equally well provide the basis for such a finding.'

Similarly, this office concluded that the use of an armored car by a bank was branch banking. 1 OAG 1959-1960, No. 3464, p 238 (December 21, 1959).

The precise question of whether a bank may lend money through insurance agents was considered in Continental Bank and Trust Co v Taylor, 14 Utah 2d 370; 384 P 2d 796 (1963). In that case the bank established a procedure whereby various insurance agents solicited and made loans on behalf of the bank. The bank provided the agents with all necessary forms which were completed by the agent and forwarded to the bank. The bank would notify the agent of the approval of an application who would thereupon issue a check to the customer. In concluding that the plan constituted branch banking, the court noted that although no compensation was paid the agents by the bank, the agents acted in a fiduciary relationship on behalf of the bank. The money was lent when: '(1) the executed note and mortgage are delivered to the representative of the bank . . . and (2) the customer is authorized by the bank to draw checks thereon.' (3) In the situation presented here, the note, mortgage and check are similarly provided to the customer by the insurance agent.

Most recently, in Independent Bankers Association of America, et al v Smith, 534 F2d 921 (CA DC, 1976); cert den; ---- US ---- (1976), the Court decided that an electronic banking machine which enabled a bank to, among other things, dispense cash on prearranged lines of credit constituted a branch bank facility. In so deciding, the court cited the Continental Bank case, supra, and stated:

'We agree with the Utah Supreme Court. When a loan originates at a place away from the main bank and its lawful branches (at an insurance agent's office or at a CBCT) and the proceeds of the loan are, at that time, distributed to the customer or his order, for purposes of section 36(f) a loan is consummated at that time and place.

When a bank reaches out to a multiplicity of localities for the purpose of making loans available through the instrumentality of its conveniently located CBCT's, that bank is engaged in the branch banking business.' 534 F 2d at pp 946, 948

An analogous question was answered at OAG 1943-1944, No. 0-1035, p 522 (September 9, 1943). There a lending company informed customers of the availability of loans by an affiliated bank and assisted in the preparation of all loan documents. The loan was approved at the bank and the proceeds were disbursed by the loan company. In concluding that the operation constituted an illegal branch bank, the opinion stated:

'The taking of application, the preparation of preliminary papers expressing the terms and conditions of the requested loan, and the issuing of envelope draft for the money constituting the loan, are in either case the necessary preliminaries to the granting of the application consummating the transaction and when the draft is issued and delivered to the borrower to be cashed at his disposal and upon his endorsement, the loan is consummated and complete.

'Section 2(c) of Chapter 1 of the Michigan financial institutions act defines the term 'branch' as used in Section 34 of the act (Chapter II), dealing with the subject of branch banks, as follows:

"The term 'branch' as used in Section 34 of this act shall be deemed to include any branch bank, branch office, branch agency, additional office, or any branch place of business at which deposits are received or checks paid or money lent.'

'Considering the method employed at the Lansing office in negotiating loans for the Detroit institution, together with the intended and ultimate result at conclusion, it is difficult for the unbiased mind to arrive at a conclusion that would place the activities of the Lansing office beyond and outside of the definition of a 'branch' of the Detroit bank, as the term is defined in the Michigan financial institutions act.' OAG 1943-1944, No. 0-1035, at p. 524

In view of the statutory definition of the term 'branch bank' and the interpretation given to it by the courts, it is my opinion that a bank is engaged in branch banking if a loan originates at the office of an insurance agent and the proceeds of the loan are distributed to the customer or his order from that location.

Frank J. Kelley

Attorney General

(1) Section 171, supra, requires the prior approval of the Commissioner of the Financial Institutions Bureau before a bank may establish a branch office. In order to receive such approval, the bank must at least demonstrate that there is a need for the branch and that it would probably be successful if established. Federal law similarly provides limitations as to location and requires prior approval and a demonstration of need and success for the licensing of a branch of a federally chartered bank. See 12 USC Secs. 36(c)(f); 44 Stat 1229.

(2) Section 36(f) refers to the federal definition of a branch bank as contained in the National Bank Act, 12 USC Sec. 36(f); 44 Stat 1229. The Michgan courts have recognized that this section is identical to the Michigan branch bank definition. See Tri-City Bank v Department of Commerce, Financial Institutions Bureau, 38 Mich App 703; 197 NW2d 155 (1972).

(3) 14 Utah 2d 370, 379; 384 P2d 796, 802.