Federal Court Ruling Eases Bank Insurance Sales

By Steve Tuckey

NU Online News Service, Jan. 14, 11:12 a.m.EST?A Massachusetts federal district court ruling maybring to an end state regulatory efforts to impose tightrestrictions on bank sales of insurance.[@@]

The U.S. District Court in Boston issued a declaratory judgmentWednesday in favor of banks that sought an end to state rulesplacing various procedural roadblocks that limited the way bankscould sell insurance.

The ruling caps a long battle pitting state bank and insuranceregulators against the federal regulatory authorities and banks whowere trying to end the restrictions. A spokesperson for theMassachusetts insurance regulators said they were reviewing theiroptions.

"Today's decision brings Massachusetts in line with most of thestates throughout the nation," said Daniel J. Forte, president andchief executive officer of the Massachusetts BankersAssociation.

The plaintiffs in the case?the MBA and several of its memberbanks?had argued that the Gramm-Leach-Bliley Act, which passed in1999, as well as more recent interpretation of the National BankAct by the chief regulator of nationally chartered banks, preemptedcertain provisions of the Massachusetts insurance law.

The court agreed that the challenged statutes significantlyinterfered with a bank's ability to sell, solicit and cross-marketinsurance.

U.S. District Judge Ryan Zobel wrote in his decision thatfederal law preempts state law by allowing banks to refer customersto the bank's insurance division, which state law says they cannotdo unless specifically asked by a customer. In addition, federallaw allows banks to pay their employees for referring customers tothe bank's insurance agency.

The GLB act contains 13 so-called "safe harbor" restrictionsstate regulators are allowed to use to curb bank insurance sales.But the banking interests argued that the restrictions inMassachusetts went beyond these allowable curbs.