Federal Court Eases Bank Insurance Sales

The plaintiffs in the case?the MBA and several of its member banks?had argued that the Gramm-Leach-Bliley Act, which passed in 1999, as well as a more recent interpretation of the National Bank Act by the chief regulator of nationally chartered banks, preempted certain provisions of the Massachusetts insurance law.

The court agreed that the challenged statutes significantly interfered with a bank’s ability to sell insurance.

Massachusetts law had stated that banks could not do so unless a customer specifically asked about insurance. U.S. District Judge Ryan Zobel wrote in his decision that federal law preempts state law by allowing banks to refer customers to the bank’s insurance division. In addition, federal law allows banks to pay their employees for referring customers to the bank’s insurance agency.

The GLB act contains 13 so-called “safe harbor” restrictions allowing state regulators to regulate bank insurance sales. But banks argued that the restrictions in Massachusetts went beyond these allowable curbs.