The battle over whether banks can sell insurance in the Lone Star State is over.
Texas Insurance Commissioner Elton Bomer released interim rules last week that permit national and state-chartered banks to sell the product.
The rules permit national banks to acquire state insurance licenses, effectively exempting them from a prohibition against corporate ownership of insurance licenses.
Many banking lawyers had worried that Texas wouldn't ease its strict licensing law. That could have led to a bloody legal battle, because the Supreme Court said in the Barnett case that states cannot interfere with a national bank's ability to sell insurance. But the Texas law didn't simply infringe on a bank's right to sell insurance. Rather, it banned all corporations from owning insurance agencies.
Banking lawyers have feared that the courts would have seized upon that distinction and ruled in favor of the insurance industry. But Mr. Bomer's decision to revise the rules eliminates that threat.
The new rules do place some restrictions on banks. They require depository institutions to follow both state consumer-protection laws and the federal guidelines for the sale of such nondepository products as insurance and mutual funds.
The rules also require banks to license all agents and to refrain from requiring customers to purchase insurance in order to receive a discount on a loan.
"This is very workable," said Julie Williams, chief counsel at the Office of the Comptroller of the Currency. "This demonstrates that these are issues that can be worked out in ways that can be satisfactory to state insurance commissioners and be consistent with the Supreme Court's decision in Barnett."
Banking lawyers were pleasantly surprised by the document.
"This is quite an enlightened approach," said David Roderer, a partner at the Washington law firm of Winston & Strawn. "It is rather practical in how it is written and how it will work."
The other 21 states with ironclad restrictions on their books against bank insurance sales should mimic these rules, he said. "I wish everyone would follow this," Mr. Roderer said. "It is quite a model."
Kathleen Collins, Washington counsel to the Financial Institutions Insurance Association, agreed that the rules were a major step in the right direction. But she also fretted that some provisions could place banks in a competitive disadvantage.
For example, she said, the anti-tying provisions in the rules include an absolute prohibition against the linking of insurance products. She said that may mean that banks can't offer discounts to consumers who buy two or more insurance policies with the institution.
Mr. Bomer said the rules ensure that national banks, which were going to sell insurance anyway, are covered by state consumer protection laws.
"We didn't go into this to propose it as a model, and we didn't do it to stay out of court," Mr. Bomer said Friday. "What we did was take a practical look after the Supreme Court made the decision it made."
Mr. Bomer said the rules should satisfy all interested parties, noting that his office consulted heavily with bankers and insurers before acting.
"I think this will be very successful," he said. "Everyone is seeming to agree with it."