In another bid for achieving parity with nationally chartered banks, the Massachusetts Bankers Association has asked the Office of the Comptroller of the Currency to preempt state law with a broader federal law passed last year with the Gramm-Leach-Bliley Act.

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. So far three dozen Bay State banks, credit unions and mortgage companies have been licensed to sell insurance through the state’s Division of Banks and Division of Insurance.

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.

“In the interest of our member banks, particularly the national banks that potentially had the right to argue preemption on some of these issues, we filed the request a few weeks ago,” said MBA Executive Vice President Kevin F. Kiley.

The OCC will send the request to the Federal Register and the comment period will last until 30 days after it is published, according to an OCC spokesman. If Comptroller of the Currency John D. Hawke Jr. approves the request, Massachusetts Commissioner of Banks Thomas J. Curry could extend the preemption to state-chartered banks.

“The commissioner would have the same authority to make some provision for state-chartered banks so they would not be adversely impacted,” Kiley said.

Officials from the Massachusetts DOB and DOI did not comment on the request last week.

“We’re taking a look at what it would require and what it entails,” said Steven Antonakes, senior deputy commissioner at the Division of Banks.

The passage of Gramm-Leach-Bliley has prompted the National Association of Insurance Commissioners to study its effect on insurance sales. The Kansas City-based association has formed working groups to examine the issue, said media relations coordinator Susan Scheperle.

“The goal is to comply with Gramm-Leach-Bliley, but also protect state regulation and have some consistency across states,” she said.

The financial modernization law says that states cannot prevent a depository institution or affiliate from selling insurance, soliciting customers or cross-marketing. This section of the bill should preempt the part of the Massachusetts law that restricts referrals, the MBA argues.

“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 reads.

For banks that operate in more than one state, selling insurance can be complicated by differing state laws. State-chartered Andover Bank faces working under two state laws when its application to sell insurance at its New Hampshire branches is approved. The $1.7 billion-asset bank has three branches in the Granite State. In Massachusetts it sells insurance products through AB Insurance Services LLC through a contract with a third-party provider.

A New Hampshire bill on its way to Gov. Jeanne Shaheen’s desk would remove some restrictions on insurance sales and would allow unlicensed bank employees to receive referral fees if the compensation is not tied to a customer’s purchase of an insurance policy.

“That’s something that we certainly will look very carefully at,” said Susan Shortsleeve, vice president of financial services at Andover Bank. “We have not made any decisions about what we will do once referral fees are able to be paid.”

It is important that the bank have uniform promotions at all of its offices, and the same compensation of employees for selling the products, she said.

“It is difficult to operate under different laws, but we haven’t made any decisions yet as to what we will do,” Shortsleeve said. “It’s important to have a program that is equitable across the board.”

‘Artificial Barriers’
Conflicting state laws has not been an issue for Swansea-based FirstFederal Savings Bank of America. The federally chartered bank sells insurance through FirstFed Insurance Agency LLC in Massachusetts, Rhode Island and Connecticut.

“It hasn’t been a problem for us working in multiple states,” said FirstFederal Savings Chairman and Chief Executive Officer Robert Stoico. “The reason for that is our federal charter.”

The three states where the bank does business have different licensing laws, but that has not presented a problem for the bank, he said. The insurance agency has offices in each of the bank’s 15 branches. The agency went into business about 18 months ago, and takes in approximately $1.1 million in gross revenue commissions on an annualized basis, Stoico said. Most of the bank’s insurance business comes from Massachusetts and Rhode Island.

The $1.6 billion-asset bank has six loan centers, a strong mortgage business, and a national trust company formed in February.

“We feel the federal charter we have is the charter of choice because of the flexibility, especially in terms of branching [out],” Stoico said.

While the MBA supports the dual-banking system, Kiley said the growth in technology has made the traditional barriers of state boundaries disappear. That puts pressure on state laws to provide parity with national banking laws. The MBA is not the only group to ask for preemption of state law. The West Virginia Bankers Association has made a similar request.

“I think that as a result of the Gramm-Leach-Bliley law there will be an ongoing evaluation of the appropriateness of restrictions under bank insurance laws around the country,” Kiley said. “There’s an effort to remove artificial barriers that restrict the ability of banks to sell insurance.”