Federal District Court Overturns Mass. Bank-Insurance Restrictions

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

The U.S. District Court in Boston has issued a declaratory judgment in favor of banks that sought an end to state rules placing various procedural roadblocks that limited the way banks could sell insurance.

The ruling caps a long battle pitting state bank and insurance regulators against federal regulatory authorities and bank officials who were trying to end the restrictions. A representative for the Massachusetts insurance department said regulators were reviewing their options.

“Todays decision brings Massachusetts in line with most of the states throughout the nation,” said Daniel J. Forte, president and chief executive officer of the Massachusetts Bankers Association.

The plaintiffs in the casethe MBA and several of its member bankshad argued that the Gramm-Leach-Bliley Act, which passed in 1999, as well as more recent interpretations of the National Bank Act by the comptroller of the currency (who is the chief regulator of nationally chartered banks) preempted certain provisions of Massachusetts insurance law.

The court agreed that the challenged statutes significantly interfered with a banks ability to sell, solicit and cross-market 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 banks insurance division, which the state law said banks cannot do unless specifically asked by a customer. In addition, federal law allows banks to pay their employees for referring customers to the banks insurance agency, the court ruled.

The GLB act contains 13 so-called “safe harbor”restrictions that state regulators are allowed to use to curb bank insurance salesbut banking interests argued that the restrictions in Massachusetts went beyond these allowable curbs.

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

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Federal District Court Overturns Mass. Bank-Insurance Restrictions

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