1. (a)

   1. (1) Individual employees, officers, directors, and principal shareholders of a state bank shall not personally profit by retaining commissions or other income (including experience rating credits and other rebates, but not including any portion of a premium required to cover the underwriting risk) from the sale of credit life, health and accident, and mortgage life insurance (credit life insurance) or debt cancellation contracts to the institution's loan customers.
   2. (2) However, employees and officers may participate in a bonus or incentive plan based in whole or in part on sales of credit life insurance or debt cancellation contracts under which payments by the state bank in any year may not exceed five percent (5%) of the recipient's annual salary.
   3. (3) Alternatively, bonuses paid to any individual during the year for sales of credit life insurance or debt cancellation contract may not exceed five percent (5%) of the average salary of all loan officers participating in the plan.
   4. (4) Payments may not be made to employees and officers more frequently than quarterly.

2. (b)

   1. (1) Income derived from the sales of credit life insurance or debt cancellation contracts to loan customers shall be credited to the income accounts of the state bank and not to the individual employees, officers, directors, or principal shareholders, their interests, or other affiliates.
   2. (2) However, such income may be credited to an affiliate operating under the Bank Holding Company Act of 1956, 12 U.S.C. § 1841 et seq., or to a trust for the benefit of all shareholders, provided that the state bank receives reasonable compensation in recognition of the role played by its personnel, premises, and goodwill in credit life insurance and debt cancellation sales.
   3. (3) As a general rule, "reasonable compensation" means an amount equivalent to at least twenty percent (20%) of the affiliate's net income attributable to the state bank's credit life insurance or debt cancellation sales.
3. (c) Where other legal considerations preclude a bank from using a particular procedure for selling credit life insurance or debt cancellation contracts or from disposing of the income in a particular manner, a state bank that wishes to provide this service to its loan customers shall seek and utilize an alternative method that complies with subsections (a) and (b) of this section.

4. (d) The distribution to shareholders of income derived from the sale of credit life insurance and debt cancellation contracts shall be accomplished through a declaration of dividends in conformity with:

   1. (1) Law;
   2. (2) Rule;
   3. (3) Regulation; and
   4. (4) Prudent financial practices.
5. (e) Nothing in this section shall be construed to prohibit a bank employee, officer, director, or principal shareholder who holds an insurance agent's license from agreeing to compensate the bank for the use of its premises, employees, and goodwill provided that all income directly received by such employee, officer, director, or principal shareholder from this activity is remitted to the bank as compensation.

Codification Notes: This section was promulgated as Section 47-101.4 of the State Bank Department Rules prior to codification into the Code of Arkansas Rules. This section as promulgated prior to codification into the Code of Arkansas Rules provided as follows: "(Reference A.C.A. § 23-47-101)"