**\[BILLING CODE 4810-33-P\]**

#  DEPARTMENT OF THE TREASURY

**Office of the Comptroller of the Currency**

**\[Docket No. 02-03\]**

**Preemption Determination**

**AGENCY**: Office of the Comptroller of the Currency, Treasury.

**ACTION**: Notice.

**SUMMARY**: The Office of the Comptroller of the Currency (OCC) is
publishing its response to a written request for the OCC's opinion on
whether Federal law preempts certain provisions of the Massachusetts
Consumer Protection Act Relative to the Sale of Insurance by Banks and
regulations promulgated pursuant to that statute (the Massachusetts
Law). The OCC has determined that Federal law preempts the provisions at
issue.

**FOR FURTHER INFORMATION CONTACT:** Michele Meyer, Counsel, Legislative
and Regulatory Activities Division, (202) 874-5090.

**SUPPLEMENTARY INFORMATION:**

On July 14, 2000, the OCC published in the *Federal Register* notice of
a request from the Massachusetts Bankers Association (Requester) for the
OCC's opinion concerning whether section 104 of the Gramm-Leach-Bliley
(GLBA), Pub. L. 106-102, 113 Stat. 1338, 1352-59 (Nov. 12, 1999),
preempts certain provisions of the Massachusetts Law. *See* Notice of
Request for Preemption Determination, 65 FR 43827, (Notice). The OCC is
publishing its response to the request as an appendix to this notice.

In the Notice, the OCC requested public comment on whether Federal law
preempts the provisions of the Massachusetts Law that the Requester had
identified. In response, the OCC received 110 comments. Many of these
commenters, primarily banks and banking trade associations, supported
preemption of the Massachusetts Law provisions. These commenters
maintained generally that the Massachusetts Law provisions do not fall
within the safe harbor provisions of GLBA (the Safe Harbors) and that
they prevent or significantly interfere with the exercise of national
banks' authority to engage in insurance sales, solicitation, or
cross-marketing activities.

Commenters opposing preemption expressed several concerns. First, some
commenters argued that some or all of the provisions under review fall
within the Safe Harbors, or are substantially similar to the Safe
Harbors, and are therefore protected from preemption. Several commenters
asserted that the provisions not covered by a Safe Harbor nevertheless
are protected from preemption because they do not "prevent or
significantly interfere" with the ability of a financial institution or
its affiliate to engage in any insurance sales, solicitation, or
cross-marketing activity.

For the reasons described in the preemption opinion, the OCC has
concluded that Federal law preempts the following provisions of the
Massachusetts Law identified by the Requester:

-   The Massachusetts Law provision prohibiting non-licensed
    bankpersonnel from referring prospective customers to a licensed
    insurance agent or broker except upon an inquiry initiated by the
    customer.

-   The Massachusetts Law provision prohibiting non-licensed bank
    personnel from receiving any additional compensation for making a
    referral, even if the compensation is not conditioned upon the sale
    of insurance.

-   The Massachusetts Law provision prohibiting banks from telling loan
    applicants that insurance products are available through the bank
    until the application is approved and, in the case of a loan secured
    by a mortgage on real property, until after the customer has
    accepted the bank's written commitment to extend credit.

The analysis used to reach these conclusions and the reasons for each
conclusion are described in detail in our reply to the Requester.

> Dated: March 5, 2002

**John D. Hawke, Jr.**

*Comptroller of the Currency*

March 18, 2002

Kevin F. Kiley

Executive Vice President

Massachusetts Bankers Association, Inc.

73 Tremont Street, Suite 306

Boston, MA 02108-3906

Dear Mr. Kiley:

This letter replies to your request, on behalf of the Massachusetts
Bankers Association, for the opinion of the Office of the Comptroller of
the Currency (OCC) concerning whether certain provisions of the
Massachusetts Consumer Protection Act Relative to the Sale of Insurance
by Banks and regulations promulgated pursuant to that statute apply to
national banks.[^1]

The provisions you have asked us to review prohibit: (1) non-licensed
bank personnel from referring a prospective customer to a licensed
insurance agent or broker except upon an inquiry initiated by the
customer; (2) a bank from compensating an employee for such a referral;
and (3) a bank from telling a loan applicant that insurance products are
available through the bank until the application is approved and, in the
case of a loan secured by a mortgage on real property, until after the
customer has accepted the bank's written commitment to extend credit.
For the reasons described in detail in this letter, we have concluded
that federal law would preempt the provisions of the Massachusetts Law
that you have asked us to review.

In reaching this conclusion, we have reviewed the provisions of the
Massachusetts Law under the legal standards, including the provisions of
the Gramm-Leach-Bliley Act (GLBA)[^2], that govern the applicability of
state law to national banks. We also have relied on our experience in
supervising national banks that engage in insurance activities to
evaluate the effects of the state law provisions under consideration
here on national banks' ability to conduct an insurance agency business.

The first section of this letter provides background on the process we
used to develop our opinion and addresses the significant comments that
we received in response to our publication of notice of your request.
Section II describes the framework that governs our legal analysis.
Finally, Section III analyzes each of the provisions of the
Massachusetts Law that you have asked us to review to determine whether,
in our opinion, it is preempted by federal law.

**I. [Background and Comments ]{.underline}**

On May 22, 1998, the Commonwealth of Massachusetts enacted legislation
entitled Consumer Protection Act Relative to the Sale of Insurance by
Banks.[^3] The Massachusetts Department of Banking and Insurance has
promulgated regulations[^4] pursuant to this legislation. The statute
and implementing regulations impose a number of requirements that affect
the insurance sales, solicitation, or cross-marketing activities of
financial institutions, including national banks.

By letter dated May 30, 2000, you requested the OCC's opinion on whether
the three specific provisions of the Massachusetts Law that your letter
identified are preempted pursuant to section 104 of the GLBA.[^5] In
your request, you asserted that these state law provisions are not
protected from preemption by the safe harbor provisions contained in
section 104(d)(2)(B) of the GLBA ("Safe Harbors") and that they prevent
or significantly interfere with the ability of national banks to
exercise their authority to engage in insurance sales, solicitation, or
cross-marketing activities.

On July 14, 2000, the OCC published notice of your request in the
*Federal Register* and requested comments on whether federal law
preempts the Massachusetts Law provisions.[^6] We received a total of
110 comments in response to the notice. Many of these commenters,
primarily banks and banking trade associations, supported preemption of
the Massachusetts Law provisions. These commenters maintained generally
that the Massachusetts Law provisions do not fall within the Safe
Harbors and that they prevent or significantly interfere with the
exercise of national banks' authority to engage in insurance sales,
solicitation, or cross-marketing activities. For the reasons set out in
greater detail in Section III of this letter, we agree that federal law
preempts each of the state laws in question.

Commenters opposing preemption expressed several concerns. First, some
commenters argued that some or all of the provisions under review fall
within the Safe Harbors, or are substantially similar to the Safe
Harbors, and are therefore protected from preemption. Several commenters
asserted that the provisions not covered by a Safe Harbor nevertheless
are protected from preemption because they do not "prevent or
significantly interfere" with the ability of a financial institution or
its affiliate to engage in any insurance sales, solicitation, or
cross-marketing activity. These points are addressed in detail in
Section III of this letter.

Some of the commenters opposed to preemption also argued more generally
that the OCC lacks the authority to determine whether federal law
preempts the Massachusetts Law. As these comments suggest, federal
courts, rather than the OCC, are the ultimate arbiters of whether
federal law preempts state law in a particular case. Nevertheless,
Congress and the federal courts have recognized that the OCC has the
authority to interpret, in the first instance, federal laws affecting
national bank powers. Indeed, the National Bank Act contains specific
provisions governing the issuance of opinions concerning preemption of
state laws by the OCC. [^7] As the primary supervisor of national banks,
the OCC is uniquely positioned to evaluate the effect of the
Massachusetts Law on national banks' ability to exercise their federal
authority to sell insurance.[^8] Further, from a practical perspective,
in the absence of interpretive advice, national banks that sell, or wish
to sell, insurance in Massachusetts will face added cost, burden, and
uncertainty. Finally, Congress clearly envisioned that the federal
banking agencies would be making determinations as to whether state laws
regarding insurance sales and solicitations were preempted, because
section 304 of the GLBA contains detailed provisions for judicial review
of conflicts between a state insurance regulator and a federal regulator
arising from such a determination.[^9]

A few commenters opposed to preemption asserted that the OCC should not
find that federal law preempts the Massachusetts Law provisions because
state insurance regulators are, pursuant to GLBA, responsible for the
functional regulation of the business of insurance. The GLBA expressly
provides, however, that the states' functional regulation authority over
insurance activities is subject to federal preemption standards as
incorporated in section 104.[^10] In particular, the question whether a
state insurance sales law applies to national banks is resolved by
application of the federal standards to the state provision in
question.[^11]

Commenters also expressed concerns about the impact an OCC opinion
concerning the Massachusetts Law would have on similar laws enacted in
at least 30 states. These commenters noted that these state laws were
the products of extensive negotiations involving state regulators and
the insurance and banking industries. This letter expresses no view with
respect to state laws other than those specifically addressed here. We
specifically note, however, that the conclusions reached in this letter
do not result in a finding that any provisions of the Model Unfair Trade
Practices Act adopted by the National Association of Insurance
Commissioners (NAIC) would be preempted.[^12]

The commenters opposed to preemption also urged the OCC to delay issuing
its opinion until the Sixth Circuit resolves the appeal of the Federal
District Court's decision in *Association of Banks in Insurance, Inc. v.
Duryee*.[^13] In *Duryee*, a national bank and trade associations with
national bank members sought a declaratory judgment that certain Ohio
insurance licensing statutes as applied to national banks are preempted
by the federal statute \-- 12 U.S.C. § 92 \-- that authorizes national
banks to sell insurance from agencies based in small towns without
regard to affiliation or control. The District Court granted the
plaintiffs' motion for summary judgment and issued the declaratory
judgment and enjoined Ohio from enforcing its licensing statutes against
national banks operating from small towns in the state. Commenters here
asserted that the OCC should delay opining in this matter because the
appellate decision in *Duryee* would clarify the parameters of the
*Barnett* standards in matters involving the application of state
insurance laws to national banks. However, in the time since the
commenters submitted their comments on this matter, the Sixth Circuit
issued its decision in the *Duryee* appeal, affirming the grant of a
declaratory judgment and the issuance of a permanent injunction against
the state\'s enforcement of the laws against national banks.[^14] The
Sixth Circuit's decision in *Duryee* thus strongly supports the
conclusions we reach in this letter.

The next section of this letter summarizes the federal preemption
standards that apply to the state laws you have asked us to review.

**II. [Federal Preemption Standards: The GLBA and *Barnett*
]{.underline}**

In our recent letter concerning whether federal law preempts certain
provisions of the West Virginia Insurance Sales Consumer Protection
Act[^15] (the West Virginia Letter), we set forth a detailed analysis of
the GLBA preemption framework. That analysis is incorporated by
reference here and is summarized below.

The GLBA establishes several different standards governing the
applicability of state law to depository institutions and their
affiliates, depending on whether the state law at issue affects: the
institution's ability to engage in an affiliation that is "authorized or
permitted by Federal law;" its ability to engage in activities
"authorized or permitted" pursuant to the GLBA; or its ability to engage
in insurance sales, solicitation, and cross-marketing activities.[^16]
With respect to *any* insurance sales, solicitation, or cross-marketing
activities, section 104(d)(2) establishes the following standard
governing the applicability of state law:

> In accordance with the legal standards for preemption set forth in the
> decision of the Supreme Court of the United States in Barnett Bank of
> Marion County N.A. v. Nelson, 517 U.S. 25 (1996), no state may, by
> statute, regulation, order, interpretation, or other action, prevent
> or significantly interfere with the ability of a depository
> institution, or an affiliate thereof, to engage, directly or
> indirectly, either by itself or in conjunction with an affiliate or
> any other person, in any insurance sales, solicitation, or
> crossmarketing activity.[^17]

However, section 104 protects from preemption under this standard 13
specified types of restrictions on insurance sales, solicitation, and
cross-marketing activities \-- the Safe Harbors \-- as well as state
restrictions that are "substantially the same as but no more burdensome
or restrictive than" the Safe Harbors.[^18] State laws regarding any
insurance sales, solicitation, and cross-marketing activities that are
not covered by a Safe Harbor are subject to the standards for preemption
set forth in *Barnett*, pursuant to section 104(d)(2).

The *Barnett* standards represent an application, in the national bank
context, of the analysis used by the Supreme Court to determine, under
the Supremacy Clause of the U.S. Constitution, whether federal law
conflicts with state law such that the state law is preempted. Under
this analysis, the Court reviews whether a state law "stands as an
obstacle to the accomplishment and execution of the full purposes and
objectives of Congress."[^19] In the national bank context, the Court
applies this analysis by looking at whether the state law at issue
conflicts with the exercise of a national bank's federally authorized
powers. Thus, in holding that a Florida statute restricting a national
bank's ability to sell insurance in that state was preempted, the Court
in *Barnett* relied upon a number of its precedents holding that a
particular state statute was preempted because it "stood as an obstacle"
to a national bank's exercise of those powers.[^20]

The scope of the standard is illustrated by the Court's earlier decision
in the *Franklin National Bank* case, which was relied upon by the Court
in *Barnett*.[^21] In the *Franklin* case, the Court held that a state
law that prohibited national banks from using the word "savings" in
their advertising was preempted. The Court's rationale was not that the
state statute directly precluded national banks from engaging in the
business of receiving savings deposits. The statute at issue did not
have that effect. Instead, the Court said that the federal law
authorizing national banks to take savings deposits must be read to
authorize them to engage in the ordinary incidents of that business,
such as advertising. Finding a "clear conflict" between the state and
federal laws, the Court held that the state advertising restriction was
preempted. The meaning of *Franklin*, expressly confirmed in
*Barnett*,[^22] is that a national bank's power to engage in an activity
necessarily includes the power to conduct the business effectively and
competitively.

The Court recognized in *Barnett* that not every state law that affects
a national bank activity "stands as an obstacle" to the accomplishment
of the federal purpose:

> In defining the pre-emptive scope of statutes and regulations granting
> a power to national banks, these cases take the view that normally
> Congress would not want States to forbid, or impair significantly, the
> exercise of a power that Congress explicitly granted. To say this is
> not to deprive States of the power to regulate national banks, where
> (unlike here) doing so does not prevent or significantly interfere
> with the national bank's exercise of its powers. See, *e.g.*,
> *Anderson Nat. Bank* v*. Luckett*, 321 U.S. 233, 247-252 (1944) (state
> statute administering abandoned deposit accounts did not
> "unlawful\[ly\] encroac\[h\] on the rights and privileges of national
> banks"); *McClellan* v*. Chipman*, 164 U.S. 347, 358 (1896)
> (application to national banks of state statute forbidding certain
> real estate transfers by insolvent transferees would not "destro\[y\]
> or hampe\[r\]" national bank functions); *National Bank* v*.
> Commonwealth*, 9 Wall. 353, 362 (1870) (national banks subject to
> state law that does not "interfere with, or impair \[national banks'\]
> efficiency in performing the functions by which they are designed to
> serve \[the Federal\] Government").[^23]

In this portion of its analysis, the Court describes the boundary of the
preemptive scope of the federal laws authorizing powers for national
banks by describing circumstances under which a state law has been found
not to stand as an obstacle to the accomplishment of the federal
purpose.[^24]

The variety in the language that the Supreme Court used in *Barnett* to
describe the conflicts analysis that governed the result there shows
that the analysis cannot be encapsulated by any one phrase. Rather,
whatever words are used to describe it, the analysis requires an
examination of the effect that a particular state statute has on a
national bank's exercise of a federally authorized power \-- here, the
power to sell insurance granted by federal statutes, including 12 U.S.C.
§ 92.[^25]

Section 104 of the GLBA follows this same approach. Though it
specifically mentions the "prevent or significantly interfere"
formulation quoted above, the full text of section 104(d)(1) introduces
that phrase and provides its context with the words "\[i\]n accordance
with the legal standards for preemption set forth in \[*Barnett*\]."
This express reference to the *Barnett* decision in its entirety and
without qualification and to its "standards" in the plural, rather than
the singular, demonstrates that the statute imports the whole of the
*Barnett* conflicts analysis as governing the preemption of state laws
pertaining to insurance sales, solicitation, and cross-marketing
activities. Any doubt on this point is resolved by the express
preservation of the applicability of the *Barnett* case in a subsequent
portion of section 104:

> \(C\) CONSTRUCTION.\--Nothing in this paragraph shall be construed\--
>
> \(I\) to limit the applicability of \[*Barnett*\] with respect to any
> State statute, regulation, order, interpretation, or other action that
> is not referred to or described in subparagraph (B) \[*i.e.*, the Safe
> Harbors\]; or
>
> \(II\) to create any inference with respect to any State statute,
> regulation, order, interpretation, or other action that is not
> described in this paragraph.[^26]

The effect of this language is to reaffirm, following the listing of the
Safe Harbors, that both the standards that the Supreme Court articulated
in the *Barnett* decision and the analysis that the Court used in that
case apply to state laws that are not protected by the Safe
Harbors.[^27] Thus, the standards for preemption used by the Court in
*Barnett* before enactment of GLBA are the same standards that apply
today with respect to the application of state insurance sales,
solicitation, or cross-marketing laws that are not covered by a Safe
Harbor to insurance activities that are authorized for national banks
under federal law.

**III. [Application of Federal Preemption Standards to the Massachusetts
Law]{.underline}**

Application of the principles we have discussed requires that we conduct
a three-step analysis of the provisions of the Massachusetts Law that
you have asked us to review. We first determine which of the several
standards contained in section 104 of the GLBA applies. Since all three
of the provisions you have identified pertain to insurance sales,
solicitation, or cross-marketing, the analysis of each provision is
governed by section 104(d)(2)(A), that is, the *Barnett* standards which
are incorporated by the statute. Second, we consider whether any
provision of the Massachusetts Law is protected from preemption by one
or more of the Safe Harbors described in section 104(d)(2)(B). Finally,
if a provision is not protected by a Safe Harbor, we apply the *Barnett*
standards to determine whether, in our view, the state law conflicts
with a national bank's authority to sell insurance and is therefore
preempted.

**A. The Massachusetts Restrictions on Referrals by Bank Personnel**

The Massachusetts statute and regulations prohibit non-licensed bank
personnel from referring prospective customers to a licensed insurance
agent or broker except upon an inquiry initiated by the customer (the
Referral Prohibition). The same statute and regulations further prohibit
non-licensed bank personnel from receiving any additional compensation
for making a referral, even if the compensation is not conditioned upon
the sale of insurance (the Referral Fee Prohibition). The Massachusetts
statute provides:

> Officers, tellers and other employees of a bank who are not licensed
> as insurance agents may refer a customer of said bank to a licensed
> insurance agent of the bank only when such customer initiates an
> inquiry relative to the availability or acquisition of insurance
> products. No such officer, teller or other employee shall be further
> or additionally compensated for making said referrals. [^28]

This statutory provision is implemented in regulations set forth at 211
CMR § 142.05(3) and 209 CMR § 49.06(3). Section 142.05(3) of 211 CMR
provides:

> \(3\) Insurance sales activities conducted at the main office or at
> any branch location shall be conducted only by insurance agent \[sic\]
> or brokers licensed pursuant to M.G.L. c. 175, §§ 163 and 166,
> respectively. Non-licensed bank personnel may refer consumers to a
> licensed insurance agent or broker of the bank only upon an inquiry
> initiated by the consumer. Non-licensed bank personnel shall not be
> additionally compensated for such referrals.

Section 49.06(3) of 209 CMR provides:

> \(3\) [Solicitations and Sales by Bank Personnel]{.underline}. The
> solicitation and sale of insurance by banks shall be conducted by
> licensed personnel of such institutions to the extent required by
> applicable insurance laws and regulations. Unlicensed officers,
> tellers and other employees, however, may refer customers to licensed
> personnel only where:
>
> \(a\) the customer initiates an inquiry as to the availability or
> acquisition of insurance products; and

\(b\) such unlicensed personnel are not additionally compensated for
such referrals.

The Director of the Massachusetts Office of Consumer Affairs and
Business Regulation (the Massachusetts Director), who oversees the
Massachusetts Department of Banking and Insurance, asserted in her
comment letter that the Referral Prohibition and the Referral Fee
Prohibition are protected by two of the GLBA Safe Harbors.[^29] Although
the Massachusetts Director does not specify which Safe Harbors, there
are two concerning referrals. Safe Harbor (iv) protects state laws that
prohibit the payment of valuable consideration, such as referral fees,
to unlicensed individuals for "services as an insurance agent or
broker." A referral by an unlicensed person who does not discuss
specific policy terms and conditions, however, is expressly excluded
from the term "services as an insurance agent or broker." Safe Harbor
(v) preserves state laws prohibiting referral fees based on the purchase
of insurance by the customer.

As we have noted, the Safe Harbors protect state provisions that are
"substantially the same as but no more burdensome or restrictive than"
the restrictions in the federal statutory text. It is our opinion that
the Referral Prohibition is not "substantially the same as" Safe Harbor
(iv) and that it is more burdensome and restrictive than Safe Harbor
(iv). The plain language of Safe Harbor (iv) protects only those state
laws restricting payment for referrals by unlicensed personnel that
involve discussions of specific insurance policy terms and conditions.
The Massachusetts Referral Prohibition, however, restricts *all*
referrals by unlicensed bank personnel (unless initiated by the
customer), including those that do not involve specific insurance policy
discussions. In our view, this exceeds the scope of Safe Harbor (iv),
and consequently is not protected.

Similarly, in our view, the Massachusetts Referral Fee Prohibition is
not protected by Safe Harbor (v). Safe Harbor (v) protects only those
state restrictions on referral fees tied to a customer's purchase of
insurance. The Massachusetts Referral Fee Prohibition goes further than
this by prohibiting referral fees of any kind. As such, the
Massachusetts Referral Fee Prohibition is more burdensome and
restrictive than the restrictions contemplated in Safe Harbor (v).

Because the Referral Prohibition and Referral Fee Prohibition are not
protected by the GLBA Safe Harbors, we must consider whether they are
preempted by the *Barnett* standards incorporated in GLBA section 104.

The Massachusetts Referral Prohibition imposes significant limitations
on a bank's ability to engage in insurance sales, solicitation, and
cross-marketing activities. By limiting referrals to only those
resulting from a customer's inquiry, the Massachusetts Referral
Prohibition effectively deprives banks of important opportunities to
offer insurance products to customers. The Referral Prohibition
precludes non-licensed bank personnel, such as bank tellers and customer
service personnel, from even mentioning to their customers the fact that
qualified, licensed insurance agents employed by the bank are available
to discuss with them their insurance needs, unless the customer happens
to ask about the product. This will prevent in most cases the very bank
employees likeliest to have contact with customers from engaging in the
cross-marketing activities that are permissible for national banks.

By effectively eliminating cross-marketing activities by unlicensed bank
staff, the Massachusetts Referral Prohibition runs afoul of the express
language of section 104(d) of the GLBA. Under section 104(d)(2)(A), in
accordance with the *Barnett* standards, no state may prevent or
significantly interfere with the ability of a depository institution to
engage in "*any* . . . crossmarketing activity" if that cross-marketing
activity is not protected by the safe harbors for referrals set out in
sections 104(d)(2)(B)(iv) and (v).[^30] The word "any" in section
104(d)(2)(A) clearly encompasses a bank's ability to engage in a wide
range of cross-marketing activities, including the referrals prohibited
by Massachusetts.[^31]

The Massachusetts Referral Fee Prohibition imposes a further,
significant limitation on a bank's ability to cross-market insurance
products. As many commenters noted, one effective way for a bank to
cross-market it to offer a financial incentive for unlicensed bank
personnel to refer a customer to qualified insurance personnel. By
prohibiting a bank from offering that financial incentive, the
Massachusetts Referral Fee Prohibition impermissibly prevents the bank
from structuring its internal operations so that it can engage
effectively in the cross-marketing activities permitted by GLBA.

Thus, in our view, both the Massachusetts Referral Prohibition and the
Massachusetts Referral Fee Prohibition would be preempted under the
*Barnett* standards incorporated in section 104(d)(2) because they
frustrate the authority of national banks to engage in insurance
activities and activities incidental thereto. National banks\' ability
to engage in insurance activities encompasses their ability to engage in
activities incidental to those insurance activities, such as marketing
the availability of the insurance products. *See* 12 U.S.C. §
24(Seventh); *Franklin National Bank,* 347 U.S. at 377-378. The
Massachusetts Referral Prohibition and the Massachusetts Referral Fee
Prohibition conflict with these powers, in particular, with a bank's
ability to engage, as described in section 104(d)(2)(A) of GLBA, in
cross-marketing activities. As many commenters pointed out, the state
law in question effectively deprives a bank of an important means of
advertising the availability of an entire line of financial products
that it is authorized to offer. Thus, consistent with the Supreme
Court\'s holdings in *Barnett* and *Franklin National Bank*, we believe
that the Massachusetts Referral Prohibition and the Massachusetts
Referral Fee Prohibition are preempted because they conflict with
national banks\' authority to market the availability of products that
the banks may offer under federal law and, therefore, to engage in the
full range of insurance activities authorized by Congress.[^32]

**B. The Massachusetts Restrictions on the Timing of an Insurance
Solicitation**

The Massachusetts statute and regulations also prohibit banks from
telling loan applicants that insurance products are available through
the bank until the application is approved and, in the case of a loan
secured by a mortgage on real property, until after the customer has
accepted the bank's written commitment to extend credit (the Waiting
Period Requirement).[^33] There are no limits in federal law that impose
conditions on a national bank\'s insurance activities comparable to the
limits imposed by the Waiting Period Requirement. Moreover, as the
Massachusetts Director acknowledged in her letter,[^34] there are no
GLBA Safe Harbors that would protect this requirement. Accordingly, the
Waiting Period Requirement must be analyzed under the standards for
preemption set forth in *Barnett* and made applicable to national
banks\' insurance activities by section 104(d)(2).

In our opinion, the Waiting Period Requirement is preempted under those
standards because of the requirement\'s impact on the ability of a
depository institution to engage in insurance sales, solicitation, and
cross-marketing activity. The Massachusetts Director asserts that the
Waiting Period Requirement does not "significantly interfere" with the
ability of a bank to sell insurance because the requirement merely
governs *when* the bank may solicit consumers.[^35] That
characterization substantially understates the effect of the requirement
on a bank\'s ability to cross-market its products, however. As we stated
in the West Virginia Letter, based on our experience, restricting the
timing of an insurance solicitation also restricts "the methods by which
a bank may solicit an insurance sale from a customer and thus
substantively affects the bank's ability to solicit and sell insurance
products."[^36] The Massachusetts Waiting Period Requirement, like the
timing provision considered in the West Virginia letter, would preclude
national banks from availing themselves of a prime opportunity to
cross-market insurance products, that is, when the transaction is still
in process.

It also would make subsequent cross-marketing much more costly by
requiring banks to develop databases to keep track of customers that
have loans pending with the bank. Banks would have to institute methods
of communicating this information to its sales force and of apprising
the sales force of changes as they occur. The Waiting Period Requirement
also would significantly hamper a bank's mass mailing efforts since bank
staff would be required to remove from the mass mailing those
individuals who have loans pending with the bank. The cost of developing
and maintaining these procedures would impair the bank's ability to
engage in insurance activities and frustrate its ability to pursue
particular sales activities.[^37]

**IV. [Conclusions]{.underline}**

The Massachusetts Referral and Referral Fee Prohibitions frustrate the
ability of national banks to cross-market insurance products, an
authority specifically referenced in section 104 of GLBA and recognized
by the Supreme Court as essential to the conduct of modern business. The
Massachusetts Waiting Period Requirement impermissibly restricts the
methods by which a bank may solicit an insurance sale from a customer
and would also significantly interfere with the cross-marketing of
insurance products. It is therefore our opinion that the Massachusetts
Referral Prohibition, the Massachusetts Referral Fee Prohibition, and
the Massachusetts Waiting Period Requirement would be preempted under
the *Barnett* standards incorporated in GLBA section 104(d)(2).

Sincerely,

Julie L. Williams

First Senior Deputy Comptroller and Chief Counsel

[^1]: The provisions of the Massachusetts law and implementing
    regulations are collectively referred to in this letter as the
    "Massachusetts Law."

[^2]: *See* Pub. L. No. 106-102, 113 Stat. 1338 (Nov. 12, 1999).

[^3]: Chapter 129 of the Acts of 1998. The provisions at issue here are
    codified at M[ass]{.smallcaps}. G[en]{.smallcaps}. L. ch. 167F, §
    2A.

[^4]: 209 CMR 49.00, *et seq*. and 211 CMR 142.00, *et seq*.

[^5]: GLBA § 104, 113 Stat. At 1352. Section 104 of the GLBA is codified
    at 15 U.S.C. § 6701. In this letter, we cite section 104 of the GLBA
    rather than the provision as codified.

[^6]: *See* 65 Fed. Reg. 43827 (July 14, 2000).

[^7]: *See* 12 U.S.C. § 43 (requiring, under certain circumstances, that
    the OCC publish notice of preemption issues as well as "any final
    opinion letter" on such issues).

[^8]: *See* *United States v. Mead Corp.*, 121 S. Ct. 2164, 2173 n.13
    (2001) (describing the weight generally given by the courts to
    certain OCC interpretive opinions).

[^9]: *See* GLBA § 304, 113 Stat. at 1338, *codified at* 15 U.S.C. §
    6714.

[^10]: *See* GLBA § 301, 113 Stat. at 1407, *codified at* 15 U.S.C.
    § 6711 ("The insurance activities of any person (including a
    national bank exercising its power to act as agency under \[12
    U.S.C. § 92\]) shall be functionally regulated by the States,
    *subject to section 104*.") (emphasis added).

[^11]: Several commenters also asserted that under section 305 of the
    GLBA, state insurance customer protection statutes may only be
    preempted if the federal banking agencies jointly determine that the
    federal regulations enacted pursuant to section 305 provide greater
    consumer protection than the state law. See GLBA, § 305, 113 Stat.
    at 1410-15, *codified at* 12 U.S.C. § 1831x. Section 305 of the GLBA
    directed the federal banking agencies to promulgate certain consumer
    protection regulations relating to the sale, solicitation, and
    advertising of insurance products by depository institutions and
    persons selling insurance on the premises of depository institutions
    or otherwise on behalf of such institutions. Section 305(g)(2)
    explains the relationship between these regulations and state laws
    that are in effect in that jurisdiction. Pursuant to section
    305(g)(2), these federal regulations do not override inconsistent
    state laws unless the agencies jointly determine that the federal
    regulations provide better consumer protections than the state
    provisions. The state then is given up to 3 years to override that
    determination. Section 305(g) relates solely to the preemptive
    effect that is to be given to federal regulations promulgated under
    section 305(a). By its terms, it does not relate to the preemptive
    effect that is to be given to other federal regulations or statutes.
    In the insurance sales area, this is determined pursuant to section
    104 of the GLBA and the *Barnett* standards it incorporates, as
    explained in Section II of this letter.

[^12]: The Model Unfair Trade Practices Act is available on the NAIC's
    website, [www.NAIC.org](http://www.NAIC.org/).

[^13]: 55 F. Supp. 2d 799 (S.D. Ohio 1999).

[^14]: 270 F.3d 397 (6^th^ Cir. 2001). The Sixth Circuit remanded the
    case for further consideration of whether certain corporate
    organizational licensing requirements are preempted in light of
    GLBA. However, the Sixth Circuit resolved the issues of relevance to
    our consideration of the Massachusetts Law, namely, the legal
    standards to apply when considering whether a state law is
    preempted. As is explained further in Section II of this letter, the
    Sixth Circuit was clear that section 104 requires that the entire
    preemption test as set out in *Barnett* \-- and not one limited to a
    consideration of whether a state law \"prevents or significantly
    interferes\" with a federal power \-- is to be applied. The remand
    will resolve whether the corporate organizational requirements are
    preempted in light of *Barnett* and the anti-discrimination
    provision set out in section 104(e) of GLBA. However, the outcome of
    that remand will not affect the conclusions reached in this letter.

[^15]: Letter from Julie L. Williams, First Senior Deputy Comptroller
    and Chief Counsel, to Sandra Murphy, Esq., dated September 24, 2001.
    This letter was published in the *Federal Register* at 66 Fed. Reg.
    51502 (October 9, 2001).

[^16]: GLBA §§ 104(c)(1), (d)(1), and (d)(2), respectively.

[^17]: GLBA § 104(d)(2)(A). State statutes that were enacted after
    September 3, 1998, also must meet certain non-discrimination
    standards with respect to those provisions not covered by the Safe
    Harbors. *See* GLBA § 104(e). The Massachusetts Law was enacted on
    May 22, 1998, and therefore these nondiscrimination provisions are
    not applicable to this analysis.

[^18]: *See* GLBA §§ 104(d)(2)(B)(i) - (xiii).

[^19]: *Barnett*, 517 U.S. at 31, *quoting Hines v. Davidowitz*, 312
    U.S. 52, 67 (1941). The Court's quotation from the *Hines* case came
    at the conclusion of a paragraph summarizing the 3 traditional bases
    for federal preemption under the Supremacy Clause:

    > Sometimes courts, when facing the pre-emption question, find
    > language in the federal statute that reveals an explicit
    > congressional intent to pre-empt state law. More often, explicit
    > pre-emption language does not appear, or does not directly answer
    > the question. In that event, courts must consider whether the
    > federal statute's "structure and purpose," or nonspecific
    > statutory language, nonetheless reveal a clear, but implicit,
    > pre-emptive intent. A federal statute, for example, may create a
    > scheme of federal regulation "so pervasive as to make reasonable
    > the inference that Congress left no room for the States to
    > supplement it." Alternatively, federal law may be in
    > "irreconcilable conflict" with state law. Compliance with both
    > statutes, for example, may be a "physical impossibility," or, the
    > state law may "stan\[d\] as an obstacle to the accomplishment and
    > execution of the full purposes and objectives of Congress."

    *Id*. at 31 (citations omitted).

[^20]: In describing this analysis, the Court said:

    > \[T\]he Federal Statute says that its grant of authority to sell
    > insurance is in "addition to the *powers* now vested by law in
    > national \[banks\]." \[12 U.S.C. § 92\] (emphasis added). In using
    > the word "powers," the statute chooses a legal concept that, in
    > the context of national bank legislation, has a history. That
    > history is one of interpreting grants of both enumerated and
    > incidental "powers" to national banks as grants of authority not
    > normally limited by, but rather ordinarily pre-empting, contrary
    > state law. See, *e.g.*, *First Nat. Bank of San Jose v.
    > California*, 262 U.S. 366, 368-369 (1923) (national banks' "power"
    > to receive deposits pre-empts contrary state escheat law); *Easton
    > v. Iowa*, 188 U.S. 220, 229-230 (1903) (national banking system
    > normally "independent, so far as powers conferred are concerned,
    > of state legislation").

    *Barnett*, 517 U.S. at 32 (parallel and "cf." citations omitted).

[^21]: *Franklin National Bank of Franklin Square v. New York*, 347 U.S.
    373 (1954), cited in *Barnett*, 517 U.S. at 33.

[^22]: *Barnett*, 517 U.S. at 35 ("Thus, the Court's discussion in
    *Franklin Nat. Bank*, the holding of that case, and the other
    precedent we have cited above, strongly argue for a similar
    interpretation here \-- a broad interpretation of the word 'may'
    that does not condition federal permission upon that of the
    State.").

[^23]: *Barnett*, 517 U.S. at 33-34.

[^24]: Thus, under *Franklin*, *Barnett*, and other federal cases, a
    conflict between a state law and federal law need not amount to a
    whole, or even partial, prohibition in order for the federal law to
    have preemptive effect. *See Barnett*, 517 U.S. at 31-32. Where a
    federal grant of authority is unrestricted, state law that attempts
    to place limits on the scope and effective exercise by a national
    bank of its express or incidental powers will be preempted. *See*,
    *e.g.*, *Franklin National Bank*, 347 U.S. at 378; *Duryee*, 270
    F.3d at 409 ("The intervenors' attempt to redefine 'significantly
    interfere' as 'effectively thwart' is unpersuasive."); *New York
    Bankers Ass'n, Inc.* v. *Levin*, 999 F. Supp. 716, 719 (W.D.N.Y.
    1998) (holding that a New York statute that restricted the types of
    insurance banks could sell to their customers was preempted on the
    grounds that the state law "constitutes an interference with
    \[banks'\] rights" to sell insurance).

[^25]: National banks are authorized to engage in insurance activities
    by a number of federal statutory provisions, including: 12 USC §
    24(Seventh) (*e.g.,* credit life insurance); 12 U.S.C. § 24a
    (authority to engage in insurance sales through a financial
    subsidiary); 12 U.S.C. § 92 (authority to sell insurance from "small
    towns"); and 15 U.S.C. § 6713 (title insurance, where permissible
    for state banks).

[^26]: GLBA, § 104(d)(2)(C)(iii). The words "this paragraph" in the
    lead-in language mean paragraph (2) of subsection (d). We construe
    the "no inference" language in the second clause to mean that a
    state law may not be inferred to be preempted under the "prevent or
    significantly interfere standard" solely because it is excluded from
    coverage by one of the Safe Harbors. Accordingly, our analysis in
    Section III draws no such inferences.

[^27]: As we noted in the West Virginia Letter, the legislative history
    of section 104 confirms that Congress intended to incorporate the
    whole of *Barnett* by referencing it in that section. The Senate
    Report accompanying the GLBA, in commenting on a provision
    prescribing the "prevent or significantly interfere" standard, using
    language that was almost identical to the language of section
    104(d)(2) as ultimately enacted, states that:

    > The Committee believes that State insurance sales, solicitation,
    > and cross-marketing laws adopted prior to September 3, 1998 should
    > be subject to preemption under the preemption standards applicable
    > when such laws were adopted. Thus, it is the Committee's intent
    > that such laws may be subject to preemption under applicable case
    > law, and the statutory preemption standard set forth in subsection
    > 104(d)(2)(A), which is patterned after such case law. There is an
    > extensive body of case law related to the preemption of State law.
    > For example, in *Barnett Bank of Marion County, N.A. v. Nelson,*
    > 116 S.Ct. 1103 (1996), the U.S. Supreme Court noted that Federal
    > courts have preempted State laws that "prevent or significantly
    > interfere" with a national bank's exercise of its powers; that
    > "unlawfully encroach" on the rights and privileges of national
    > banks; that "destroy or hamper" national banks' functions; or that
    > "interfere with or impair" national banks' efficiency in
    > performing authorized functions.

    S. Rep. No. 44, 106^th^ Cong. 1^st^ Sess. At 13 (1999). (The
    limitation on the application of this standard to state laws adopted
    prior to September 3, 1998 was deleted in the final legislation.)
    The Senate Report described as affirmative preemption standards
    phrases that the *Barnett* Court used to describe cases in which
    state law was not preempted. This transposition does not change the
    substance of the point sought to be made in the Report, namely, that
    the intention of Congress was to incorporate into the statute the
    pre-existing standards described in the applicable caselaw and not a
    new standard comprising only the "prevent or significantly
    interfere" language. As we have previously described, it is the
    application of the conflicts analysis and not the particular words
    used to describe the effect of a state statute that comprise the
    *Barnett* standards. *See* H. Rep. 106-74 Part 3 at 139 ("Subsection
    104(b)(2)(C) reiterates the underlying principles of subsection
    104(b)(2)(A), affirming that the *Barnett* standard and case law
    continues to be applicable to insurance sales, solicitations, and
    cross-marketing activities that are not protected by the safe
    harbors set forth in subsection 104(b)(2)(B)."); and *Duryee*, 270
    F.3d at 409 (noting that "the Barnett Bank opinion cited two cases
    that do not support the intervenors' interpretation of the
    standard").

[^28]: M[ass]{.smallcaps}. G[en]{.smallcaps}. L. ch. 167F, § 2A(b)(2).

[^29]: *See* Comment Letter from Jennifer Davis Carey, Director,
    Consumer Affairs and Business Regulation, Commonwealth of
    Massachusetts, dated August 10, 2000, at 3 (hereinafter "Director's
    Letter").

[^30]: GLBA § 104(d)(2)(A) (emphasis added).

[^31]: We note that federal law expressly contemplates that a national
    bank employee may make referrals, and receive compensation for
    making referrals, that would be prohibited under Massachusetts Law.
    Section 305 of the GLBA requires the OCC and the other federal
    banking agencies to prescribe regulations that include, among other
    provisions:

    > \[s\]tandards that permit any person accepting deposits from the
    > public in an area where such transactions are routinely conducted
    > in a depository institution to refer a customer who seeks to
    > purchase any insurance product to a qualified person who sells
    > such product, only if the person making the referral receives no
    > more than a one-time nominal fee of a fixed dollar amount for each
    > referral that does not depend on whether the referral results in a
    > transaction.

    *See* *also* 12 C.F.R. § 14.50(b) (OCC implementing regulations). As
    noted above, Safe Harbor (iv) permits bank employees who are not
    licensed to engage in insurance activities to make referrals under
    certain circumstances; and Safe Harbor (v) protects from preemption
    only state prohibition of referral fees based on the customer's
    purchase of insurance. Thus, Congress clearly contemplated that bank
    employees would make referrals to persons in the bank licensed to
    sell insurance and receive compensation for doing so.

[^32]: The Massachusetts Director also asserted in her letter that the
    Referral Prohibition and Referral Fee Prohibition should not be
    preempted because the provisions are "consumer protective in nature
    and guard against inappropriate product recommendations, high
    pressure sales tactics and the sale of insurance products on the
    basis of compensation to the seller rather than the benefit to
    consumers." Director's Letter, *supra* note 29, at 2. As explained
    by the district court in the *Duryee* case, however, "\[w\]here
    state and federal laws are inconsistent, the state law is pre-empted
    even if it was enacted by the state to protect its citizens or
    consumers.\" *Duryee*, 55 F.Supp at 802. Agreeing with this
    conclusion, the Sixth Circuit stated that \"the fact that the state
    legislature enacted the \[state law at issue\] to protect general
    insurance agents and consumers does not, for that reason alone,
    preclude federal preemption." *Duryee*, 270 F.3d at 408**.** *See
    also Franklin National Bank*, 347 U.S. at 378.

[^33]: M[ass]{.smallcaps}. G[en]{.smallcaps}. L. 167F, § 2A(b)(4)(ii)
    and (iii), 209 CMR § 49.06(5)(b) and (c), and 211 CMR § 142.06(2)
    and (3)(b). Specifically, § 142.06(2) provides:

    > No solicitation for the sale of insurance in conjunction with any
    > application for the extension of credit shall be permitted until
    > said application has been approved, such approval and the
    > disclosures required by 211 CMR 142.06 have been provided to said
    > applicant in writing, and the receipt of both said approval and
    > disclosures has been acknowledged in writing by said applicant. .
    > . .

    Section 142.06(3)(b) provides:

    > \(3\) In the instance of an application to a bank for an extension
    > of credit to be secured by a mortgage on real estate and in which
    > it is necessary for the applicant to obtain a policy insuring said
    > premises against loss and designating such bank as loss payee:
    >
    > \* \* \*
    >
    > \(b\) such bank shall not, in any manner, solicit the applicant to
    > purchase the required insurance from the bank until said
    > commitment has been accepted by the applicant . . . .

[^34]: Pursuant to the Director's Letter, the Director's acknowledgement
    of this point "shall \[not\] be construed in any way to waive or
    concede any issues . . . that may arise in any other proceeding
    regarding the Massachusetts bank insurance laws." Director's Letter,
    *supra* note 29, at 3.

[^35]: We note that other Federal regulations contemplate, and in some
    instances require, that insurance solicitations occur *prior* to
    loan approval. Under the Truth-in-Lending-Act regulations, a lender
    must disclose to a consumer the finance charge, which in some
    instances includes insurance costs, associated with a loan. *See* 12
    C.F.R. §§ 226.4(d) and 226.18. The estimated finance charge
    disclosure in connection with a residential mortgage loan subject to
    the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 *et seq.*,
    typically is required prior to loan approval. *See* 12 C.F.R. §
    226.19(a) (disclosure must be made prior to the loan's consummation
    or mailed within three days of receipt of the consumer's
    application, whichever is earlier). Similarly, a lender must make
    the insurance disclosures required by the GLBA Section 305
    regulations "at the time the consumer applies for an extension of
    credit in connection with which an insurance product is solicited,
    offered or sold." *See* 12 C.F.R. § 14.40(c)(1).

[^36]: West Virginia Letter at 25.

[^37]: The Massachusetts Director argues that preemption of the Waiting
    Period Requirement would interfere with Massachusetts insurance laws
    and other consumer protection laws that prohibit "tying." We have
    not been asked to consider these other Massachusetts laws in this
    letter. We note, however, that national banks are required to comply
    with the significant tying restrictions imposed by federal law.
    Twelve U.S.C. § 1972 generally prohibits a bank from extending
    credit, leasing or selling property, furnishing services, or fixing
    or varying prices of these transactions on the condition or
    requirement that the customer obtain additional credit, property, or
    service from the bank, subject to certain exceptions. Nothing in
    this opinion would allow national banks to engage in impermissible
    tying under section 1972. Moreover, section 305 of the GLBA requires
    that the OCC's insurance consumer protection regulations contain
    anti-tying provisions consistent with section 1972. *See* 12 C.F.R.
    § 14.30(a).