WASHINGTON - The New Mexico superintendent of insurance has given up his legal challenge to the controversial Retirement CD, paving the way for First National Bank of Santa Fe to offer the product.
"We think it is extremely important for our bank and the banking industry," First National President Ed Bennett said. "We have a consumer product here now that has withstood the challenges of the insurance industry."
U.S. District Judge Juan Burciaga issued an order Feb. 15 acknowledging the insurance commissioner's capitulation. The court order states that the insurance department cannot "supervise, regulate, or otherwise interfere with or harass" the bank's sale of the CD.
Insurance superintendent Fabian Chavez Jr. had brought a lawsuit against First National, arguing that his office should regulate the Retirement CD. But Mr. Chavez said he dropped the challenge after the U.S. Supreme Court ruled last month that banks can sell annuities.
"It is very simple," Mr. Chavez said. "The Supreme Court ruled. That's it."
Banking industry advocates said the New Mexico decision should encourage other banks to offer the Retirement CD.
"This is a significant victory for them in terms of trying to get this product accepted in the marketplace," Bankers Roundtable general counsel Richard Whiting said.
"Banks nationwide can take heart in the fact that this definitely will be looked at by other jurisdictions," added Richard Fasold, president of American Deposit Insurance Corp., which created the Retirement CD.
Insurance industry advocates, however, said New Mexico acted prematurely. Insurance commissioners in Florida and Illinois are still fighting efforts by banks there to offer the Retirement CD.
"It is an unfortunate decision that the insurance commissioner, for whatever reason, has decided that he cannot regulate this product," said Ann M. Kappler, a partner at Jenner & Block in Washington who represents a number of insurance associations. "That ultimately will hurt the consumer."
The Retirement CD, which is offered under several brand names, is a FDIC-insured product that operates much like an uninsured annuity. Customers make either one or a series of deposits in a tax-deferred account. After the customer reaches a set age, the bank begins regular payments that last for the rest of the depositor's life.
Bankers like Retirement CDs because they generate fee income and provide guaranteed, long-term deposits.