The Office of the Comptroller of the Currency has determined that four provisions of a West Virginia law regulating bank insurance sales are preempted under the Gramm-Leach-Bliley Financial Modernization Act.
The action came in response to a request by the Charleston, W.V.-based West Virginia Bankers Association.
The OCC determined that the four provisions of the West Virginia law violate the standard that state laws may not “prevent or significantly interfere” with the ability of banks to conduct their insurance business by imposing additional and unnecessary expenses. The provisions:
1. Require banks to use separate employees for insurance sales.
2. Bar insurance solicitations to loan customers until the loan has been approved.
3. Restrict the sharing of information among bank affiliates in the course of a loan transaction or offer to sell insurance.
4. Require banks to physically separate banking activities from insurance activities.
However, the OCC said three provisions of the West Virginia law should not be preempted. These are:
1. A prohibition against requiring or implying the purchase of an insurance product from a financial institution is a condition of a loan.
2. A prohibition on a financial institution offering an insurance product in combination with other products unless all the products are available separately.
3. A requirement that the extension of a loan and the sale of insurance be completed independently and through separate documents.
David Winston, vice president of federal affairs for the National Association of Insurance and Financial Advisors, Falls Church, Va., said agents are reviewing whether to challenge the OCCs ruling in court.
In effect, he says, the OCC has preempted provisions that fall outside the safe harbors in GLB. However, he says, agents believe the OCC does not have the authority to preempt state laws. Only courts can do that, he says.
Moreover, NAIFA believes the OCC evaluated the law under the standard of imposing “additional and unnecessary expenses,” which, he says, is the wrong standard.
All the agent groups, he says, will be meeting shortly to discuss their next move.
Reproduced from National Underwriter Life & Health/Financial Services Edition, October 8, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.