Banking trade groups in Illinois are butting heads over legislation that would let banks sell insurance in the state.

The face-off pits the Community Bankers Association of Illinois, which argues that the bill is the best shot banks have at the insurance market, against the Illinois Bankers Association, which says the measure imposes too many limits.

"The legislation allows hundreds of banks to sell insurance in Illinois for the first time," said David Manning, director of government relations for the community bankers group.

But William J. Hocter, IBA executive vice president, countered, "The bill has such onerous restrictions that we think it would effectively keep banks out of insurance."

Also opposing the bill are state trade groups for credit unions, securities firms, and finance companies.

Mr. Hocter predicted that the formidable alliance would block the bill from coming to a vote before the General Assembly adjourns Jan. 7.

Mr. Manning agreed that opponents are strong enough to block a vote, but he predicted lawmakers would call in a professional mediator to break the impasse.

"We know the bill has to be modified," he said. "If the Illinois bankers agree to arbitration, this will be resolved."

Mr. Hocter, however, said that while the IBA remains "open to discussion at any point, any time," the group hasn't decided whether to accept arbitration.

The measure, introduced by Sen. Robert Madigan, was approved last spring by the Senate Insurance Committee but has not been accepted by either the Senate or House.

The bill is adapted from model legislation the Independent Insurance Agents Association is shopping to state legislatures nationwide. In August, Rhode Island enacted a similar law. Kindred bills are expected in New York, New Jersey, New Hampshire, West Virginia, South Carolina, and Maine.

Sen. Madigan's bill would:

*Prohibit loan officers or other bank employees who extend credit from soliciting insurance sales.

*Bar banks and their affiliates from offering insurance to any customer whose loan application is pending.

*Forbid banks to use customer data not generally available from a credit bureau in marketing insurance products.

*Ban discounts to customers who buy both credit and insurance products.

*Require loan applications and insurance sales to be offered in "physically separate locations."

*Impose fines of up to $10,000 a day for each violation.

The penalties are especially egregious, Mr. Hocter said.

Mr. Manning countered that the Illinois director of insurance has authority to impose even greater fines, as well as cease-and-desist orders. "It's not that we like the amount, but the insurance director's discretion to set fines already exists," he said.

While Mr. Manning agreed that maintaining separate sales forces would be expensive, he said the bill's other restrictions already apply to thrifts and other financial firms selling insurance.

Still, Mr. Hocter said, he is baffled by the community bankers' support for the bill. "In other states, the agents' model legislation is opposed by both the traditional bank groups and the community bank groups. It puts an insurmountable barrier between banks and their customers."

But Mr. Manning said Illinois lawmakers had warned him that bank insurance sales would not be considered for two years if this legislation doesn't pass in the current session.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.