Federal District Court Overturns Mass. Bank-InsuranceRestrictions

A Massachusetts federal district court ruling may bring an endto state regulatory efforts to impose tight restrictions on banksales of insurance.

The U.S. District Court in Boston has issued a declaratoryjudgment 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 federal regulatory authorities and bankofficials who were trying to end the restrictions. A representativefor the Massachusetts insurance department said regulators werereviewing their options.

“Todays 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 casethe MBA and several of its memberbankshad argued that the Gramm-Leach-Bliley Act, which passed in1999, as well as more recent interpretations of the National BankAct by the comptroller of the currency (who is the chief regulatorof nationally chartered banks) preempted certain provisions ofMassachusetts insurance law.

The court agreed that the challenged statutes significantlyinterfered with a banks 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 banks insurance division, which the state law said bankscannot do unless specifically asked by a customer. In addition,federal law allows banks to pay their employees for referringcustomers to the banks insurance agency, the court ruled.

The GLB act contains 13 so-called “safe harbor”restrictions thatstate regulators are allowed to use to curb bank insurance salesbutbanking interests argued that the restrictions in Massachusettswent beyond these allowable curbs.

Reproduced from National Underwriter Edition, January 20, 2005.Copyright 2005 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.