Dingell calls for reversal of retirement CD approval.

WASHINGTON -- A powerful House committee chairman wants federal regulators to yank their approvals of a new deposit product that is expected to help banks compete for funds being siphoned off by annuities.

The Retirement CD has attracted attention from hundreds of banks across the country interested in offering an insured, tax-exempt deposit product.

But House Energy and Commerce Committee Chairman John D. Dingell said he wants the new certificate of deposit stopped. In a May 25 letter, the Michigan Democrat asked the Comptroller of the Currency and the Federal Deposit Insurance Corp. to "immediately withdraw" letters approving it.

'Unprecedented Powers'

"I find it incredible that the Comptroller and FDIC can so casually try [to] grant such new and unprecedented powers to banks," Rep. Dingell wrote in his five-page letter.

Banks will have "an unbeatable advantage" over insurance companies if they are allowed to offer the Retirement CD, Rep. Dingell wrote.

The Comptroller's office and the FDIC have not responded to 12 questions laid out in the lawmaker's letter. Agency spokespeople said Wednesday that they plan to provide answers by June 13, a deadline set by Rep. Dingell.

In mid-May, the OCC and FDIC signaled acceptance of the Retirement CD in separate letters to Blackfeet National Bank and American Deposit Corp.

Blackfeet, a tiny bank in Browning, Mont., is the first institution to license the product from Pine, Colo.-based American Deposit, which has a patent pending on the CD.

$5,000 to Start

The Retirement CD requires a minimum $5,000 initial deposit; yearly additional deposits of $1,000 or more may be made. A depositor selects a maturity date, when up to two-thirds of the principal and interest may be withdrawn.

The bank then pays the balance in monthly installments that are guaranteed to continue as long as the customer lives.

The interest rate on the account is set for the first few years and then fluctuates above a 3% floor. The interest will not be taxed as it accumulates, according to American Deposit. The company did not get an official ruling from the Internal Revenue Service, but has legal opinions from major law firms vouching for the tax-free nature of the account.

The OCC and FDIC approved the account, but set a number of conditions. For example, the FDIC said the account is insured up to $100,000, but payments to customers beyond what was invested are not insured.

American Deposit has been flooded with phone calls from bankers interested in offering the product. The company's president, Richard E. Fasold, said Colorado directory assistance operators have had so many calls that they assume when callers request a number in Pine that they are looking for American Deposit.

Product Called Illegal

But the product is in jeopardy now that Mr. Digell has raised concerns.

In his letter to regulators, Mr. Dingell said the Retirement CD is illegal because it crosses the barrier between banking and commerce set up by the Glass-Steagall Act.

Rep. Dingell said the CD is "functionally a deferred life annuity," noting that banks are not allowed to underwrite insurance.

However, regulators think the product is a deposit -- not an insurance product.

Regulators and the insurance industry have been battling for years over whether an annuity is an insurance product or not.

The Comptroller's office permitted national banks to sell annuities from towns of less than 5,000 people and was quickly sued by the insurance industry.

The agency lost the case in the Fifth Circuit Court of Appeals last year. The Comptroller's plea for rehearing is now pending before the Supreme Court.

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