[Congressional Record Volume 145, Number 77 (Wednesday, May 26, 1999)]
[Senate]
[Pages S6046-S6047]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              FINANCIAL SERVICES MODERNIZATION ACT OF 1999

  Mr. BRYAN. Mr. President, I want to voice my disagreement with a 
portion of Senate Report Number 106-44, which accompanied S. 900, the 
Financial Services Modernization Act of 1999. The Report describes an 
amendment that I offered that was adopted by a unanimous vote of the 
Senate Banking Committee during its consideration of S. 900. I want to 
explain what I intend that amendment to mean and how I intend its 
language to be interpreted.
  At issue is the standard for determining whether State laws, 
regulations, orders and other interpretations regulating the sale, 
solicitation and cross-marketing of insurance products should be 
preempted by federal laws authorizing insurance sales by insured 
depository institutions and their subsidiaries and affiliates. Since 
the inception of the national banking system, the insurance sales 
powers of national banks have been heavily restricted. In addition, 
since the inception of the insurance industry in this country, the 
States have been the virtually exclusive regulators of that business. 
Although S. 900 seeks to tear down the barriers that separate the 
banking, insurance and securities industries, at the same time it seeks 
to preserve functional regulation. This means that the extensive 
regulatory systems that have been developed to protect consumer 
interests in each area of financial services should be retained.
  For that reason, one of the principles of the proposed legislation is 
to ensure that the activities of everyone who engages in the business 
of insurance should be functionally regulated by the States. After all, 
the States are the sole repository of regulatory expertise in this 
area. During my review of the Committee Print before the mark-up and 
during my conversations with my Senate colleagues, it became evident 
that the Committee Print's provisions regarding the preemption of State 
insurance laws and regulations did not adhere to this principle. The 
Committee Print disregarded the Supreme Court's holding in Barnett Bank 
of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996), regarding the 
standard for preempting State regulation of insurance sales activity.
  I therefore introduced an amendment that replaced the Committee 
Print's insurance sales preemption provisions with substitute 
provisions based on the Supreme Court's Barnett standard. My amendment 
deleted all of the provisions in the Committee Print regarding the 
permissible scope of state regulation of the insurance sales activities 
of insured depository institutions, their subsidiaries and affiliates. 
My amendment substituted language that had been developed and analyzed 
during prior considerations of these issues in previous Congresses, in 
particular during senate consideration of H.R. 10 last year.
  The core preemption standard included in my amendment now appears as 
Section 104(d)(2)(A) of S. 900. It states:

       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, 116 
     U.S. 1103 (1996), no State may, by statute, regulation, 
     order, interpretation, or other action, prevent or 
     significantly interfere with the ability of an insured 
     depository institution, or a subsidiary or affiliate thereof, 
     to engage, directly or indirectly, either by itself or in 
     conjunction with a subsidiary, affiliate, or any other party, 
     in any insurance sales, solicitation, or cross-marketing 
     activity.

  The ``prevent or significantly interfere'' language was taken 
directly from the Supreme Court's Barnett decision and is intended to 
codify that decision. No further amplification of the standard was 
included because my colleagues and I intended to leave the development 
of the interpretation of that standard to the courts.
  There is a great deal of disagreement among both regulators and 
members of the affected industries as to the manner in which the 
standard should be amplified. Indeed, State insurance regulators and 
significant portions of the insurance industry did not support the 
usage of the ``significant interference'' test at all but instead 
sought a clarification, supported by the Barnett opinion, that only 
state laws and regulations that ``prohibit or constructively prohibit'' 
an insured depository institution, or an affiliate or subsidiary of an 
insured depository institution, from engaging in insurance sales 
activities should be preempted.
  Mr. SARBANES. I wish to associate myself with the statements of my 
colleague, Senator Bryan, the author of the amendment adopted by the 
Banking Committee. My understanding in voting for his amendment was 
that it codified the Barnett Bank standard for preemption of State 
laws. The Committee Report accompanying S. 900 seeks to amplify, or put 
a gloss on, the Barnett Bank standard. I would like to ask the Senator 
from Nevada whether the gloss put on the ``prevent or significantly 
interfere'' standard in the Committee Report is in keeping with his 
amendment.
  Mr. BRYAN. My colleague from Maryland asks a perceptive question. The 
Committee Report attempts to clarify the core preemption standard in a 
way that is contrary to the meaning of the provision. Page 13 of the 
Report states that State laws are preempted not only if they `` 
`prevent or significantly interfere' with a national bank's exercise of 
its powers'' but also if they `` `unlawfully encroach' on the rights 
and privileges of national banks;'' if they `` `destroy or hamper' 
national banks' functions;'' of if they `` `interfere with or impair' 
national banks' efficiency in performing authorized functions.'' The 
clauses after the initial restatement of the standard are paraphrases 
of the holdings of the cases cited in Barnett.
  As I noted earlier, I intentionally omitted any amplification of the 
Barnett standard. In addition, the last paraphrase (regarding 
``efficiency'') is correct and harmful. It is incorrect because it 
implies that it applies to any authorized function. In fact, the case 
cited by the Supreme Court in Barnett said that a State cannot impair a 
national bank's ability to discharge its duties to the government. The 
last paraphrase is harmful because it could dramatically expand the 
scope of the preemption provision. It could do so if read to prohibit 
the application of any State law that impairs a national bank's or its 
affiliate's or subsidiary's efficiency in selling insurance. The 
Barnett opinion does not support any

[[Page S6047]]

such reading. Moreover, if this language had been suggested as an 
amendment to my amendment, I would not have supported it nor would the 
majority of my colleagues.

  The Committee Report also lists several examples of State law 
provisions that the Report states should be preempted under the 
standard, incorporated into S. 900. As noted above, this violates my 
intent in offering an amendment based on the Barnett standard. For 
example, page 13 of the Committee Report states that an ``example of a 
State law that would be preempted under the standard set forth in 
subsection 104(d)(2)(A) would be a statute that limits the volume or 
portion of insurance sales made by an insurance agent on the basis of 
whether such sales are made to customers of an insured depository 
institution or any affiliate of the agent.'' I strongly disagree. State 
statutes that limit sales in this manner or that effectively require 
all insurance agents to engage in public insurance agency activities, 
and not limit their sales efforts to their captive customers, are not 
preempted under the Section 104(d)(2)(A) preemption standard.
  In addition, page 14 of the Committee Report offers a requirement 
that insurance activities take place more than 100 yards from a teller 
window as an example of a State law provision that would be preempted. 
I wish to note that less restrictive provisions that merely require the 
physical separation of insurance activities from other activities 
within a bank are not preempted under the Section 104(d)(2)(A) 
preemption standard. The intent underlying the amendment was to leave 
these determinations of what is or is not preempted to the courts, 
based on the applicable legal standards identified in Barnett.
  Finally, I fell compelled to note that page 15 of the Committee 
Report states that nothing in the preemption provisions can be read to 
require licensure of the bank itself, only of employees acting as 
agents. While this is technically true, it creates some potential 
confusion with the core licensure requirement. This should be read as 
allowing institution licensure so long as that licensure does not 
``prevent or significantly interfere with'' the exercise of authorized 
insurance sales powers.
  Mr. SARBANES. I would like to point out that the language of the 
amendment offered by my colleague from Nevada was previously explained 
in the Report of the Banking Committee that accompanied H.R. 10 last 
year. For State laws that fall outside the 13-point safe harbor, the 
bill does not limit in any way the application of the Supreme Court's 
Barnett Bank decision. State laws outside the safe harbor could be 
challenged under that decision. This year's Committee Report 
incorrectly describes the standard that State laws must meet under 
Barnett Bank in order to avoid being preempted.
  Mr. BRYAN. In closing, I should say that I would have brought my 
concerns regarding the Committee Report language directly to the 
Committee Chairman, Senator Gramm, and his staff but I did not have the 
opportunity to read the Committee Report language discussing my 
amendment prior to its publication.

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