WASHINGTON - The Office of the Comptroller of the Currency is considering using for the first time its enhanced authority under the Gramm-Leach-Bliley Act of 1999 to preempt state laws that interfere with bank insurance sales.
The Comptroller's Office is expected to publish a notice as soon as Friday in the Federal Register seeking public comment on a request by the West Virginia Bankers Association to override parts of a 1997 state law prohibiting banks from selling borrowers insurance before approving their loans. The disputed law also bars loan officers from selling insurance products and requires that insurance sales occur in an office physically separate from banking offices.
Bankers have argued that the West Virginia law conflicts with Gramm-Leach-Bliley, which says that state laws enacted before Sept. 3, 1998, may not "prevent or significantly interfere" with bank insurance sales.
"It is so clear that those three provisions are subject to preemption by the federal law," said Sandy Murphy, general counsel to the West Virginia Bankers and a partner in the Charleston law firm of Bowles, Rice, McDavid, Graff & Love.
The West Virginia bankers have the backing of their state banking commissioner, Sharon G. Bias, who has said she would grant the same break to state-chartered banks if federal regulators act, thus leveling the competitive playing field for West Virginia's nearly 100 state-chartered and national banks.
But the insurance agent lobby contends that the West Virginia law is consistent with other provisions of the law. "Gramm-Leach-Bliley specifically provides that states may enact stricter consumer protection laws," said Gray Marion, executive vice president of the Professional Independent Insurance Agents of West Virginia.
The West Virginia Bankers sent its preemption request to the Comptroller's Office last month after its attempts to change the statute were defeated by the insurance lobby in the state legislature.
Comments will be accepted until early July. Industry sources said it was unclear how quickly the agency would render an opinion - if at all.
They noted a similar case involving Rhode Island's insurance laws that has been in limbo for years. The Rhode Island Bankers Association asked the Comptroller's Office in 1996 to preempt the statute. The request was published, but the agency never made a decision.
"With Rhode Island hanging out there, [a quick decision on the West Virginia request] is not particularly encouraging," said the American Bankers Association's state law specialist, Mathew Street.
But regulators may feel that Gramm-Leach-Bliley has given them the license to finally act, said Karen Shaw Petrou, president of the ISD/Shaw Inc. consulting firm in Washington. "This is an opportunity for the OCC to define where state law starts and stops," she said, "and I would guess state law would stop sooner than some of the states would like."