Notice of Request for Preemption Determination

AGENCY:

Office of the Comptroller of the Currency, Treasury.

ACTION:

Notice and request for comment.

SUMMARY:

The Office of the Comptroller of the Currency (OCC) is publishing for comment a written request for the OCC's determination of whether Federal law preempts certain provisions of the West Virginia Insurance Sales Consumer Protection Act (West Virginia Law). The purpose of this notice and request for comment is to provide interested persons with an opportunity to submit comments prior to the OCC's issuance of any final opinion in this matter.

DATES:

Comments must be received on or before July 3, 2000.

ADDRESSES:

Comments should be sent to the Communications Division, Office of the Comptroller of the Currency, 250 E Street, SW, Third Floor, Attention: Docket No. 00-12, Washington, DC 20219. You may submit comments electronically to regs.comments@occ.treas.gov or by facsimile transmission to (202) 874-5274. You can inspect and photocopy the comments at the OCC's Public Reference Room, 250 E Street, SW, Washington, DC, between 9:00 a.m. and 5:00 p.m. on business days. You can make an appointment to inspect the comments by calling (202) 874-5043.

FOR FURTHER INFORMATION CONTACT:

MaryAnn Orr Nash, Senior Attorney, or Stuart Feldstein, Assistant Director, Legislative and Regulatory Activities Division, (202) 874-5090.

SUPPLEMENTARY INFORMATION:

Background

The OCC has received a request from the West Virginia Bankers Association (Requester) for a determination that Federal law preempts certain provisions of the West Virginia Law.

Section 114 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (section 114), Pub. L. 103-328 (12 U.S.C. 43) generally requires the OCC to publish in the Federal Register a descriptive notice of certain requests that the OCC receives for preemption opinions. Under section 114, the OCC must publish notice before it issues any opinion letter or interpretive rule concluding that Federal law preempts the application to a national bank of any State law in four designated areas: community reinvestment, consumer protection, fair lending, or the establishment of intrastate branches. Pursuant to section 114, interested persons have at least 30 days to submit written comments. Without making a determination as to whether section 114 applies to this request, the OCC has decided that it is appropriate to use notice and comment procedures given the broad interest in the issues presented. The OCC will publish in the Federal Register any final opinion letter or interpretive rule that concludes that Federal law preempts State law.

Specific Request for OCC Preemption Determination

The OCC has been asked to determine whether section 104 the Gramm-Leach-Bliley Act (GLBA) preempts certain provisions of West Virginia Law.

Section 104(d)(2)(A) of GLBA provides that “[i]n accordance with the legal standards for preemption set forth in the decision of the Supreme Court of the United States in Barnett Bank of Marion County N.A. v. Nelson, 517 U.S. 25 (1996), no State may, by statute, regulation, order, interpretation, or other action prevent or significantly interfere with the ability of a depository institution, or an affiliate thereof, to engage, directly or indirectly, either by itself or in conjunction with an affiliate or any other person, in any insurance sales, solicitation, or cross marketing activity.” However, GLBA does not preempt state actions that are “substantially the same as but no more burdensome or restrictive than” any of the thirteen specific actions described in section 104(d)(2)(B) of GLBA (Safe Harbors). The Requester asserts that the following provisions contained in seven sections of the West Virginia Law are preempted by the GLBA—

(1) Section 33-11A-6 of the West Virginia Law, entitled “Insurance sales separate from loan transaction,” generally prohibits financial institution employees with lending responsibilities from soliciting the purchase or sale of insurance. Specifically, the law provides that:

(a) Solicitation for the purchase or sale of insurance by a financial institution shall be conducted only by individuals whose responsibilities do not include loan transactions or other transactions involving the extension of credit. Provided, That for a financial institution location having three or less individuals with lending authority, solicitation for the sale of insurance may be conducted by an individual with responsibilities for loan transactions or other transactions involving the extension of credit, as long as the individual primarily responsible for making the specific loan or extension of credit is not the same individual engaged in the solicitation of the purchase or sale of insurance for that same transaction.

(b) In the event that in any small office, the same individual is the licensed agent or broker and the sole individual with lending authority, the commissioner may grant a waiver of the requirements of this section upon a written request. Such request shall include documentation that, due to the small office staff, compliance is not possible, and include identification of other steps which will be taken to minimize the customer confusion prohibited by this article.

The Requester contends that Federal law preempts this provision because it does not fit within any of the Safe Harbors and, if given effect, would prevent or significantly interfere with the ability of financial institutions to engage in insurance activities. The Requester asserts that limitations on bank use of personnel will significantly interfere with the ability of community banks to offer insurance services to customers and generally will require the use of more personnel than may be needed to conduct the business. The Requester also contends that this provision will significantly limit the use of supermarket branches and developing technologies that are intended to minimize use of personnel.

(2) Section 33-11A-8 of the West Virginia Law, entitled “Tying of products prohibited,” generally prohibits a financial institution from requiring or implying that the purchase of an insurance product from that institution is required as a condition to the approval of a loan. Specifically, that section provides that:

(a) No person shall require or imply that the purchase of an insurance product from a financial institution by a customer or prospective customer of the institution is required as a condition of the lending of money or extension of credit.

(b) No financial institution may offer an insurance product in combination with its other products, unless all the products are available separately from the financial institution.

The Requester contends that this provision is not within the Safe Harbor set forth in section 104(d)(2)(B)(viii) of GLBA, which protects state restrictions prohibiting the tying of loan and insurance products. The Requester asserts that this provision is preempted because it essentially prohibits a loan officer from mentioning to a customer that insurance products may be available at a discount as part of a package of bank services, and thus, would significantly interfere with bank sales of insurance products. The Requester also contends that this provision is more restrictive than the anti-tying provisions of the Bank Holding Company Act, 12 U.S.C. 1972 and the implementing Federal regulation.

(3) Section 33-11A-9 of the West Virginia Law, entitled “Disclosures,” generally provides that a financial institution engaged in the sale of insurance must disclose to customers in writing the nature of the product sold. Specifically, the section provides that—

(a) A financial institution soliciting the purchase of or selling insurance, and any person soliciting the purchase of or selling insurance on the premises of, in connection with a product offering, or using a name identifiable with, a financial institution, shall prominently disclose to customers, in writing, in clear and concise language, including in any advertisement or promotional material, and orally during any customer contact, that insurance offered, recommended, sponsored, or sold:

(1) Is not a deposit;

(2) Is not insured by the federal deposit insurance corporation or, where applicable, the National Credit Union Share Insurance Fund;

(3) Is not guaranteed by any insured depository institution; and

(4) Where appropriate, involves investment risk, including potential loss of principal.

(b) Any financial institution engaged in the making of loans or other extensions of credit and the sale of insurance shall prominently disclose to customers in writing, in clear and concise language, that the insurance product may be purchased from an agent or broker of the customer's choice, and the customer's choice of another insurance provider will not affect the customer's credit relationship with the person. For purposes of this subsection, loans and extensions of credit shall not include financing in connection with the insurance product offered or sold.

(c) Any person required under subsections (a) or (b) of this section to make disclosures to a customer shall obtain a written acknowledgment of receipt by the customer of such disclosures, including the date of receipt and the customer's name, address, and account number, prior to or at the time of any application for insurance sold by the person. Such acknowledgment shall be in a separate document.

(d) The commissioner may grant a waiver of the requirements of this section to any person required to give the disclosures required by this section solely because that person has a name identifiable with a financial institution upon a written request by such person demonstrating that his, her or its customer would not reasonably benefit from, or might in fact be confused by, these required disclosures.

The Requester contends that Federal law preempts subsection (a) of this section because the requirement that a financial institution include the disclosure “in any advertisement or promotional material” is more burdensome and restrictive than the disclosure requirement contained in section 104(d)(2)(B)(x) of the Safe Harbors. The Requester further contends that this requirement is not protected by section 104(d)(2)(B)(iii) of the Safe Harbors, which permits restrictions prohibiting a bank from using misleading advertising. The Requester asserts that Federal law also preempts subsection (c) of this section because the requirement that the bank obtain the written disclosures in a separate document is unduly burdensome and restrictive, and thus, would significantly interfere with bank insurance sales.

(4) Section 33-11A-10 of the West Virginia Law, entitled “Timing of insurance solicitation,” generally prohibits a financial institution from making an insurance-related referral or solicitation of a loan customer until after the loan has been approved. Specifically, the section provides that—

(a) No individual who is an employee or agent of a financial institution, or of a subsidiary or affiliate thereof, may, directly or indirectly, make an insurance-related referral to or solicit the purchase of any insurance from a customer knowing that such customer has applied for a loan or extension of credit from that financial institution before such times as the customer has received a written commitment with respect to such loan or extension of credit, or, in the event that no written commitment has or will be issued in connection with the loan or extension of credit, before such time as the customer receives notification of approval of the loan or extension of credit by the financial institution and the financial institution creates a written record of the loan or extension of credit approval.

(b) This provision shall not prohibit any individual subject to subsection (a) above from:

(1) Informing a customer that insurance is required in connection with a loan; or

(2) Contacting persons in the course of direct or mass mailing to a group of persons in a manner that bears no relation to the person's loan application or credit decision.

The Requester contends that Federal law preempts this provision because it does not fit within the Safe Harbors and would prevent or significantly interfere with the ability of a financial institution to engage in insurance sales activities by prohibiting loan officers from marketing the full range of products offered by an institution.

(5) Section 33-11A-11 of the West Virginia Law, entitled “Insurance in connection with the loan,” generally provides that extensions of credit and insurance sales be completed independently and through separate documents. Specifically, the section provides that—

(a) If insurance is required as a condition of obtaining a loan, the credit and insurance transactions shall be completed independently and through separate documents.

(b) A loan for premiums on required insurance shall not be included in the primary credit without the written consent of the customer.

(c) No title insurance shall be issued until the title insurance company has obtained a title opinion of an attorney licensed to practice law in West Virginia, which attorney is not an employee, agent, or owner of the insured bank or its affiliates. Said attorney shall have conducted or cause to have conducted under the attorney's direct supervision a reasonable examination of the title. In no event shall the authority of a state-chartered bank to sell title insurance exceed the authority of a nationally chartered bank to do so.

The Requester contends that the use of the term “independently” removes the provision from the protection of section 104(d)(2)(B)(xiii) of the Safe Harbors which requires the maintenance of separate and distinct books and records relating to insurance transactions. The Requester also contends that Federal law should preempt this provision because the West Virginia Law would impose burdens on the bank and require its customers to make separate trips to the bank and sign separate documents to purchase bank and insurance products, thus significantly interfering with bank insurance sales.

(6) Section 33-11A-13 of the West Virginia Law, entitled “Confidentiality of insurance information obtained by financial institutions,” generally prohibits a financial institution from using insurance information obtained in the making of a loan unless the customer consents to such use. Specifically, the section provides that—

(a) When a financial institution requires a borrower to provide insurance information in connection with the making of a loan or extension of credit, neither such financial institution nor an insurance agent or broker affiliated with such financial institution may later use the information so obtained to solicit or offer insurance to such borrower, unless the consent required in subsection (b) below is first obtained.

(b) A borrower may consent to the financial institution's disclosure of insurance information to an agent or broker affiliated with the financial institution, but any such consent must be in writing and be given at a time subsequent, which shall be no less than two days, to the time of the application for, approval of and making of the loan or extension of credit.

(c) Consent under subsection (b) of this section shall be obtained in a separate document, distinct from any other transaction, and shall not be required as a condition for performance of other services for the customer.

The Requester contends that this provision is more burdensome and restrictive than section 104(d)(2)(B)(vi) of the Safe Harbors, which protects restrictions on the release of insurance information to non-affiliated third parties for the purpose of soliciting or selling insurance. The Requester states that the West Virginia Law goes beyond the protection of the Safe Harbor because it prohibits transfers to affiliated as well as non-affiliated third parties. The Requester further contends that Federal law should preempt this provision because it significantly interferes with national bank insurance sales by limiting an institution's ability to identify customer needs and suitable products to meet the needs of those customers.

(7) Section 33-11A-14 of the West Virginia Law, entitled “Physical location of insurance sales,” generally provides that the sale of an insurance product by a financial institution must take place in an office physically separated from the institution's lending and deposit-taking activities. Specifically, the section provides that —

The place of solicitation or sale of insurance by any financial institution or on the premises of any financial institution shall be clearly and conspicuously signed so as to be readily distinguishable by the public as separate and distinct from the financial institution's lending and deposit-taking activities. In the event that a person which would otherwise be subject to the requirements set forth in this provision does not have the physical space to so comply, the commissioner may grant a waiver of the requirements of this section upon a written request by such person demonstrating that, due to its small physical facilities, compliance is not possible, and including identification of other steps which will be taken to minimize customer confusion.

The Requester contends that Federal law preempts this provision because it does not fall within any Safe Harbor and would prevent or significantly interfere with the ability of a financial institution to engage in insurance sales activities by requiring physical separation of the insurance activities from core banking activities. The Requester states that this requirement would significantly interfere with bank sales of insurance products, particularly with regard to smaller institutions with limited space and personnel.

Request for Comments

The OCC requests comments on whether Federal law preempts the provisions of the West Virginia Law cited above.