Recently, the OCC issued Interpretive Letter 1194, dated September 3, concluding that a national bank may provide personal guarantee insurance (PGI) to loan guarantors. The OCC reasoned that PGI is a form of credit-related insurance, which the agency has long treated as an “authorized product” under Section 302 of the GLBA. The requesting bank proposed to offer PGI to a guarantor at the time the guarantee is executed, in conjunction with the underlying loan. Section 302 permits national banks and their subsidiaries to provide insurance as a principal only if the product is authorized. The OCC previously concluded in Interpretive Letter 886 that credit-related insurance is an authorized product. In applying its definition of credit-related insurance to PGI, the OCC stated that the loan is the credit transaction, the guarantee is the outstanding obligation, and the guarantor is the borrower. According to the letter, a guarantee operates like other obligations a lender considers in connection with a loan, and PGI, like credit reinsurance, guarantees payment of a loan amount owed by another party upon default.

The OCC also explained that a lender weighs the guarantor’s financial condition together with the primary borrower’s when deciding whether to make a loan, and that PGI serves as a risk mitigant by supporting repayment of amounts the guarantor would owe. The OCC noted that its precedent treats credit-related insurance activities as part of, or incidental to, the business of banking under 12 U.S.C. § 24(Seventh), reasoning that such products strengthen a bank’s ability to collect on its loans. The OCC said its conclusion is limited to the facts and circumstances represented in the request and that different facts could produce a different result.