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BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 20551

DIVISION OF SUPERVISION

AND REGULATION

SR 20-23

October 9, 2020

TO THE OFFICER IN CHARGE OF SUPERVISION

 AT EACH FEDERAL RESERVE BANK

SUBJECT: Interagency Order Granting an Exemption from Customer Identification 

Program Requirements for Loans Extended by Banks and Their Subsidiaries to All 

Customers to Facilitate Purchases of Property and Casualty Insurance Policies

Applicability: This order applies to all banking organizations supervised by the Federal Reserve

that are subject to Customer Identification Program requirements under the Bank Secrecy Act.

1

The Federal Reserve, the Federal Deposit Insurance Corporation, the National Credit 

Union Administration, the Office of the Comptroller of the Currency (collectively, the Federal 

Banking Agencies (FBAs)), and the U.S. Department of Treasury’s Financial Crimes 

Enforcement Network (FinCEN) (hereinafter the Agencies) are issuing the attached interagency 

order to grant an exemption from the requirements of the Customer Identification Program (CIP) 

rule for loans extended by banks and their subsidiaries to customers to facilitate purchases of 

property and casualty insurance policies (hereinafter referred to as premium finance loans). 

Effective immediately, a banking organization that provides loans to customers to facilitate 

purchases of property and casualty insurance policies can utilize this CIP exemption and should 

update its CIP policies and procedures accordingly. 

On September 28, 2018, the Agencies issued an interagency order granting an exemption 

from the requirements of the CIP rule for premium finance loans extended by banks and their 

subsidiaries to commercial customers. This new order supersedes the 2018 order and extends the 

exemption to all customers of premium finance loans. 

 

The CIP rule, set forth in Section 326 of the USA PATRIOT Act,2 requires a bank to 

implement a CIP that includes risk-based verification procedures that enable the bank to form a 

1 Banking organizations supervised by the Federal Reserve subject to the CIP requirements include: state member 

banks (Regulation H, 12 CFR 208.63(b)(2)), Edge and agreement corporations (Regulation K, 12 CFR 211.5(m)(2)), 

and branches, agencies and representative offices of foreign banking organizations operating in the United States 

(Regulation K, 12 CFR 211.24(j)(2)). 

2 31 U.S.C. 5318(l). See also SR letter 05-9, “Frequently Asked Questions Relating to Customer Identification 

Program Rules,” for interagency guidance on common questions regarding the CIP Rule.
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reasonable belief regarding the identity of each “customer,” including, at a minimum, obtaining 

the customer’s name, date of birth, address, and tax identification number, and to establish riskbased procedures to verify the identity of new customers.

Under the CIP rule, the appropriate FBA with the concurrence of the Secretary of the 

Treasury, may by order or regulation exempt any bank or type of account from the requirements 

of the CIP rule. The Secretary’s authority under this provision has been delegated to FinCEN. 

Pursuant to the criteria for exemptive relief set forth in the CIP rule,

3 the FBAs and FinCEN 

have determined that the exemption set forth in the order is consistent with the purposes of the 

Bank Secrecy Act (BSA) and with safe-and-sound banking practices. 

Premium finance loans provide short-term financing to businesses to facilitate their 

purchases of single-premium property and casualty insurance policies. According to FinCEN, 

these types of loans present a low risk of money laundering because of the purpose for which the 

loans are extended and limitations on the ability of a customer to use such funds for any other 

purpose.4 Moreover, according to FinCEN, property and casualty insurance policies themselves 

are not an effective means for transferring illicit funds.5 Therefore, an exemption is consistent 

with the purposes of the BSA, based upon FinCEN’s determination that premium finance loans 

present a low risk of money laundering. Finally, as premium finance loans are generally secured 

by the unearned premiums associated with property and casualty insurance policies, an 

exemption is consistent with safe-and-sound banking practices. The resulting change to banking 

practices will not be contrary to generally accepted standards of prudent banking operations, and

will not give rise to abnormal risk or loss or damage to an institution, its shareholders, or the 

agencies administering the insurance funds. 

 

Reserve Banks are asked to distribute this SR letter to the domestic and foreign banking 

organizations supervised by the Federal Reserve in their districts, as well as to supervisory and 

examination staff. Questions concerning the SR letter or the interagency exemption order may 

be sent via the Board’s public website.6

Michael S. Gibson

Director

Attachment:

• Interagency Order

Supersedes:

3 31 C.F.R. § 1020.220(b)

4 See “Customer Due Diligence Requirements for Financial Institutions,” 81 FR 29398, 29418 (May 11, 2016). 

5 See “Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations—Anti-Money 

Laundering Programs for Insurance Companies,” 70 FR 66754, 66757 (Nov. 3, 2005).

6 See http://www.federalreserve.gov/apps/contactus/feedback.aspx.
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• SR 18-6 “Interagency Exemption Order from Customer Identification Program 

Requirements for Loans Extended by Banks and Their Subsidiaries to Commercial 

Customers to Facilitate Purchases of Property and Casualty Insurance Policies”

Cross reference to:

SR letter 05-9, “Frequently Asked Questions Relating to Customer Identification Program 

Rules”
1

ORDER

Order granting an exemption from customer identification program requirements

implementing section 326 of the USA PATRIOT Act, 31 U.S.C. § 5318(l), for loans 

extended by banks (and their subsidiaries) subject to the jurisdiction of the Federal 

Banking Agencies to all customers to facilitate purchases of property and casualty 

insurance policies. 

Issue Date: October 5, 2020

By ORDER, under the authority set forth in 31 C.F.R. § 1020.220(b) implementing 

section 326(a) of the USA PATRIOT Act, 31 U.S.C. § 5318(l)(5), the Office of the 

Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve 

System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the 

National Credit Union Administration (NCUA), collectively the Federal Banking 

Agencies (FBAs), with the concurrence of the Financial Crimes Enforcement Network 

(FinCEN), hereby grant an exemption from the requirements of the customer 

identification program (CIP) rules implementing section 326 of the USA PATRIOT Act, 

31 U.S.C. § 5318(l),

1 for loans extended by banks2 (and their subsidiaries3

) subject to the 

FBAs’ jurisdiction to all customers to facilitate purchases of property and casualty 

insurance policies4 (hereinafter referred to as premium finance loans or premium finance 

lending).

Background

By letter dated September 20, 2016, and by letter dated March 27, 2017, a consortium of 

banks5 submitted a request to the FBAs and FinCEN for an exemption or interpretation 

 1 31 C.F.R. § 1020.220 (FinCEN); 12 C.F.R. § 21.21(c)(2) (OCC); 12 C.F.R. §§ 208.63(b)(2) and 

211.24(j)(2) (Federal Reserve); 12 C.F.R. § 326.8(b)(2) (FDIC); and 12 C.F.R. § 748.2(b)(2) (NCUA)

(collectively, the CIP rules). 2 This ORDER is applicable to banks, as that term is defined by 31 C.F.R. § 1010.100(d), and their 

subsidiaries, that are subject to the jurisdiction of the OCC, Federal Reserve, FDIC, or NCUA. 

3 See, e.g., 12 C.F.R. §§ 5.34(e)(3) and 5.38(e)(3) (requirements governing operating subsidiaries of 

national banks and Federal savings associations); see also https://www.fincen.gov/resources/statutesregulations/guidance/interagency-interpretive-guidance-customer-identification for interagency FAQs

describing the applicability of the CIP rules to bank subsidiaries. 4 This ORDER does not apply to life insurance policies, annuity contracts or any other insurance product 

with features of cash value or investment. 

5 The consortium included the following banks: Pacific Enterprise Bank; BankDirect Capital Finance, LLC 

– BankDirect Capital Finance, a Division of Texas Capital Bank, N.A.; Premium Assignment Corporation, 

a subsidiary of SunTrust Bank; First Insurance Funding Corp.; AFCO Credit Corporation – AFCO 

Acceptance Corporation- Prime Rate Premium Finance Corp., subsidiaries of Branch Banking & Trust 

Company (BB&T); and Metabank (its AFS/IBEX division).
2

regarding the application of the CIP rules to insurance premium finance lending (the 

“Request Letters”).

6 The Request Letters asserted that there is no need to apply the CIP 

rules to insurance premium finance lending because this activity presents a low risk of 

money laundering. On September 27, 2018, the FBAs and FinCEN issued an Order 

granting an exemption from the requirements of the CIP rules implementing section 326 

of the USA PATRIOT Act, 31 U.S.C. § 5318(l), for loans extended by banks (and their 

subsidiaries) subject to the FBAs’ jurisdiction only to commercial customers7 to facilitate 

premium finance lending. By letter dated November 12, 2018, the American Bankers 

Association requested that the CIP exemption apply to all customers of premium finance 

lending and not just commercial customers (the “Supplemental Letter”). The

Supplemental Letter noted that the same rationale for the CIP exemption for commercial 

customers also applies to an exemption for all customers of premium finance lending. 

Regulatory Requirements

Under 31 C.F.R. § 1020.220(b), the appropriate FBA with the concurrence of the 

Secretary of the Treasury may by order or regulation exempt any bank or type of account 

from the requirements of the CIP rules. The Secretary’s authority under this provision has 

been delegated to FinCEN. The FBAs and FinCEN must consider whether the proposed 

exemption would be consistent with the purposes of the Bank Secrecy Act (BSA)8 and 

with safe and sound banking and may consider other appropriate factors.

 

The CIP rules require a bank to implement a CIP that includes risk-based verification 

procedures that enable the bank to form a reasonable belief that it knows the true identity 

of its customers.9 These procedures must specify the identifying information that a bank

will obtain from each customer prior to opening an account. These procedures must also 

include, at a minimum, the customer’s name, date of birth (for an individual), address,

and identification number. For an individual, the address must be a residential or 

business street address; for an individual who does not have a residential or business 

street address, an Army Post Office or Fleet Post Office box number, or the residential or 

business street address of next of kin or of another contact individual, is acceptable. The 

address for a person other than an individual (such as a corporation, partnership, or trust) 

must be a principal place of business, local office, or other physical location. For a U.S. 

person, the identification number must be a taxpayer identification number. For a nonU.S. person, one or more of the following is required: a taxpayer identification number,

passport number and country of issuance, alien identification card number, or number and 

country of issuance of any other government-issued document evidencing nationality or 

 6 The FBAs also consider oral representations made by the consortium as included in the Request Letters. 

7 In the Order dated September 27, 2018, commercial customers included businesses organized, for 

example, as corporations, partnerships, sole proprietorships, and trusts.

8 31 U.S.C. § 5311 (setting forth the purposes of the BSA). 9 31 C.F.R. § 1020.220(a)(2).
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residence and bearing a photograph or similar safeguard.10 The CIP must also contain 

procedures for verifying the identity of the customer.11 

Description of Premium Finance Lending

Premium finance loans provide short-term financing to business and non-business

borrowers to facilitate their purchases of property and casualty insurance policies. 

According to FinCEN, these types of loans present a low risk of money laundering 

because of the purpose for which the loans are extended and limitations on the ability of a 

customer to use such funds for any other purpose.12 Moreover, according to FinCEN, 

property and casualty insurance policies themselves are not an effective means for 

transferring illicit funds.13 

Insurance agents and brokers assist their customers to arrange financing for the purchase 

of single-premium insurance policies. An insurance agent or broker typically solicits

loan quotes from one or more premium finance lenders and then presents these quotes to 

the customer of the insurance agent or broker (i.e., the applicant or potential borrower). 

Most lenders require that insurance agents or brokers only request financing for insurance 

policies issued by insurance companies with satisfactory credit ratings. The agents and 

brokers who facilitate these transactions are not required to collect customer information 

under the CIP rules. 

Once the potential borrower selects a loan offer and the terms are finalized, the potential 

borrower typically remits a down payment toward the insurance premium directly to the 

agent or broker. The premium finance lender advances a loan to the borrower covering 

the remainder of the single premium. Importantly, the bank remits the loan proceeds to 

the insurance company directly or through the agent or broker. The borrower is obligated 

to make payments on the loan either to the bank or to the agent or broker acting as an 

intermediary to forward the loan payments to the bank. The principal collateral for such 

a loan is the unearned premiums paid to the insurance company.

Because the lender depends on the return of these unearned premiums for repayment of 

the loan if a customer defaults, the lender has credit exposure to the insurance company 

that issued the insurance policy. Accordingly, a lender typically assesses the 

creditworthiness of the insurance company and not that of the potential borrower that is 

seeking to finance the purchase of a policy. For this reason, the bank premium finance 

lender has minimal interaction with the potential borrower while the loan is being 

underwritten. 

 10 31 C.F.R. § 1020.220(a)(2)(i). 11 31 C.F.R. § 1020 220(a)(2)(ii). 12 See “Customer Due Diligence Requirements for Financial Institutions,” 81 FR 29398, 29418 (May 11, 

2016). 

13 See “Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations—AntiMoney Laundering Programs for Insurance Companies,” 70 FR 66754, 66757 (Nov. 3, 2005).
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Request Letters

The Request Letters represented that there is no need to apply the CIP rules to insurance 

premium finance lending because this activity presents a low risk of money laundering. 

In support of this contention, they note that the processes for executing a premium

finance loan are highly automated, as most premium finance industry loan volume is 

quoted and recorded electronically. Moreover, the Request Letters state that these loans 

are typically submitted, approved and funded within the same business day and are 

conducted through insurance agents or brokers with no interaction between the bank and 

the borrower. The Request Letters maintain that these business processes make it 

difficult for banks to fully comply with the CIP information collection requirements. 

Specifically, agents and brokers do not initially provide bank premium finance lenders

with taxpayer identification numbers and, in the case of sole proprietorships or 

individuals, the date of birth of the borrower. The Request Letters state that bank

premium finance lenders, in compliance with their CIP requirements, must request this 

information from the agent or broker, creating delays in processing. The Request Letters 

also state that because of data privacy concerns, insurance brokers and agents are 

reluctant to collect personal information, such as the date of birth and social security 

number of individuals or individuals owning sole proprietorships. The Request Letters 

acknowledge that a bank would not be in compliance with the CIP rules if it approved a 

premium finance loan and opened an account on behalf of a customer without having the 

required information to identify and verify the customer’s identity. 

Supplemental Letter 

The Supplemental Letter states that the same rationale for the exemption for commercial 

customers is equally valid for individual customers. The Supplemental Letter notes that 

the inclusion of individuals acting as sole proprietors in the definition of commercial 

customers indicates that the risk for all individuals is the same. Accordingly, the 

Supplemental Letter requests that the Order dated September 27, 2018, be amended to 

clarify that the CIP exemption applies to all premium finance loans without limitation 

based on type of customer.

Findings Supportive of an Exemption

Based on the information presented by the Request Letters and the Supplemental Letter,

and in accordance with 31 C.F.R. § 1020.220(b) implementing section 326(a) of the USA 

PATRIOT Act, 31 U.S.C. § 5318(l)(5), the FBAs, with the concurrence of FinCEN, by 

this ORDER, and for the reasons described below, find that there is a valid basis for an

exemption to apply to all customers of premium finance lending. 

First, the FBAs find that the exemption is consistent with the purposes of the BSA, based 

on FinCEN’s determination that premium finance loans present a low risk of money 

laundering or terrorist financing. The purpose of the BSA is “to require certain reports or 

records where they have a high degree of usefulness in criminal, tax, or regulatory 

investigations or proceedings, or in the conduct of intelligence or counterintelligence 
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activities, including analysis, to protect against international terrorism.”14 The CIP rules 

were promulgated pursuant to Title III, Section 326 of the USA PATRIOT Act, which 

added a new subsection to the BSA.

15 The purposes of Title III of the USA PATRIOT 

Act are, inter alia:

• to increase the strength of United States measures to prevent, detect, and 

prosecute international money laundering and the financing of terrorism; 

• to provide a clear national mandate for subjecting to special scrutiny those foreign 

jurisdictions, financial institutions operating outside of the United States, and 

classes of international transactions or types of accounts that pose particular, 

identifiable opportunities for criminal abuse; and

• to ensure that all appropriate elements of the financial services industry are 

subject to appropriate requirements to report potential money laundering 

transactions to proper authorities.16

The Request Letters represented that premium finance loans present a low risk of money 

laundering or terrorist financing because (1) the loan proceeds are remitted to the 

insurance company (either directly or through an agent/broker) rather than the insured 

party, (2) property and casualty insurance policies have no investment value, and (3) 

borrowers cannot use these accounts to purchase other merchandise, deposit or withdraw 

cash, write checks, or transfer funds.

FinCEN agrees that the structural characteristics of premium finance lending, as 

described, present a low risk for money laundering activity or terrorist financing. In 

addition, FinCEN has already made the independent determination that these types of 

accounts present a low risk of money laundering, both because of the purpose for which 

such accounts are established and because the characteristics of these accounts make 

them poor vehicles for money laundering.17 Based on this determination, FinCEN 

exempted financial institutions that finance insurance premiums from the general 

requirement to identify and verify the identity of the beneficial owner(s) of legal entity 

customers18 and further exempted financial institutions that finance insurance premiums 

that allow for cash refunds from these beneficial ownership requirements.19 Similarly, 

 14 31 U.S.C. § 5311. 15 31 U.S.C. § 5318(l). 16 Title III, Section 302 of the USA PATRIOT Act, 31 U.S.C. § 5311 note. 17 See “Customer Due Diligence Requirements for Financial Institutions,” 81 FR 29398, 29418 (May 11, 

2016). 

18 31 C.F.R. § 1010.230(h)(iii).

19 FIN-2018-R001, “Premium Finance Cash Refunds and Beneficial Ownership Requirements for Legal 

Entity Customers” (May 11, 2018) (confirming, based on FinCEN’s discussions with law enforcement, that 

insurance premium financing presents a low risk of money laundering, notwithstanding the potential for 

cash refunds to the borrower). 
6

FinCEN has exempted commercial property and casualty insurance policies from the 

BSA compliance program rule for insurance companies.20 

Second, this exemption is consistent with safe and sound banking. The resulting banking 

practices will not be contrary to generally accepted standards of prudent banking 

operation and will not give rise to abnormal risk or loss or damage to an institution, its 

shareholders, or the agencies administering the insurance funds. The Request Letters 

represented that the insurance premium finance business is a form of secured lending. 

Should a borrower default, the insurance company is legally obligated to return any 

unearned premiums to the lender. Further, most lenders require that insurance agents or 

brokers only request financing for insurance policies issued by insurance companies with 

a satisfactory credit rating. Also, as previously noted, the structural characteristics of 

premium finance lending present a low risk for money laundering activity or terrorist 

financing and thus are unlikely to pose a risk to the safety and soundness of the 

institution. Finally, banks engaging in consumer premium finance lending must comply 

with applicable consumer protection laws. 

Accordingly, the FBAs find that this ORDER is consistent with safe and sound banking 

practices. 

Therefore, each FBA, with FinCEN’s concurrence, hereby grants by ORDER an 

exemption from the requirements of the CIP rules implementing section 326 of the USA 

PATRIOT Act, 31 U.S.C. § 5318(l), for loans extended by banks (and their subsidiaries)

subject to that FBA’s jurisdiction to all customers to facilitate purchases of property and 

casualty insurance policies by the borrower. This ORDER supersedes the previous Order

issued on September 27, 2018. 

In arriving at the determinations in this ORDER, the FBAs have relied on the 

determinations made by FinCEN and the accuracy and completeness of the 

representations made in the Request Letters and the Supplemental Letter. Nothing in this 

ORDER shall bar, estop, or otherwise prevent the FBAs from taking any action affecting 

a bank, including the revocation of this ORDER, on the basis of information not known 

to the FBAs as of the effective date of the ORDER.

Banks engaging in premium finance lending must continue to comply with all other 

regulatory requirements, including the regulations implementing the BSA that require the 

filing of suspicious activity reports.

21

 20 70 FR 66754, 66757 (Nov. 3, 2005); 31 C.F.R. § 1025.100(b) (defining covered products to include 

permanent life insurance, annuity contracts and other insurance products with features of cash value or 

investment). 

21 12 C.F.R. §§ 21.11 and 163.180 (OCC); 12 C.F.R. §§ 208.62, 211.5(k), 211.24(f), and 225.4(f) (Federal 

Reserve); 12 C.F.R. § 353 (FDIC); 12 C.F.R. § 748 (NCUA); 31 C.F.R. § 1020.320 (FinCEN). 
7

IT IS SO ORDERED, this 5th day of October, 2020

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

By: _____/s/_______________________________

Ann E. Misback 

Secretary of the Board 

FEDERAL DEPOSIT INSURANCE CORPORATION 

By: ____/s/________________________________

Doreen R. Eberley 

Director, Division of Risk Management Supervision 

NATIONAL CREDIT UNION ADMINISTRATION 

By: ____/s/________________________________

Myra Toeppe

Acting Director, Office of Examination and Insurance 

OFFICE OF THE COMPTROLLER OF THE CURRENCY 

By: __/s/__________________________________

Grovetta N. Gardineer 

Senior Deputy Comptroller for Bank Supervision Policy

WITH CONCURRENCE, this 5th day of October, 2020

OF THE FINANCIAL CRIMES ENFORCEMENT NETWORK 

By: ____/s/________________________________

Michael Mosier

Deputy Director