[Congressional Record Volume 141, Number 55 (Friday, March 24, 1995)]
[Extensions of Remarks]
[Pages E693-E694]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


  THE INSURANCE STATE'S AND CONSUMERS' RIGHTS CLARIFICATION AND FAIR 
                            COMPETITION ACT

                                 ______


                          HON. JOHN D. DINGELL

                              of michigan

                    in the house of representatives

                         Friday, March 24, 1995
  Mr. DINGELL. Mr. Speaker, today I am pleased to join with the 
distinguished chairman of the Commerce Committee as an original 
cosponsor of the Insurance State's and Consumers' Rights Clarification 
and Fair Competition Act. This is important consumer protection and 
competitiveness legislation that deserves strong bipartisan support.
  This legislation requires that anyone who sells, underwrites, or 
solicits the purchase of 
[[Page E694]] insurance will have to comply with all applicable State 
insurance regulatory requirements. This will ensure a level competitive 
playing field and consistent consumer protection.
  On September 22, 1994, Congresswoman Collins of Michigan, joined me 
in introducing a substantially similar bill, H.R. 5075, the Insurance 
Sales and Underwriting Consumer Protection Act of 1994. I commend the 
gentleman from Virginia for expanding upon those efforts.
  While some of you may wonder at the necessity of having a Federal law 
saying that people in the insurance business must comply with State 
insurance laws, I assure my colleagues that it is very necessary 
indeed. The hearing record in past Congresses in the Energy and 
Commerce Committee's Oversight and Investigations Subcommittee and its 
Commerce, Consumer Protection, and Competitiveness Subcommittee, as 
well as recent actions by the Comptroller of the Currency and the 
courts, demonstrate the urgent need for this bill.
  First, during our oversight hearings on the problems faced by 
financial services providers as a result of savings and loan failures, 
we discovered that a number of failed savings and loans had sold 
insurance products to their customers, and that they had done so 
without disclosing to these customers that the insurance products were 
not insured by the Federal Government. When the savings and loans 
failed--and the insurance company that had underwritten many of these 
policies also failed--customers were stunned to discover that the FDIC 
did not cover their
 insurance. As a result, they suffered both significant emotional and 
financial losses.

  A second example can be found in the aftermath of the Los Angeles 
riots following the Rodney King trial. Many of the small business 
people devastated by the riots filed claims with their insurance 
companies, only to find out that these companies had violated 
California law by selling insurance in California without 
authorization. Many of these companies would not, or could not, pay 
these valid claims. Many of these businesses were forced to close and 
others suffered extreme financial difficulties because the insurance 
they purchased was no insurance at all.
  Finally, there is the so-called retirement CD. This is a product, 
originally offered by the Blackfeet National Bank, that is designed to 
obtain FDIC insurance protection for an annuity, that is, insurance, 
product. The promoters of this product have described it as free from 
taxes on inside buildup, as is true of life insurance; as insured by 
the FDIC; and as free from all State insurance regulation, whether 
these regulations apply to underwriting financial requirements to 
protect the safety and soundness of the bank or to consumer protection 
requirements. In May 1994, the Comptroller of the Currency approved 
this product for bank sales subject to certain conditions, in apparent 
agreement with the proposition that Federal banking laws preempt State 
insurance laws, and that banks may provide insurance. Not only is it 
absolutely clear that Congress has never preempted State insurance laws 
as to banks providing insurance, it is also a clear misreading of the 
laws Congress has passed. The National Bank Act has been interpreted to 
prohibit national banks from engaging in the business of insurance. In 
addition, the Glass-Steagall Act prohibits banks from engaging in 
commerce.
  In 1990, the Comptroller ruled that national banks could sell 
annuities. The Comptroller further concluded that annuities should be 
classified as investments, rather than as insurance. The Comptroller's 
ruling was challenged in Federal court by Variable Annuity Life 
Insurance Co., a unit of Houston-based American General. In January of 
this year, the Supreme Court ruled that national banks may sell 
annuities. Last month, a Federal judge in New Mexico ruled that the 
State insurance commissioner could not prevent First National Bank of 
Sante Fe from selling the retirement CD.
  The impact of these decisions on consumers is troublesome and 
significant as pointed out by Jane Bryant Quinn this past Sunday, 
``Think
 Twice About New Retirement CDs.'' Washington Post, Sunday, March 12, 
1995, at H2:

       The rates are lower than you would get on the open market. 
     That's the price you pay for the tax deferral and the deposit 
     insurance. But the banks can't pay you less than 3 percent. 
     You face serious penalties for early withdrawal except in the 
     case of death, disability or, at the Santa Fe bank, lengthy 
     hospitalization.
       At maturity, you must turn at least one-third of your 
     savings into a lifetime income from the same bank--so you 
     shouldn't buy this CD unless you intend to keep it. You can't 
     even switch banks without creating tax obligations on the 
     money.
       Bottom line: There's no escape from a retirement CD except 
     at considerable cost. With an insurance company annuity, you 
     can switch to a new insurer, tax free, if the new one pays a 
     better rate. But with a bank, you're stuck. The banks know 
     you're trapped, which may tempt them to pay low yields every 
     time you renew your CD.
       Even now, the bank's return is poor. Given a $51,000 
     accumulation, for a 65-year-old woman, the retirement CD 
     would pay $229 to $279 a month for life at the banks now 
     offering the product. By contrast, the top 10 insurance 
     company annuities are paying an average of $386, according to 
     Annuity Shopper magazine in Englishtown, N.J. That's a lot of 
     money to give up for deposit insurance. I think the banks 
     should try again.

  It is no secret that the Oversight and Investigations Subcommittee 
has had many hearings on the inadequacy of the current State insurance 
regulatory system, and that I believe that there should be Federal 
regulation of this interstate and international industry. I still hold 
that belief. However, the State insurance regulatory system is all that 
currently exists to protect insurance consumers and to ensure the 
financial stability and safe operation of insurance providers. It is 
imperative, for the protection of consumers, and to ensure the 
financial soundness of insurance products, that, at the very least, 
existing State insurance standards and protections are met by everyone 
selling or underwriting insurance, whether they are a bank, foreign 
company, or insurance company.
  The bill I am cosponsoring today, does not impose any new substantive 
requirements on anyone who provides insurance. It simply says that if 
you provide insurance in interstate commerce, regardless of who you 
are, you must comply with the insurance sales, licensing, and financial 
requirements of the State in which you are providing the insurance.
  I urge my colleagues to support this sensible and fair legislation 
when it comes to the House floor.


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