Seeking allies in the fight for financial reform, Comptroller of the Currency Eugene A. Ludwig urged consumer groups Thursday to oppose burdensome state restrictions on bank insurance sales.

In a speech to the Consumer Federation of America, Mr. Ludwig argued that low-income communities are hurt when states prevent banks from offering insurance.

Without bank competition, insurance agents may not offer coverage in low-income areas, he said. This insurance shortage could cripple redevelopment efforts because banks cannot issue mortgages unless the borrower has property coverage, he said.

"The most accommodating lender in the world will not do the trick if affordable property insurance cannot be obtained," he said.

Disputes over bank insurance sales have helped derail efforts in Congress to overhaul the laws governing the financial services industry.

Also, several states, led by Rhode Island, are trying to block bank insurance sales by imposing highly restrictive licensing and consumer protection rules. For instance, Rhode Island's law bars insurance sale.s by bank employees who make loans or take deposits, and it requires all insurance sales to be made in a physically separate part of the branch.

Mr. Ludwig declined to comment on the Rhode Island statute. His office is reviewing a request to preempt the law on the grounds that it discriminates against national banks.

But Mr. Ludwig praised an Illinois law that lets banks sell insurance in any location. Also, in Illinois, any bank employee, including loan officers, may become licensed to sell insurance and may earn referral fees.

"The Illinois statute does not put banks at a critical disadvantage in competing with nonbank insurance providers," he said.

He noted that the Illinois law, which took effect Oct. 1, includes a "comprehensive package" of consumer protections. For instance, all bank insurance employees must be licensed, and customers must be told that credit applications will not be affected if insurance is bought elsewhere.

"No one would dispute that we need effective consumer protections to prevent unfair and deceptive practices," he said.

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