OCC Issues Preemption Letter On Massachusetts Law On Bank Sales Of Insurance

March 22, 2002

The Office of the Comptroller of the Currency (OCC) has issued a second preemption letter on state consumer protection laws that regulate national bank sales of insurance.

In a letter published in the March 22, 2002 Federal Register, the OCC concluded that three provisions of the Massachusetts Consumer Protection Act Relative to the Sale of Insurance by Banks are preempted by the Gramm-Leach-Bliley Act (GLBA). Click here for a copy of the OCC letter. The letter follows an earlier letter issued in October 2001 concluding that certain provisions of the West Virginia Insurance Sales Consumer Protection Act were preempted. Click here for a copy of the OCC letter on the West Virginia law.

The three provisions of the Massachusetts law found to be preempted prohibited:

  • unlicensed bank personnel from referring prospective customers to a bank?s licensed insurance agents or brokers except upon an inquiry initiated by the customer;
  • such personnel from receiving any additional compensation for such referrals, even if the compensation was not conditioned upon the sale of insurance; and
  • banks from telling loan applicants about the availability of insurance through the bank until the customer had accepted the bank?s written loan commitment.

The OCC letter, issued after having received 110 comments on the request by the Massachusetts Bankers Association for review of the Massachusetts law, concludes that (a) none of these provisions is protected from preemption by any of the "Safe Harbors" contained in § 104(d)(2)(b) of the GLBA, and (b) all three provisions are preempted under the federal preemption standards set out in Barnett Bank of Marion County N.A. v. Nelson, 517 U.S. 25 (1996) and § 104(d)(2) of the GLBA.

In analyzing the federal preemption standards, the OCC makes clear its view regarding the breadth of the federal preemption standard and that it "cannot be encapsulated by any one phrase" ? such as whether the state law "prevents or significantly interferes" with the bank?s federally-granted powers. In this regard, the OCC cites the recent decision of the Sixth Circuit in Association of Banks in Insurance, Inc. v. Duryee, 270 F.3d 397 (2001) as "strongly support[ing] the conclusions we reach in this letter." In Duryee, the court concluded that provisions of Ohio?s insurance licensing law requiring that an applicant?s "principal purpose" in seeking an insurance license cannot be to solicit insurance from certain types of persons were preempted to the extent they applied to a national bank?s solicitation of insurance from its banking customers. Click here for a copy of the Duryee decision.