Kevin F. Kiley
‘Important decision’

After a two-year vigil, the Massachusetts Bankers Association has won the first key necessary to unshackle bank employees seeking to sell insurance.

The Office of the Comptroller of the Currency issued an opinion last week that preempts Massachusetts law as it pertains to insurance sales at nationally chartered banks in the state, a ruling it says is permitted under the provisions of the federal Gramm-Leach-Bliley Act.

Now the MBA will seek parity for state-chartered banks.

State-chartered banks in Massachusetts gained the ability to sell insurance in the fall of 1998, a power already enjoyed at the time by their federally chartered counterparts.

The passage of the Gramm-Leach-Bliley financial modernization bill gave nationally chartered institutions even broader powers. The federal act puts state-chartered banks at a competitive disadvantage because state law places limits on referrals by requiring a customer inquiry, prohibits the payment of referral fees and requires a waiting period during the loan application.

Steven Antonakes, senior deputy commissioner at the state Division of Banks, said that the DOB has not yet taken a position on the ruling.

“At this point, our attorneys are reviewing the decision … It’s premature for us to comment further than that,” he said.

“Basically, we believe that the provisions that were adopted significantly interfered with a bank’s right to engage in insurance sales,” said MBA Executive Vice President Kevin F. Kiley of the state’s regulations.

“It’s [the OCC ruling] clearly something we’re very pleased with. This was a long project but it’s an important decision for the benefit of the industry and consumers,” he said.

Ostensibly, nationally chartered banks in Massachusetts now can do away with the roundabout techniques that had been developed to stay within the provisions of state law, which among other things prohibited bank employees from discussing insurance products with customers unless specifically asked to do so. Pins and posters that prompted customers to ask about insurance eventually found their way into the marketing schemes of many banks in an effort to get word out about their products. The state prohibition is an attempt to discourage banks from tying the sale of insurance to other products, such as mortgage loans.

“What this [new ruling] says is, a person who’s taking a loan could be made aware of the bank insurance product at the time the application is filed,” said Kiley.

The MBA is putting together an official request to be filed with the state’s commissioner of banks and commissioner of insurance to request that they waive the inhibitions still placed on state-chartered banks.

“The mechanism for that to occur is contained in the law. The Legislature used foresight in recognizing that this was a possibility and consequently it said if that [expanded powers for federally chartered banks] ended up occurring, we don’t want to put state-chartered banks at a competitive disadvantage,” Kiley said.

However, the OCC opinion has its detractors.

The National Association of Professional Insurance Agents condemned the OCC’s opinion in a recently released statement. “This is another example of a government agency trying to create new law and expand federal power over the states,” said PIA President Steve Harter. “The Massachusetts laws which have come under attack by the OCC protect consumers and create a level playing field for insurance sales, as Congress intended. PIA believes Massachusetts insurance consumers deserve to be protected, not manipulated.”

‘Great Benefit’

The statement goes on to mention a lawsuit filed by the PIA and the Independent Insurance Agents of America seeking relief from the preemption in West Virginia.

Kiley described the West Virginia law as also “very restrictive.”

“In the case of the West Virginia law, there was litigation filed, and that’s a possibility [here]. But notwithstanding the fact that there could be litigation, the regulators can move ahead and address the issues,” he said.

“We’re hopeful that state regulators would move quickly in responding to our request so that state-chartered banks are not at a competitive disadvantage. I think they are sensitive to it,” said Kiley.

In its letter to the OCC, the MBA said that the law, in essence, prevented cross-marketing of products within a bank.

The financial modernization law says that states cannot prevent a depository institution or affiliate from selling insurance, soliciting customers or cross-marketing. That section of the bill should preempt the part of the Massachusetts law that restricts referrals, the MBA argued in its letter to the OCC.

“These rules effectively prevent unlicensed employees from engaging in cross-marketing activities that the [Gramm-Leach-Bliley] Act permits depository institutions to perform,” the MBA letter read.

“The preemption determination appears to be well-grounded legally and will be of great benefit to national banks operating in the commonwealth,” said Kevin J. Handly, corporate group director at Goulston & Storrs in Boston. “I hope the bank commissioner will act quickly under his parity powers to extend the benefits of the OCC decision to state-chartered banks involved in insurance activities.”

Although a change in regulation would make selling insurance easier for banks, Kiley said he doesn’t anticipate a significant change in the number of Bay State banks entering the market. “The number continues to grow; I think this will just be another factor in that whole process,” he said. At the end of 2001, more than 50 banks had been approved to sell insurance through the DOB with more applications pending.

The OCC received 110 comments on the issue since it was posted in the Federal Register for comment on July 14, 2000.

OCC Opinion Supports Quest For Parity on Insurance Sales

by Banker & Tradesman time to read: 4 min
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