Opposition to State Farm Mutual Automobile Insurance Co.'s application for a savings bank charter may be a sign of renewed activism on community reinvestment issues and of how nonbank companies will be forced to respond.

The Woodstock Institute of Chicago and several other national community groups filed protests against State Farm's bid. The Office of Thrift Supervision decided the matter is "substantial" and ordered that a hearing take place within the next couple of months.

The activists say Travelers Group Inc. set a precedent by offering a national community reinvestment program in connection with establishing Travelers Bank and Trust last year. State Farm and other companies may have to follow that lead.

Travelers told the OTS in November it would make $430 million of low- and moderate-income home equity loans across the nation over three years.

The hearing for Bloomington, Ill.-based State Farm, which will not be public, will allow the community groups to air objections to how State Farm defines its service area.

State Farm, part of a wave of insurers and other nonbanks seeking to take advantage of the flexibility that thrift charters offer, plans to sell products nationally through its more than 16,000 offices. The largest property and casualty insurance company, State Farm said those offerings would include mortgages, auto loans, checking and savings accounts, certificates of deposit, and money market accounts.

Because the thrift would share its parent's headquarters, State Farm contended that the Bloomington-Normal, Ill., metropolitan area in central Illinois should provide the benchmark for its responsibilities to low- income borrowers.

Critics complain that Bloomington-Normal, population 129,000, is not big enough to serve that purpose. They also say the area is not representative of the communities in which State Farm will be lending-it is 93% white and has a poverty level below 11%, compared with the national average of 13%.

"Bloomington-Normal has community needs, but I haven't seen it on a list of high-poverty areas recently," said Daniel Immergluck, vice president of Woodstock Institute. "It doesn't make any sense. The Community Reinvestment Act is about covering low-income areas everywhere" in which a company does business.

Woodstock wants State Farm to amend its application and offer a national community reinvestment program. Joining in the protest are three organizations from California, including the Greenlining Institute, which filed a separate protest last year. New York-based Inner City Press/Community on the Move is also in the fray.

The Illinois-based insurer estimated it would make $195 million of loans to low- and moderate-income consumers, which would be about 20% of total estimated loans, in three years. But it has declined to specify a national strategy for community reinvestment.

In a March 4 letter to the OTS, lawyers for State Farm argued that the company should not be held to the same scrutiny as banks for community lending.

"The insurance industry, unlike the banking industry, is not now and never has been subject to comprehensive federal or state community reinvestment statutes and therefore, State Farm's community investment performance should not and cannot be measured by the same standards used for banks," the letter stated.

State Farm, which applied last July 1, declined to comment further. Spokesman Stephen Witmer said, "The regulators are just doing their due diligence and we would expect nothing less. We're just going to let the process run its course."

The activists may, in this case, find bankers on their side.

"Nonbanks and credit unions are all carving out a part of our business," said James J. Giancola, chief executive of CNB Bancshares of Evansville, Ind. If they are not regulated as banks, it "puts us at a very significant disadvantage."

"We have the OTS on the cutting edge of interpreting a 1977 law as it applies to 1997 business patterns, and there are some real difficult issues here," said Paul Smith, the American Bankers Association's senior counsel for regulatory affairs.

"There are a lot of issues," said David Hostetler, the OTS central region applications manager in Chicago. State Farm "had to provide more information than I am sure they ever anticipated when they began the process."

Three insurance companies-Principal Mutual Life Insurance Co., Travelers Group Inc., and ReliaStar Financial Corp.-have been granted thrift charters by the OTS, and 13 others have applications pending.

Nine other companies, as divergent as PaineWebber Group, Archer-Daniels- Midland Co., and Hillenbrand Industries, an Indiana-based casket maker, are also seeking thrift charters.

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