A U.S. district court in Texas has ruled that state laws may not restrict national bank annuity sales.
"This is a very important affirmation of the authority of national banks," said Julie L. Williams, chief counsel of the Office of the Comptroller of the Currency.
The case, filed in the U.S. District Court for the Western District of Texas, pitted the Texas Bankers Association and the OCC against the state Insurance Department. The plaintiffs sued the Insurance Department for barring Texas banks from selling annuities anywhere except in small towns.
The department issued the rule last year as guidance until the state Legislature hammered out a permanent regulatory framework. A new insurance law, which mirrors the temporary rule, was enacted in May. Last week's district court decision overturned that law, allowing national banks to sell annuities anywhere in the state. Texas Banking Commissioner Catherine A. Ghiglieri said her office would grant the same opportunity to state banks.
In the Aug. 7 decision, Judge James R. Nowlin wrote that annuities are not insurance products, therefore state insurance rules do not apply to national banks' sales of the product.
Although the McCarran-Ferguson Act generally bans federal law from overriding state laws that "regulate the business of insurance," Judge Nowlin said the Texas law is preempted because it is an outright ban on bank annuities sales.
"McCarran-Ferguson anti-preemption does not protect the state provisions at issue which prevent a national bank form exercising its authority," Judge Nowlin wrote in the nine-page decision.
The decision resolves an issue left open by the January 1995 Valic decision, in which the Supreme Court ruled that banks may sell annuities. The justices did not address how to resolve conflicts between federal and state laws in this area.
"Valic recognized the authority of national banks to sell annuities, but if that authority can be constricted by state law, that obviously is a major problem," Ms. Williams said. "This decision is the next critical step beyond Valic."
"We are extremely pleased," said Robert Harris, president of the Texas Bankers Association. "This is a very important piece of litigation to us; annuities are a lucrative product for banks."
Rather than simply deferring to the OCC's authority, the court did its own analysis of the relevant federal and state laws. Observers said this clearly reaffirms the OCC's authority to preempt certain state laws.
"There is a growing misperception that the comptroller is running around randomly knocking down state laws," said David Roderer, a lawyer with the Washington law firm Goodwin, Procter & Hoar. "This decision shows that it is a conflict between state and federal laws, not the work of a rogue regulator."
