## Facts

- First National Bank of Eastern Arkansas (FNB), a national bank, began offering debt-cancellation contracts to small-loan customers for an additional fee.
- Under the contracts, FNB agreed to cancel the unpaid loan balance upon the borrower’s death, regardless of cause.
- The fee rates did not vary by the borrower’s age or medical condition.
- A Comptroller of the Currency regulation, 12 C.F.R. § 7.7495 (as then in effect), stated national banks may impose an additional charge and maintain reserves to cover losses from canceling loans upon a borrower’s death as a lawful banking power.
- The Arkansas Insurance Department notified FNB the product was credit life insurance subject to Arkansas insurance laws and warned of possible enforcement, including a cease-and-desist order for unlicensed insurance activity.
- FNB temporarily stopped offering the contracts and filed a federal action seeking declaratory and injunctive relief against state enforcement.

## Issues

1. Whether the National Bank Act and the Comptroller’s regulation authorize a national bank to offer debt-cancellation contracts free from conflicting state insurance regulation.
2. Whether debt-cancellation contracts constitute the “business of insurance” under the McCarran-Ferguson Act, preserving state regulatory authority against federal preemption.

## Decision

- The Eighth Circuit affirmed judgment for FNB.
- The court held debt-cancellation contracts fall within national banks’ incidental powers and are expressly authorized by the Comptroller’s regulation.
- The court held the contracts are not the “business of insurance” under McCarran-Ferguson, so that statute did not shield Arkansas’s insurance laws from preemption as applied to these contracts.
- Arkansas could not require FNB to obtain an insurance license or cease offering the contracts based on state insurance law.

## Legal Principles

- National banks may exercise incidental powers necessary to the business of banking, and courts give substantial deference to the Comptroller of the Currency’s reasonable interpretations of those powers.
- When federal banking law affirmatively authorizes a banking activity, state law that prohibits or materially interferes with that activity is preempted.
- Under McCarran-Ferguson, state insurance regulation is protected from federal displacement only when the regulated activity is the “business of insurance” and the federal law does not specifically relate to insurance.
- In determining the “business of insurance,” courts consider whether the activity spreads or transfers risk, concerns an insurer–insured relationship, and is part of the policy relationship; bilateral loan-term arrangements aimed at managing a lender’s credit risk may fall outside that category.

## Conclusion

The court held that a national bank’s debt-cancellation contracts, offered as part of lending and authorized by the Comptroller, are banking products rather than insurance for McCarran-Ferguson purposes; Arkansas therefore could not regulate or prohibit them under state insurance law.


First Nat'l Bank of E. Ark. v. Taylor, 907 F.2d 775 (8th Cir. 1990)