Steven Brostoff

NU Online News Service, October 28–Four West Virginia statutes regulating bank insurance activities are preempted by the Gramm-Leach-Bliley Act, three banking associations say.

In a brief filed with the Fourth Circuit Court of Appeals, the three groups say that the court should let stand a determination by the Office of the Comptroller of the Currency that the West Virginia statutes “prevent or significantly interfere” with federally-granted bank insurance powers.

The brief was filed by the American Bankers Association, the American Bankers Insurance Association and the West Virginia Bankers Association.

The controversy relates to the following provisions of West Virginia law:

1. A requirement that financial institutions use separate employees for insurance sales.

2. A timing restriction that bars banks from soliciting loan customers for insurance until after the loan has been approved.

3. A restriction that bars bank affiliates from sharing information acquired in the course of a loan transaction or insurance solicitation.

4. A requirement that insurance activities be physically separate from deposit-taking and loan activities.

The OCC determined that the four requirements violate GLB and said they should be preempted.

The determination was challenged by the West Virginia Insurance Department, which said that OCC lacks the authority to preempt West Virginia law and that in any case, the laws do not “prevent or significantly interfere” with bank insurance activities.

The banking associations, however, say in their brief that the OCC’s determination should stand.

Regarding the OCC’s authority, the groups say the only question is whether the West Virginia statutes violate the GLB preemption standards.

If they do, they are preempted by GLB under its own plain terms, the groups say.

“Nothing could be more clear than a statutory provision that says ?no state may’ do such a thing, a statutory provision that even uses the word ?preemption’ in connection with its proscription of what states may do or not do,” the brief says.

Challenging the authority of the OCC is of no value to the court’s ultimate decision, the brief says.

As for the West Virginia statutes themselves, the brief says, even the most cursory analysis should reveal that a statute that says lending personnel cannot engage in insurance solicitation violates GLB’s preemption standards.

“Excluding key personnel from also engaging in the exercise of federally-granted powers to solicit, sell and cross-market insurance is a not insubstantial burden on the institution,” the brief says.

Similarly, the brief says, a state law that makes it unlawful for the institution’s employees to share information either internally or with affiliates, or to use such information at a time when it would be most likely to lead to success, violates GLB.