Banks: GLB Act Trumps W.Va. Insurance Laws

By Steven Brostoff, Washington Editor

NU Online News Service, 12:06 p.m. EST, Washington?Three banking associations have weighed in on the side of federal officials in the latest legal tilt between the Office of the Comptroller of the Currency and state regulators on the issue of bank insurance sales.

The bank trade groups have filed court papers supporting the OCC contention that four West Virginia statutes regulating bank insurance activities are preempted by the Gramm-Leach-Bliley Act.

In a brief filed with the Fourth Circuit Court of Appeals, Richmond, Va., the three groups said 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. Oral arguments in the case will be heard Wednesday.

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, said in their brief that the OCC's determination should stand.

Regarding the OCC's authority, the groups said 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 said.

"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 said.

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

As for the West Virginia statutes themselves, the brief argued, 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 said.

Similarly, the brief said, state laws that make 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.

The West Virginia challenge of OCC action is before the appeals court under an expedited legal review process mandated by GLB.

An earlier lawsuit contesting the OCC determination on the W. Virginia law, which was filed by The Independent Insurance Agents of America and the National Association of Professional Insurance Agents, both based in Alexandria, Va., is still languishing in U.S. District Court in the District of Columbia.

The agent groups have been supported by the National Association of Independent Insurers, Des Plaines, Ill., with a friend of court brief.

Mike Koziol, NAII senior director and counsel, pointed out that although the GLB calls for a quick determination in disputes between OCC and state regulators, the term "expedited" appears to be relative.

He noted that a Massachusetts challenge contesting OCC rulings against bank insurance sales statutes in that state is still awaiting a decision from the courts.

Wes Bissett, vice president of state and government affairs with the Independent Insurance Agents And Brokers of America, said his organization in Alexandria, Va. was granted a motion to intervene by the Fourth Circuit and will argue in support of the state on Wednesday.

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Banks: GLB Act Trumps W.Va. Insurance Laws

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