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Court Upholds OCC Preemption Of W. Virginia Bank-Insurance Law

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NU Online News Service, Nov. 22, 10:25 a.m. – A three-judge panel in Virginia has become the first federal court to uphold the right of the Office of the Comptroller of the Currency to preempt state law governing the sale of insurance in banks.

On Nov. 19, the U.S. Court of Appeals for the Fourth Circuit, Richmond, Va., ruled 2-1 that the OCC could preempt part of a West Virginia law limiting bank sales of insurance.

It dismissed a petition from West Virginia Insurance Commissioner Jane L. Cline to strike down the OCC’s preemption of part of a state law that forbids banks from selling insurance to a loan customer until after the loan is approved and stops banks from sharing customer information with their insurance affiliates.

The ruling also lifted a state requirement that banks isolate insurance sales from other bank functions.

The OCC cited provisions of the Gramm-Leach-Bliley Act of 1999 that authorized it to preempt state statutes it believes substantially limit national banks’ ability to sell insurance.

The National Association of Insurance Commissioners, the Independent Insurance Agents and Brokers of America and the National Association of Professional Insurance Agents supported West Virginia in the case.

On the other side, the American Bankers Association in Washington and its affiliate, the American Bankers Insurance Association and the West Virginia Bankers Association supported the OCC.

The court’s ruling may not be the last word on the issue, however.

In an interview, a state regulator held out the prospect the commissioner’s office may continue to fight OCC preemption. Calling the split decision “muddy,” West Virginia Deputy Insurance Commissioner Bill Kenny says the decision “doesn’t mean too much, because we have no case [involving a bank's sale of insurance] in front of us. If there’s something presented to us with respect to banks in the future, we will try to enforce [the state law]. But by no means are we looking to pick a fight.”

Mike Crotty, deputy general counsel for litigation for the ABIA, takes issue with Kenny’s contention.

“The decision says the [state's] law is preempted,” Crotty observes flatly.

However, the decision is unpublished, meaning it is not a binding precedent within the Fourth Circuit.

Two other preemption cases are pending in the U.S.

One, involving a Massachusetts statute, is awaiting a decision from the First Circuit Court of Appeals.

“If the First Circuit upholds the OCC and the soundness of its reasoning, the handwriting will be on the wall” against state challenges to OCC preemption, says Crotty.

The OCC has reserved decision on another case, involving a Rhode Island law.