A case in Florida over the near-dead Retirement CD could jeopardize the industry's authority to sell annuities. While the Supreme Court's 1995 decision in the Valic case solidified banks' authority to sell the tax- deferred products, several states are attempting to redefine annuities as insurance products subject to their regulation.

In a case now before the federal appeals court in Atlanta, Florida regulators are claiming that they can prevent a bank from offering the Retirement CD, an annuity-like product that has federal deposit insurance.

A federal judge sided with Florida in 1995, setting up the current appeal. The ruling, if upheld, could open the door for states to either ban bank annuity sales outright or to severely limit how a bank may offer the product.

Briefs filed by the American Bankers Association and the Office of the Comptroller of the Currency last week in Blackfeet National Bank v. Nelson claim that the Supreme Court already has ruled that annuities are financial products subject to the agency's supervision.

"Why do insurance commissioners think they have regulatory authority over a bank product? They get that by saying the Retirement CD is really an annuity and an annuity is an insurance product that the state can regulate," said Michael F. Crotty, the ABA's deputy general counsel for litigation. "Use the same reason for other annuity sales and we have big problems."

The Florida case began in July 1994 when the state's insurance commissioner tried to prevent Blackfeet from offering the Retirement CD.

The Browning, Mont.-based bank sued the state, but lost when a judge ruled that the McCarran-Ferguson Act gives Florida the right to regulate the Retirement CD as an insurance product. The bank appealed, setting up the current fight in the U.S. Court of Appeals for the 11th Circuit.

In deciding a similar case last year, the federal appeals court in Chicago ruled that Illinois has the right to regulate bank sales of the Retirement CD. A second loss for banks would make the decision the de facto law of the land because appeals courts in other circuits are unlikely to address an issue already resolved by two other courts.

Recognizing the case could affect all annuity sales, the OCC has taken the unusual step of requesting permission to argue its view during a hearing before the Atlanta appeals court. That could occur as early as this summer.

The OCC is expected to argue that the National Bank Act preempts all state laws that "prohibit or significantly interfere with" the powers of national banks. The only exception-the McCarran-Ferguson Act, which allows states to regulate insurance sales practices-is not triggered because the Retirement CD is an annuity, not an insurance product.

In its brief, the OCC noted that although the McCarran-Ferguson Act does not define insurance, the commonly understood definition in 1945 when the law was adopted did not include annuities.

"Investors who purchase annuities are not seeking to be indemnified against the risk of death, injury or property damage, but are instead seeking a long-term return on their assets," OCC Deputy Chief Counsel Robert B. Serino wrote. "Thus, when Congress enacted McCarran-Ferguson, an annuity was clearly distinct from insurance."

A decision by the Atlanta appeals court is expected by year end.

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