Request By:
Mr. Lynn Cooper
Senior Vice President
The Citizens National Bank
Somerset, Kentucky 42501
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Penny R. Warren, Assistant Attorney General
You asked whether your bank or any comparable banking institution could:
"set up a temporary lending office for a promotional purpose and for the purpose of taking applications, processing applications, making loans and disbursing funds on the spot."
You mentioned, by way of example, locating a motor home or van in a shopping center for two or three days for the purpose of taking and processing loan applications. In our opinion the answer is "no."
KRS 287.180 provides in part:
"(1) Banks authorized under the laws of this state may, except as provided in subsection (2) of this section, exercise, only at their principal office, powers necessary to carry on the business of banking by discounting and negotiating notes, drafts, bills of exchange and other evidences of debt, and by purchasing bonds, receiving deposits and allowing interest thereon, buying and selling exchange, coin and bullion and lending money on personal or real security.
"(2) Any corporation presently or hereafter engaged in the business of banking, and meeting the requirements of this subsection, may apply to the commissioner of banking and securities for permission to establish, within the city in which its principal office is located and, subject to the limitation hereinafter imposed, within the county in which its principal office is located a branch at which all of the powers conferred in subsection (1) of this section may be exercised. . . .
* * *
"(6) When a branch or agency bank has once been established any operation thereof shall not be discontinued, and said branch or agency bank shall not be closed until after ninety (90) days notice in writing to the commissioner. . . ." (Emphasis added.)
KRS 287.185 provides additional requirements for a change of location of a principal office or a branch. Copies of these statutes, in their entirety, are enclosed for your convenience. Also enclosed are copies of the regulations concerning "remote service units" for electronic withdrawals or deposits and the application and hearing procedures for branch facilities. 800 KAR 1:060 and 1:070.
Court interpretations of the numerous state and federal statutes controlling branch banking have varied somewhat, often hinging upon the specific statutory language involved. 23 A.L.R.3d 683, Annotation: What is a "branch bank" within statutes regulating the establishment of branch banks; 10 Am.Jur. 2d §§ 324-329. However, it has long been the law in Kentucky that "agents who merely receive deposits and pay out checks on demand" do not constitute branch banks subject to the safeguards, controls, and underlying public policy of the banking statutes. Marvin v. Kentucky Title Trust Co., 218 Ky. 135, 291 S.W. 17 (1927); OAG 69-180 (copy enclosed) . That decision carefully distinguished the conduct of other banking activities such as " loans, discounts, investments, and other like duties" which call for exercise of discretion and direct control. Id. at 18. (Emphasis added.)
Inasmuch as your proposed activities are not limited to merely receiving deposits and paying out checks and, instead, specifically include the making of loans, it is our opinion that such a facility is unauthorized under KRS 287.180 absent a qualifying application to and approval by the Commissioner of Banking for a branch bank. We further note that branch banks, once established, shall not be discontinued and shall not be closed until after ninety days written notice to the Commissioner nor may the location be changed without the approval of the Commissioner. KRS 287.180(6), KRS 287.185.
In the event you should decide to file a qualifying application for a branch bank and in the further event that you are dissatisfied with the decision of the Commissioner, you, of course, have a right to seek relief from the courts., See, for example: 808 KAR 1:070; Bank of Shelbyville v. People's Bank of Bagdad, Ky., 551 S.W.2d 234 (1977); Williams v. Cumberland Valley National Bank, Ky.App., 569 S.W.2d 711 (1978); Department of Banking and Securities v. Coleman, Ky.App., 594 S.W.2d 895 (1979).
We hope this information has been of some assistance to you.