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 opinion about whether Federal law preempts certain provisions of the Massachusetts bank insurance sales statute and regulations promulgated pursuant to that statute by the Division of Banks and the Division of Insurance. This Notice refers to the statute and regulations collectively as the Massachusetts 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 a written opinion in this matter.

DATES:

Comments must be received on or before August 14, 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. 00-15, 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 Massachusetts Bankers Association (Requester) for a determination that Federal law preempts certain provisions of the Massachusetts Law.

Section 114 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 generally requires the OCC to publish in the Federal Register a descriptive notice of certain requests that the OCC receives for preemption opinions. 12 U.S.C. 43. 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 we issue concluding that Federal law preempts the provisions of Massachusetts Law that are the subject of the request.

Description of the Request for OCC Preemption Opinion

The OCC has been asked to determine whether section 104 the Gramm-Leach-Bliley Act (GLBA), Pub. L. 106-102, 113 Stat. 1338, 1352-59 (Nov. 12, 1999) (to be codified at 15 U.S.C. 6701), preempts certain specific provisions of the Massachusetts 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 crossmarketing 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 the Act (Safe Harbors). The Requester asserts that GLBA preempts three prohibitions contained in the Massachusetts Law and that none of the Safe Harbors protects these limitations.

The Referral Prohibition and the Referral Fee Prohibition

The Requester asserts that section 2A(b)(2) of the Massachusetts bank insurance sales statute, Mass. Gen. Laws Ann. Ch. 167F, § 2A (Lexis 2000 Supp.), and the corresponding regulations set forth in 209 CMR 49.06(3) and 211 CMR 142.05(3) (2000) prohibit non-licensed bank personnel from referring prospective customers to a licensed insurance agent or broker except upon an inquiry initiated by the customer (the Referral Prohibition). The Requester further asserts that these provisions prohibit non-licensed bank personnel from receiving any additional compensation for making a referral, even if the compensation is not conditioned upon the sale of insurance (the Referral Fee Prohibition). For example, section 2A(b)(1) of the Massachusetts statute provides that:

Officers, tellers, and other employees of a bank who are not licensed as insurance agents may refer a customer of said bank to a licensed insurance agent of the bank only when such customer initiates an inquiry relative to the availability or acquisition of insurance products. No such officer, teller, or other employee shall be further or additionally compensated for making said referrals.

The Requester asserts that the Referral Prohibition and Referral Fee Prohibition are not protected by any of the Safe Harbors. The Requester contends that these prohibitions are broader than section 104(d)(2)(B)(iv), the Safe Harbor which generally protects restrictions prohibiting the payment or receipt of any commission, brokerage fee, or other valuable consideration for services as an insurance agent or broker to or by any persons other than validly licensed insurance personnel. This Safe Harbor specifically excludes from protection any state law limiting compensation for “a referral by an unlicensed person of a customer or potential customer to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and conditions.” Based on this exclusion, the Requester asserts that the Referral Prohibition and Referral Fee Prohibition are the type of state limitation that Congress explicitly declined to protect in GLBA.

Similarly, the Requester contends that the Referral Prohibition and Referral Fee Prohibition extend beyond the protections of the Safe Harbor contained in section 104(d)(2)(B)(v). That Safe Harbor protects limitations on the payment of insurance commissions and referral fees to unlicensed personnel based upon the purchase of insurance by a prospective customer. The Requestor asserts that the Massachusetts Law does not come within this Safe Harbor because it prohibits referral fees regardless of whether they are based upon the sale of insurance.

The Requester further asserts that GLBA preempts both the Referral Prohibition and the Referral Fee Prohibition because these prohibitions significantly interfere with the ability of a depository institution to engage in insurance sales, solicitation, and crossmarketing activities. In the case of the Referral Prohibition, bank employees may not refer customers to licensed insurance personnel unless the customer initiates the inquiry. In the case of the Referral Fee Prohibition, a bank employee may not receive compensation for making a referral to licensed insurance personnel, even if such compensation is not contingent on the sale of insurance. The Requester asserts that these prohibitions effectively prevent bank employees from engaging in the crossmarketing activities permitted by the GLBA.

Waiting Period Requirement

The Requester also asserts that GLBA preempts section 2A(b)(4)(ii) of the Massachusetts bank insurance sales statute and the corresponding regulations, 209 CMR 49.06(5)(2000) and 211 CMR 142.06 (2000), that require a bank to refrain from making an insurance solicitation in connection with an application for an extension of credit until after the application has been approved and, in the case of an extension of credit secured by a mortgage on real estate, until after the customer has accepted the bank's written commitment to extend credit (the Waiting Period Requirement). Specifically, section 2A(b)(4)(ii) provides that:

No solicitation for the sale of insurance in conjunction with any application for the extension of credit shall be permitted until said application has been approved, such approval and the disclosures required by this section have been provided to said applicant in writing, and the receipt of both said approval and disclosures has been acknowledged in writing by said applicant. The date, time and method of the communication of said approval and disclosures to the applicant, together with the applicant's acknowledgment of the receipt thereof, shall be made a permanent part of the bank record of such extension of credit. This paragraph shall not apply in situations where a bank contacts a customer in the course of direct or mass marketing of insurance products to a group of persons in a manner that bears no relation to any such person's loan application or credit decision.

The Requester asserts that none of the Safe Harbors protects the Waiting Period Requirement. Although the Safe Harbor contained in section 104(d)(2)(B)(viii) protects certain types of state anti-tying limitations, it specifically excludes any limitation that would prevent a depository institution from informing a customer that insurance is available from the depository institution. Thus, the Requester contends that the Waiting Period Requirement is not substantially the same as any of the Safe Harbors and, in fact, is the type of state limitation that Congress explicity declined to protect in GLBA.

The Requester further asserts that GLBA preempts the Waiting Period Requirement because it requires a depository institution to complete processing of a credit application before even informing an applicant that insurance is available through the institution. Thus, a depository institution may never have an opportunity to market its insurance products to loan customers, who may arrange to obtain insurance through another firm while the loan is in process. Accordingly, the Requester asserts that the Waiting Period Requirement significantly interferes with the ability of a depository institution to sell, solicit, and cross-market insurance. The Requester also asserts that the Waiting Period Requirement is overbroad because it applies to all types of insurance and not simply insurance required in connection with a loan.

Request for Comments

The OCC requests comments on whether Federal law preempts the provisions of Massachusetts Law cited and described in this notice.