A federal judge on Monday struck down a New York law that barred national banks in small towns from selling insurance to their loan customers.
Judge Michael A. Telesca of the U.S. District Court in Rochester, N.Y., said he invalidated the state law because it "significantly interferes" with the right of banks to sell insurance.
The Supreme Court ruled in 1996 that the National Bank Act prohibits state regulators from preventing or significantly interfering with the right of banks to sell insurance in places with fewer than 5,000 residents.
"This ruling clears the way for banks to be able to offer the full array of insurance products to their customers and eliminates an anti-competitive provision in the insurance law," said Michael P. Smith, president of the New York Bankers Association.
The case began when Canandaigua National Bank applied for an insurance license so it could open an agency in Bloomfield, N.Y., a town with 1,331 residents.
The state insurance commission granted the license, but banned the bank from writing policies for property pledged as collateral by its borrowers.
The bank sued, charging that the National Bank Act gives it carte blanche to sell insurance from small towns. New York officials tried to delay the case, saying they needed to conduct discovery before responding to the bank's charge that the restriction significantly interferes with the right to sell insurance.
The judge denied that request, saying "there is no material question of fact in dispute and that plaintiffs are entitled to judgment as a matter of law."
