[Federal Register Volume 66, Number 195 (Tuesday, October 9, 2001)]
[Notices]
[Pages 51502-51512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-25231]


-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket No. 01-22]


Preemption Opinion

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 of 
whether Federal law preempts certain provisions of the West Virginia 
Insurance Sales Consumer Protection Act (West Virginia Act or Act). The 
OCC has determined that Federal law preempts some, but not all, 
provisions of the West Virginia Act.

FOR FURTHER INFORMATION CONTACT: Mark Tenhundfeld, Assistant Director, 
or Mary Ann Nash, Counsel, Legislative and Regulatory Activities 
Division, (202) 874-5090.

SUPPLEMENTARY INFORMATION: On June 2, 2000, the OCC published in the 
Federal Register notice of a request from the West Virginia Bankers 
Association (Requester) for the OCC's opinion concerning whether 
section 104 of the Gramm-Leach-Bliley Act (GLBA) preempts certain 
provisions of the West Virginia Act. See Notice of Request for 
Preemption Determination, 65 FR 35420 (June 2, 2000) (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 West Virginia Act that the Requester 
had identified. In response, the OCC received 67 comments from 63 
commenters. A number of commenters, including banks and the West 
Virginia banking trade association, thought that some or all of the 
provisions in question were preempted. Other commenters opposed 
preemption, generally asserting that provisions of the West Virginia 
Act fell within the safe harbor provisions of GLBA or did not prevent 
or significantly interfere with the ability of a financial institution 
to engage in any insurance sales, solicitation, or crossmarketing 
activity.
    For the reasons described in the preemption opinion, the OCC has 
concluded that Federal law preempts some, but not all, of the 
provisions of the West Virginia Act. In particular, it is the OCC's 
opinion that Federal law does not preempt the following provisions of 
the West Virginia Act with respect to national banks:
     The Act's prohibition against requiring or implying that 
the purchase of an insurance product from a financial institution is 
required as a condition of a loan;
     The Act's provision prohibiting a financial institution 
from offering an insurance product in combination with other products 
unless all of the products are available separately; and
     The Act's requirement that, where insurance is required as 
a condition of obtaining a loan, the insurance and credit transactions 
be completed independently and through separate documents.
    We also conclude that the following provision of the Act is 
preempted only in part:
     With respect to the Act's disclosure requirements, we 
conclude that the provisions prescribing the content of the disclosures 
that a financial institution is required to make in connection with the 
solicitation of an insurance product, and the requirement that a 
financial institution that sells insurance obtain a written 
acknowledgment, in a separate document, from its insurance customer 
that certain disclosures were provided are not preempted; but that the 
Act's provisions regarding the manner and timing of certain required 
disclosures are preempted.
    Finally, it is our opinion that Federal law does preempt the 
following provisions of the West Virginia Act with respect to national 
banks:
     The Act's provisions requiring financial institutions to 
use separate employees for insurance solicitations;
     The Act's restrictions on the timing of bank employees' 
referral or solicitation of insurance business from customers who have 
loan applications pending with the bank;
     The Act's restrictions on sharing with bank affiliates 
information acquired by a financial institution in the course of a loan 
transaction to solicit or offer insurance; and
     The Act's requirement that financial institutions 
segregate the place of solicitation or sale of insurance so that it is 
readily distinguishable as separate and distinct from the deposit-
taking and lending areas.
    The analysis used to reach these conclusions and the reasons for 
each conclusion are described in detail in our reply to the Requester.

    Dated: September 24, 2001,
John D. Hawke, Jr.,
Comptroller of the Currency.

Attachment

September 24, 2001
Sandra Murphy, Esq.,
Bowles Rice McDavid Graff & Love,
 600 Quarrier St.,
Charleston, West Virginia 25301.

    Dear Ms. Murphy: This letter replies to your request, on behalf 
of the West Virginia Bankers Association, for the opinion of the 
Office of the Comptroller of the Currency (OCC) concerning whether 
certain provisions of the West Virginia Insurance Sales Consumer 
Protection Act (the West Virginia Act) \1\ apply to national banks.
---------------------------------------------------------------------------

    \1\ The provisions of the West Virginia Act that you have asked 
us to review are codified at W. Va. Code Secs. 33-11A-6, 33-11A-8 to 
-11, and 33-11A-13 and -14 (2000). For the sake of simplicity, this 
letter usually refer to these provisions by section number only. 
Thus, for example, we refer to Sec. 33-11A-6 as ``section 6.''
---------------------------------------------------------------------------

    For the reasons described in detail in this letter, we have 
concluded that Federal law preempts some, but not all, of the 
provisions of the West Virginia Act that you have asked us to 
review. In particular, it is our opinion that Federal law does not 
preempt the

[[Page 51503]]

following provisions of the West Virginia Act with respect to 
national banks:
     the Act's prohibition, in section 8(a), against 
requiring or implying that the purchase of an insurance product from 
a financial institution is required as a condition of a loan;
     the Act's provision, in section 8(b), prohibiting a 
financial institution from offering an insurance product in 
combination with other products unless all of the products are 
available separately; and
     the Act's requirement, in section 11(a), that, where 
insurance is required as a condition of obtaining a loan, the 
insurance and credit transactions be completed independently and 
through separate documents.
    We also conclude that the following provision of the Act is 
preempted only in part:
     with respect to the Act's disclosure requirements, we 
conclude that the provisions, in section 9(a), prescribing the 
content of the disclosures that a financial institution is required 
to make in connection with the solicitation of an insurance product, 
and the requirement, in section 9(c), that a financial institution 
that sells insurance obtain a written acknowledgment, in a separate 
document, from its insurance customer that certain disclosures were 
provided are not preempted; but that the Act's provisions, in 
section 9(a), regarding the manner and timing of certain required 
disclosures are preempted.
    Finally, it is our opinion that Federal law does preempt the 
following provisions of the West Virginia Act with respect to 
national banks:
     the Act's provisions, in section 6, requiring financial 
institutions to use separate employees for insurance solicitations;
     the Act's restrictions, in section 10(a), on the timing 
of bank employees' referral or solicitation of insurance business 
from customers who have loan applications pending with the bank;
     the Act's restrictions, in sections 13(b) and 13(c), on 
sharing with bank affiliates information acquired by a financial 
institution in the course of a loan transaction to solicit or offer 
insurance; and
     the Act's requirement, in section 14, that financial 
institutions segregate the place of solicitation or sale of 
insurance so that it is readily distinguishable as separate and 
distinct from the deposit-taking and lending areas.
    In reaching these conclusions, we have reviewed each of the 
provisions of the West Virginia Act under the applicable 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 business.
---------------------------------------------------------------------------

    \2\ See Pub. L. No. 106-102, 113 Stat. 1338 (Nov. 12, 1999).
---------------------------------------------------------------------------

    Where the text of the West Virginia Act left some doubt about 
how a particular provision would be administered or applied as a 
practical matter, we have relied on the written comment submitted by 
the Insurance Commissioner for the State of West Virginia and on 
discussions with the staff of the West Virginia Insurance 
Department.
    In addition, we note that the National Association of Insurance 
Commissioners (NAIC) has recently adopted revisions to the NAIC's 
Model Unfair Trade Practices Act (the Model Act) intended to 
implement the insurance functional regulation framework established 
by the GLBA. None of the conclusions reached in this letter result 
in a finding that any of the provisions of the Model Act that were 
adopted to implement the GLBA would be preempted.
    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. The second section describes the framework that 
governs our legal analysis. Finally, the third section analyzes each 
of the provisions of the West Virginia Act that you have asked us to 
review under the applicable principles of Federal preemption.

I. Background: The West Virginia Bankers' Association Request

    On April 14, 1997, the State of West Virginia enacted the West 
Virginia Insurance Sales Consumer Protection Act. The West Virginia 
Act imposes a number of requirements that affect the insurance 
sales, solicitation, or cross-marketing activities of financial 
institutions, including national banks.
    By letter dated May 8, 2000, you requested the OCC's opinion on 
whether section 104 of the GLBA \3\ preempts the specific provisions 
of the West Virginia Act that your letter identified. In support of 
your request, you asserted that the West Virginia provisions do not 
fall within the express safe harbor provisions of the GLBA (Safe 
Harbors),\4\ or are more burdensome or restrictive than the Safe 
Harbors, and impose requirements that prevent or significantly 
interfere with the ability of national banks to exercise their 
authority to engage in insurance sales, solicitation, or 
crossmarketing activities.
---------------------------------------------------------------------------

    \3\ Id. at Sec. 104, 113 Stat. 1352 (1999). 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 to the provision as codified.
    \4\ See GLBA Sec. 104(d)(2)(B).
---------------------------------------------------------------------------

    On June 2, 2000, the OCC published notice of your request in the 
Federal Register and requested comments on whether Federal law 
preempts the West Virginia Act provisions.\5\ We received a total of 
67 comments from 63 different commenters.\6\ Several commenters, 
primarily banks and West Virginia banking trade associations, 
supported preemption of some or all of the West Virginia provisions. 
Commenters opposing preemption generally said that some or all of 
the provisions under review fall within the Safe Harbors and are 
therefore protected from preemption. These commenters also 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 crossmarketing activity. The discussion in Section 
III addresses these points with respect to each State law provision 
that we conclude is preempted by Federal law.
---------------------------------------------------------------------------

    \5\ See 65 FR 35420 (June 2, 2000).
    \6\ The Independent Insurance Agents of Louisiana submitted five 
identical letters signed by five different officers; ten 
organizations representing insurance agents filed identical, or 
substantially similar, letters; and two organizations representing 
banks that sell insurance filed virtually identical comments.
---------------------------------------------------------------------------

    Some of the commenters opposed to preemption also argued more 
generally that the OCC lacks the authority to determine whether 
Federal law preempts the West Virginia provisions. 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. There are, nonetheless, sound reasons why the OCC should 
provide its opinion about the likely outcome of consideration of 
these issues by Federal courts. As the primary supervisor of 
national banks, the OCC is uniquely positioned to evaluate the 
effect of the West Virginia Act on national banks' ability to 
exercise their Federal authority to sell insurance.
    Further, from the practical perspective, in the absence of 
interpretive advice, national banks that sell, or wish to sell, 
insurance in West Virginia will face added cost, burden, and 
uncertainty. Those banks would either have to comply with the 
provisions of the Act, whether or not they apply under the relevant 
Federal preemption standards, or risk adverse action by the State. 
The costs of either alternative, measured both directly and in lost 
business opportunities, could well be substantial.
    A few commenters opposed to preemption asserted that the OCC 
should not find that Federal law preempts the West Virginia Act 
provisions because State insurance regulators are, pursuant to the 
GLBA, responsible for the functional regulation of the business of 
insurance. Several commenters made the related argument that West 
Virginia's interest in protecting consumers pursuant to its 
insurance sales practices statute should compel the conclusion that 
Federal law does not preempt the West Virginia Act.
    As we discuss fully in the next section of this opinion, 
however, the GLBA provides that the States' functional regulation 
authority over insurance activities is subject, in certain respects, 
to Federal preemption standards. 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. The next section describes the applicable Federal 
standards.

II. Federal Preemption Standards

    The GLBA provisions that govern how State law applies to 
national banks (and other depository institutions) are complex. In 
some respects, the statute retains established standards, together 
with important judicial precedents. In other respects, it replaces 
existing standards with new rules. Because the GLBA expressly 
incorporates the decision

[[Page 51504]]

of the United States Supreme Court in Barnett Bank of Marion County, 
N.A. v. Nelson\7\ for certain purposes, we first review the Barnett 
decision, then describe the relevant statutory provisions.
---------------------------------------------------------------------------

    \7\ 517 U.S.C. 25 (1996).
---------------------------------------------------------------------------

A. The Barnett Decision

    Since the inception of the national bank charter, Federal courts 
have decided questions about the applicability of State law to a 
national bank's exercise of its Federally authorized powers by 
applying principles derived from the Supremacy Clause of the United 
States Constitution. In Barnett, the Supreme Court considered a 
Florida law that prohibited a licensed insurance agent from engaging 
in insurance agency activities if the agent was ``associated with, * 
* * owned or controlled by'' \8\ a financial institution. The Court 
held that the Florida statute was preempted by the Federal statute--
12 U.S.C. Sec. 92--that authorizes national banks to sell insurance 
in small towns without regard to affiliation or control.
---------------------------------------------------------------------------

    \8\ See Fla. Stat. Ann. Sec. 626.988(2)(1996).
---------------------------------------------------------------------------

    To reach this conclusion, the Court first reviewed the Federal 
authority provided to national banks by section 92. It held that 
section 92 granted to national banks ``a broad, not a limited, 
permission'' to sell insurance.\9\ In this context, the Court then 
applied traditional Federal preemption standards,\10\ concluding 
that the Florida statute at issue conflicted with section 92 because 
the Florida law was ``an obstacle to the accomplishment and 
execution of the full purposes and objectives of Congress'' \11\ in 
granting national banks the power to sell insurance and was, 
therefore, preempted.
---------------------------------------------------------------------------

    \9\ The Court considered a national bank's authority to sell 
insurance in the historical context of the Federal statutory scheme 
of national bank regulation.
    [T]he Federal Statute [i.e., section 92] says that its grant of 
authority to sell insurance is in ``addition to the powers now 
vested by law in national [banks].'' 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.
    Barnett, 517 U.S. at 32 (citations omitted).
    \10\ The Court summarized the three traditional constitutional 
bases for Federal preemption of State law--express preemption, 
preemption because Congress has ``occupied the field'' of 
regulation, and preemption on account of a conflict between Federal 
and State law--as follows:
    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 laws may 
``stan[d] as an obstacle to the accomplishment and execution of the 
full purposes of and objectives of Congress.''
    Id. at 31 (citations omitted).
    \11\ Id. at 31 (quoting Hines v. Davidowitz, 312 U.S. 52, 67 
(1941)).
---------------------------------------------------------------------------

    The Court went on to note that, while Congress's grant of a 
Federal power cannot be made subject to State-imposed conditions, 
State statutes having only a small effect on the national bank's 
exercise of that power may still apply:
    In defining the pre-emptive scope of statutes and regulations 
granting a power to national banks, [prior preemption] cases take 
the view that normally Congress would not want States to forbid, or 
to 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.\12\
---------------------------------------------------------------------------

    \12\ Id. at 33 (citations omitted).
---------------------------------------------------------------------------

    The Court cited three cases to illustrate the point that State 
laws will not be preempted if they do not, for example, ``unlawfully 
encroach'' upon, ``hamper,'' or ``impair'' the bank's ability to 
engage in the authorized activity.\13\ The State laws that were 
found to apply to national banks in these cases did not serve to 
limit the exercise of bank powers.
---------------------------------------------------------------------------

    \13\ Id. at 33-34 (citing ``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 banks' 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').'').
---------------------------------------------------------------------------

    Under the standards used by the Court in Barnett, a conflict 
between a state law and Federal law need not be complete in order 
for Federal law to have preemptive effect. Where a Federal grant of 
authority is unrestricted, State law that attempts to place limits 
on the scope and exercise of that authority will be preempted.\14\ 
Thus, Federal law preempts not only State laws that purport to 
prohibit a national bank from engaging in an activity permissible 
under Federal law but also State laws that condition or confine the 
exercise by a national bank of its express or incidental powers.
---------------------------------------------------------------------------

    \14\ See, e.g., 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).
---------------------------------------------------------------------------

    The Barnett case is clear, moreover, that State law does apply 
when a Federal grant of power to national banks is accompanied by an 
``explicit statement that the exercise of that power is subject to 
state law.'' \15\ We next review the relevant provisions of the GLBA 
to evaluate the extent to which that statute subjects national 
banks' power to engage in the insurance sales, solicitation, and 
cross-marketing activities covered to State law.
---------------------------------------------------------------------------

    \15\ Barnett, 517 U.S. at 34.
---------------------------------------------------------------------------

B. The GLBA's Federal Preemption Standards

    The GLBA actually contains several different preemption 
standards for different aspects of the operations of banks and their 
affiliates. First, section 104(c)(1) of the GLBA broadly preempts 
any State law that ``prevents or restricts'' the ability of a 
national bank (or other depository institution), or its affiliate, 
from being affiliated with any entity if the affiliation is 
authorized or permitted by Federal law.\16\ Similarly, section 
104(d)(1) preempts any State law that ``prevents or restricts'' a 
national bank (or other depository institution), or its affiliate, 
from engaging in any activity--other than insurance sales, 
solicitation, or cross-marketing--that is permissible for that 
entity to engage in under the GLBA.\17\
---------------------------------------------------------------------------

    \16\ See GLBA Sec. 104(c)(1). Section 104(c)(2) contains 
exceptions to this preemption standard for certain types of State 
regulation of insurance underwriters that are not relevant to our 
analysis of the West Virginia Act.
    \17\ See id. Sec. 104(d)(1), (2)(B). Section 104(d)(3) excepts 
from preemption under the ``prevent or restrict'' standard in 
section 104(d)(1) certain State laws regulating the activities 
(other than sales-related activities) of insurance companies (and 
depository institutions providing savings bank life insurance). See 
id. Sec. 104(d)(3).
---------------------------------------------------------------------------

    With respect to insurance sales, solicitation, or cross-
marketing activities, section 104(d)(2) precludes any State action 
that ``prevents or significantly interferes'' with those activities 
when conducted by a depository institution or its affiliate.\18\ 
However, the statute expressly protects from preemption 13 specified 
types of restrictions on insurance sales, solicitation, and cross-
marketing activities.\19\ The Barnett standards for preemption 
continue to apply, however, to State laws regarding insurance sales, 
solicitation, and cross-marketing activities that are not covered by 
(or substantially the same as) these 13 ``Safe Harbors.'' \20\
---------------------------------------------------------------------------

    \18\ See id. Sec. 104(d)(2)(A).
    \19\ See id. Sec. 104(d)(2)(B)(i)-(xiii).
    \20\ 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 id. 
Sec. 104(e). The West Virginia law was enacted on April 14, 1997, 
and therefore these nondiscrimination provisions are not applicable 
to this analysis.
    Section 104(d)(4) addresses financial activities other than 
insurance, and thus also is not relevant for purposes of this 
analysis.
---------------------------------------------------------------------------

    These provisions of section 104 require a three-step analysis in 
order to determine whether a particular State law applies to a 
national bank. First, if the State law in question is of a type 
addressed by section 104, it is necessary to determine which 
preemption standard--that is, which subsection of section 104--
governs. Second, if the State law pertains to an insurance sales, 
solicitation, or cross-marketing activity, then we must determine 
whether it is protected from preemption by any of the 13 Safe 
Harbors set forth in section 104(d)(2)(B). Finally, if the State law 
pertains to insurance sales, solicitation, or cross-marketing but is 
not protected by any Safe Harbor, the third

[[Page 51505]]

step is to determine whether Federal law preempts the West Virginia 
provision under the Barnett standards, as incorporated by section 
104(d)(2)(A).
    Section 104(d)(2)(A) provides:
    In accordance with the legal standard 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.\21\
---------------------------------------------------------------------------

    \21\ Id. Sec. 104(d)(2)(A).
---------------------------------------------------------------------------

The text of section 104 makes clear that its ``prevent or 
significantly interfere'' standard is the same as the standard that 
was applied by the Supreme Court in the Barnett case. The standard 
itself expressly incorporates Barnett. Moreover, language that 
appears later in the same paragraph--paragraph (2) of subsection 
(d)--expressly preserves the Barnett decision. That language says 
that:
    Nothing in this paragraph shall be construed (I) to limit the 
applicability of the decision of the Supreme Court in Barnett Bank 
of Marion County N.A. v. Nelson, 517 U.S. 25 (1996) with respect to 
any State statute, regulation, order, interpretation, or other 
action that is not referred to or described in subparagraph (B); 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.\22\
---------------------------------------------------------------------------

    \22\ Id. Sec. 104(d)(2)(C)(iii). The reference in the first 
clause to subparagraph (B) is to the Safe Harbors. 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.
---------------------------------------------------------------------------

    The effect of this language is to preserve both the standards 
that the Supreme Court articulated in the Barnett decision and also 
the analysis that the Court used in that case. Thus, the standard 
for preemption used by the Court in Barnett before enactment of GLBA 
is the same standard that applies today with respect to State 
insurance sales, solicitation, or cross-marketing laws that are not 
covered by a Safe Harbor.
    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, confirms this view. The 
Senate Report 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.\23\
---------------------------------------------------------------------------

    \23\ S. Rep. No. 106-44, 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.

III. Application of Federal Preemption Standards to the West Virginia 
Act

A. Summary of the Framework for the Preemption Analysis

    As we have described in discussing the applicable Federal 
preemption standards, we use a three-step analysis to determine 
whether Federal law preempts the provisions of the West Virginia Act 
that you have requested us to review. First, we determine which 
preemption standard in section 104 of the GLBA is applicable.
    Each of the West Virginia provisions that you have asked us to 
review regulates the sales, solicitation, or cross-marketing of 
insurance. Accordingly, the determination whether each of the 
provisions applies to a national bank is governed by section 
104(d)(2)(A) of the GLBA. Section 104(d)(2)(A) establishes the 
``prevent or significantly interfere'' standard, as that standard is 
set forth in the Supreme Court's Barnett decision.
    However, one of the provisions that you have identified--section 
13 of the West Virginia statute--regulates information sharing 
between a financial institution and its affiliate. The area 
addressed by section 13 is also the subject of a Federal statute, 
the Fair Credit Reporting Act \24\ (FCRA), which contains an express 
preemption provision. Where Congress has expressly preempted State 
law, there is no need to apply the standards in section 104 of the 
GLBA to determine that State law's applicability.\25\ Accordingly, 
our analysis of section 13 differs from our analysis of the other 
provisions you have asked us to review in that it focuses on whether 
the West Virginia provision is covered by the FCRA's express 
preemption.\26\
---------------------------------------------------------------------------

    \24\ 15 U.S.C. Secs. 1681-1681u (as amended by the Economic 
Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), Pub. 
L. No. 104-208, tit. II, subtit. D, ch. 1, Secs. 2401-2422, 110 
Stat. 3009-426 to 3009-454 (1996)).
    \25\ The Supreme Court summarized the three bases on which a 
Federal statute may preempt State law--express preemption, 
occupation of the field, and preemption by reason of conflict--in 
the Barnett decision. See supra note 10, quoting the Court's 
summary.
    \26\ The Safe Harbors protect State laws from Federal preemption 
only under the ``prevent or significantly interfere'' standard in 
section 104(d) of the GLBA. Therefore, we do not consider the Safe 
Harbors in determining whether FCRA preempts these provisions.
---------------------------------------------------------------------------

    With respect to all of those other provisions, the second step 
in the analysis is to consider whether the particular provision 
falls within one or more of the 13 Safe Harbors. A State law that is 
covered by a Safe Harbor, or that is ``substantially the same as but 
no more burdensome or restrictive than'' \27\ a Safe Harbor, is 
protected from Federal preemption under the standard in section 
104(d)(2)(A). No further analysis is necessary under section 
104.\28\ A list of the Safe Harbors is attached to this letter as 
Appendix A.
---------------------------------------------------------------------------

    \27\ GLBA Sec. 104(d)(2)(B).
    \28\ State laws covered by a Safe Harbor, however, may not be 
applicable to national bank insurance activities because of other 
provisions of Federal law, such as the specific preemption 
provisions set forth in the FCRA, which are discussed in Section III 
of this opinion.
---------------------------------------------------------------------------

    Finally, if the provision concerns an insurance sales, 
solicitation or crossmarketing activity, but is not protected by a 
Safe Harbor, we consider whether it is preempted under the Barnett 
standards incorporated in section 104.
    The determination whether a particular State statute is 
preempted under the Barnett standards depends on the effect that the 
State law has on a national bank's ability to exercise its Federally 
authorized power to engage in insurance agency activities and on the 
scope of that effect. In the words of the Senate Report discussed in 
Section II of this letter (summarizing the Barnett holding), State 
laws are preempted if they:
    ``[P]revent or significantly interfere'' with a national bank's 
exercise of its powers; * * * ``unlawfully encroach'' on the rights 
and privileges of national banks; * * * ``destroy or hamper'' 
national banks' functions; or * * * ``interfere with or impair'' 
national banks' efficiency in performing authorized functions.\29\
---------------------------------------------------------------------------

    \29\ S. Rep. No. 106-44, at 13 (1999).
---------------------------------------------------------------------------

    Accordingly, our review under the Barnett standards focuses on 
how the West Virginia provision affects a national bank's ability to 
engage in insurance sales, solicitation, and cross marketing 
activities and on the nature and extent of that effect. This review 
includes, for example, consideration of the extent to which the 
substance of an authorized activity is affected and the costs that a 
bank would likely incur to comply with the State law.\30\
---------------------------------------------------------------------------

    \30\ In Association of Banks in Ins., Inc. v. Duryee, 55 F. 
Supp. 2d 799 (S.D. Ohio 1999), appeal docketed, No. 99-3917 (6th 
Cir. July 19, 1999), the court found that complying with the state 
statute ``might . . . entail a substantial financial expense which 
could weigh significantly against the expected revenue from the sale 
of insurance in that small town, and therefore significantly impair 
the bank's ability to sell insurance.'' Id. at 809.
---------------------------------------------------------------------------

    We also consider whether the West Virginia provision imposes 
requirements that have the same, or substantially the same, effect 
on a national bank as requirements imposed by Federal law. If, in a 
Federal statute, Congress has imposed conditions on a national 
bank's ability to exercise its insurance powers, then a Federal 
court is unlikely to find that the State statute ``prevents or 
significantly interferes with'' the

[[Page 51506]]

bank's exercise of those powers within the meaning of the Barnett 
standards.

B. Analysis of the Provisions of the West Virginia Act

    In this portion of our analysis, we have grouped the West 
Virginia provisions according to the conclusions we reach with 
respect to Federal preemption. We first discuss those provisions 
that we conclude are not preempted under the Federal preemption 
standards we have described. We next address one provision that we 
conclude is preempted only in part. Finally, we discuss the 
provisions that we conclude are preempted. Within that grouping, we 
address the provisions in the order in which they appear in the West 
Virginia statute.

1. West Virginia Provisions That Are Not Preempted

Section 8--Tying Restrictions

    Section 8 of the West Virginia statute generally restricts the 
tying of insurance products and other products or services offered 
by the bank. You have asked us to review both provisions of this 
section, and the following discussion addresses each provision 
separately.\31\
---------------------------------------------------------------------------

    \31\ Specifically, Section 8 of the West Virginia Act provides 
that:
    (a) No person shall require or imply that the purchase of an 
insurance product from a financial institution by a customer or 
propsective customer of the institution is required as a condition 
of the lending of money or extension of credit.
    (b) No financial institution may offer an insurance product in 
combination with its other products, unless all the products are 
available separately from the financial institution.
    W. Va. Code Sec. 33-11A-8 (2000).
---------------------------------------------------------------------------

Section 8(a)--Tying of Products Prohibited

    Section 8(a) of the West Virginia Act prohibits a financial 
institution from requiring or implying that the purchase of an 
insurance product from that institution is required as a condition 
of lending money or extending credit.
    The Insurance Commissioner for the State of West Virginia (the 
Commissioner) asserted in his comment letter that Section 8(a) is 
protected by Safe Harbor (viii).\32\ Safe Harbor (viii) protects 
State laws that prohibit financial institutions from requiring a 
customer to obtain insurance from that institution, or an affiliate 
of that institution, as a condition of obtaining the extension of 
credit.
---------------------------------------------------------------------------

    \32\ See Comment Letter from Hanley C. Clarke, Insurance 
Commissioner, State of West Virginia, dated June 30, 2000, at 4 
(hereinafter ``Commissioner's Letter'').
---------------------------------------------------------------------------

    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. 
Section 8(a) prohibits a person from requiring or implying that an 
individual applying for a loan or extension of credit must purchase 
an insurance product from the financial institution to obtain 
approval of the loan or extension of credit. The provision thus 
includes a phrase--``or imply''--that does not appear in the 
language of Safe Harbor (viii). The Commissioner argues that this 
provision ``contains the precise restriction'' found in Safe Harbor 
(viii),\33\ but acknowledges that Section 8(a) ``merely restricts 
bank employees from requiring or suggesting that in order to obtain 
loan approval, the customer must purchase insurance from that 
financial institution.'' \34\ The language of section 8(a) thus is 
more restrictive than the language of Safe Harbor (viii).
---------------------------------------------------------------------------

    \33\ Id.
    \34\ Id. (emphasis added).
---------------------------------------------------------------------------

    Moreover, Safe Harbor (viii) also includes certain exemptions 
that are not contained in section 8(a). The first exemption excludes 
from protection a State law imposing a prohibition that would 
prevent a bank or its affiliate from engaging in an activity ``that 
would not violate'' 12 U.S.C. Sec. 1972 \35\ as interpreted by the 
Board of Governors of the Federal Reserve System (FRB).\36\ The 
second exemption excludes from protection a State law that would 
prevent a bank from informing a customer that insurance is available 
from the bank, or from a subsidiary or affiliate. The scope of the 
West Virginia provision is broader than the scope of Safe Harbor 
(viii) and, therefore, we conclude that section 8(a) is not 
protected from preemption by the Safe Harbor.
---------------------------------------------------------------------------

    \35\ Section 106 of the Bank Holding Company Act Amendments of 
1970, Pub.L. No. 91-607, Sec. 106, 84 Stat. 1760, 1766 (1970) 
(codified at 12 U.S.C. 1972).
    \36\ See 12 CFR 225.7.
---------------------------------------------------------------------------

    However, we also conclude that the provision is not preempted 
under the Barnett standards. National banks are already required to 
comply with tying restrictions in Federal law that are similar to 
those contained in the West Virginia provision. Section 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.\37\ A bank engages in a tie for 
purposes of section 1972 by conditioning the availability of, or 
offering a discount on, one product or service (the ``tying 
product'') on the condition that the customer obtain some additional 
product or service.\38\ For example, a national bank may not 
condition the extension of credit or the reduction of the price of 
credit on a customer purchasing insurance from the bank.
---------------------------------------------------------------------------

    \37\ See 12. U.S.C. 1972(1). For example, the statutory 
traditional bank product exception permits a bank to extend credit, 
lease or sell property, furnish services, or fix or vary prices on 
the transactions, on the condition that the customer obtain a loan, 
discount, deposit, or trust service from the same bank. See id. 
Sec. 1972(1)(A). Further, the statute authorizes the Federal Reserve 
Board (FRB) to permit, by order or regulation, additional exceptions 
to the tying prohibitions. See id.; see also 12 CFR 225.7(b). In 
1997 the FRB adopted significant changes to its tying restrictions. 
See 62 Fed. Reg. 9290, 9312-16 (Feb. 28, 1997). As stated by the 
FRB, these changes are designed to enhance competition in banking 
and nonbanking products and allow banks and their affiliates to 
provide more efficient and lower cost service to customers. See id. 
at 9312; see also 12 CFR 225.7(b)(2); Citigroup, Inc., FRB 
Interpretive Letter, [Current Binder] Fed. Banking L. Rep. (CCH) 
para. 80-292, at 89,220 (May 16, 2001) (describing the safe harbors 
for combined discount programs, where the FRB has permitted banks to 
vary the consideration for a product or package of products if the 
customer maintains a minimum balance in certain products specified 
by the bank, which may include insurance products.)
    \38\ See 60 FR 20186, 20187 (Apr. 25, 1995).
---------------------------------------------------------------------------

    Several commenters suggested that Federal law should preempt 
section 8(a) because that provision would prohibit a bank employee 
from mentioning to the customer that the insurance products may be 
available at a discount as part of a package. Others questioned 
whether the bank employee could even tell the customer that the bank 
sells insurance. The West Virginia Insurance Department has advised 
us that it does not interpret section 8(a) to impose these 
restrictions. Based upon this representation, we conclude that 
section 8(a) of the West Virginia Act would not be preempted.

Section 8(b)--Separate Availability Provision

    Section 8(b) provides that a financial institution may not offer 
an insurance product in combination with its other products, unless 
all the products are available separately from that institution. 
Offering products or services in combination, often at a reduced 
price, is known as ``bundling'' and is a common business practice 
among banks that sell insurance.
    No Safe Harbor protects State separate availability provisions 
from preemption. In fact, as we have described, Safe Harbor (viii) 
expressly excludes from preemption protection State anti-tying 
provisions that prohibit conduct ``that would not violate'' the 
Federal anti-tying statute.
    It appears that the plain language of section 1972 would permit 
the bundling of insurance and traditional banking products. Section 
1972 prohibits a bank from conditioning the availability of, or 
offering a discount on, one product or service on the customer's 
obtaining an additional product or service. By its terms, however, 
the statute does not prevent a bank from conditioning the 
availability of, or offering a discount on, any product or service 
if the availability or price of the product or service depends on 
the customer's obtaining a ``loan, discount, deposit, or trust 
service'' from the same bank.\39\ As explained by the FRB, this 
statutory ``traditional bank product exception'' permits a bank ``to 
tie any product or service to a loan, discount, deposit, or trust 
service offered by that bank.'' \40\ Because section 8(b) of the 
West Virginia statute contains no exception for bank insurance 
sales, solicitation, or crossmarketing practices that appear to be 
permissible under the terms of the Federal

[[Page 51507]]

anti-tying statute, section 8(b) is more restrictive than, and thus 
not protected from preemption by, the Safe Harbor.
---------------------------------------------------------------------------

    \39\ ``A bank shall not in any manner extend credit, lease or 
sell property of any kind, or furnish any service, or fix or vary 
the consideration for any of the foregoing, on the condition or 
requirement--
    (A) that the customer shall obtain some additional credit, 
property, or service from such bank other than a loan, discount, 
deposit, or trust service. . . .''
    12 U.S.C. Sec. 1972(1) (emphasis added).
    \40\ 62 Fed. Reg. at 9314 (preamble to final rule amending the 
FRB's anti-tying regulation to, among other things, permit 
interaffiliate tying arrangements that are permissible under the 
statutory traditional bank product exception).
---------------------------------------------------------------------------

    In our opinion, however, the state separate availability 
provision is not preempted under the Barnett standards. Banks' 
ability to package products and services together enables them to 
provide products and services more efficiently and, therefore, to 
compete more effectively with other providers of financial 
services.\41\ Moreover, as some commenters pointed out, bundling 
offers consumers the benefits of lower prices, the opportunity to 
consider the purchase of additional products as a result of 
crossmarketing, and one-stop shopping. The West Virginia provision 
does not prevent national banks from packaging products in the way 
that Federal law permits in order to realize these benefits, so long 
as the products are also available separately. Moreover, it does not 
hamper a national bank from pricing its products in a way that 
reflects the differences in cost and efficiency that may result 
depending on whether insurance is sold separately or is bundled with 
another product. Therefore, we conclude that Federal law does not 
preempt subsection 8(b) under the Barnett test set forth in section 
104(d)(2) of GLBA.
---------------------------------------------------------------------------

    \41\ The FRB has recognized the benefits and efficiencies of 
bundling products. The FRB's anti-tying rule formerly provided that 
the statutory traditional bank production exception would be 
available to banks (and bank holding companies and nonbank 
affiliates thereof) ``only if all products involved in the tying 
arrangement were separately available for purchase.'' 12 CFR 
225.7(c) (1997). In 1997, as part of a package of significant 
changes to its anti-tying regulation, the Board eliminated the 
``separately available'' requirement. In describing its reasons for 
the changes made to the anti-tying provisions, the Board explained 
that these changes ``remove Board-imposed tying restrictions on bank 
holding companies and their nonbank subsidiaries; create exceptions 
from the statutory restriction on bank tying arrangements to allow 
banks greater flexibility to package products with their affiliates; 
and establish a safe harbor from the tying restrictions for certain 
foreign transactions.'' Further, the FRB indicated that these 
changes ``are designed to enhance competition in banking and 
nonbanking products and allow banks and their affiliates to provide 
more efficient and lower-cost service to customers.'' See 62 FR 9290 
at 9312-13. The FRB's current rules limit the availability of the 
statutory traditional bank product exception only by providing that 
the exception, and a bank's authority to use it, will terminate in a 
case where a tying arrangement is resulting in anti-competitive 
practices. 12 CFR Sec. 225.7(c) (2001).
---------------------------------------------------------------------------

Section 11(a)--Independent Documentation of Insurance and Credit 
Transactions

    Section 11(a) provides that an extension of credit and insurance 
sales transaction must be completed independently and through 
separate documents when insurance is required as a condition of the 
loan.\42\ Although Safe Harbor (xi) protects State restrictions 
requiring separate documentation for insurance and credit 
transactions, it excepts credit insurance and flood insurance from 
protection. A bank would have to maintain separate documents for 
credit insurance and flood insurance in order to comply with the 
West Virginia provision. As a result, Section 11(a) is more 
burdensome than Safe Harbor (xi). It covers transactions that the 
Safe Harbor expressly excludes and, therefore, imposes an additional 
paperwork burden and associated administrative costs on banks. 
Accordingly, the Safe Harbor does not protect section 11(a) from 
preemption.
---------------------------------------------------------------------------

    \42\ Specifically, section 11(a) of the West Virginia statute 
provides:
    If insurance is required as a condition of obtaining a loan, the 
credit and insurance transactions shall be completed independently 
and through separate documents.
    W. Va. Code Sec. 33-11A-11(a) (2000).
---------------------------------------------------------------------------

    Some commenters asserted that the West Virginia provision should 
be preempted under the Barnett standards because the use of the word 
Independently'' implies that an additional, undefined act must occur 
beyond the completion of separate documents. Many of these 
commenters argued, for example, that the provision requires 
customers to make a separate trip to the bank to sign documents. The 
West Virginia Insurance Commissioner, however, has stated that 
``[n]othing in the state statute requires a customer to make 
separate visits to the bank; it merely requires the credit and 
insurance transactions be completed independently through the 
signing of separate documents.* * *'' \43\
---------------------------------------------------------------------------

    \43\ Commissioner's Letter, supra note 31, at 7.
---------------------------------------------------------------------------

    Based upon this representation, we conclude that the separate 
documentation requirement for credit and flood insurance 
transactions when insurance is required as a condition of the loan 
is not preempted. First, section 11(a) does not affect these types 
of insurance transactions unless insurance is required as a 
condition of the loan. Second, the additional requirement for 
separate documentation if these types of insurance are required as a 
condition of a loan would not appear to substantially affect the 
underlying insurance activities.

2. West Virginia Provision That Is Preempted Only in Part

Section 9--Disclosure Provisions

Section 9(a)--Content of Required Disclosures

    Section 9 of the West Virginia Act generally contains disclosure 
requirements that apply when a bank solicits or sells insurance. In 
particular, section 9(a) of the Act requires banks soliciting or 
selling insurance to make certain disclosures to customers.\44\ The 
bank must disclose that its insurance products are not deposits; are 
not Federally insured; are not guaranteed by any insured depository 
institution; and, where appropriate, that the products carry 
investment risk, including a potential loss of principal.
---------------------------------------------------------------------------

    \44\ Section 9(a) of the West Virginia Act provides:
    A financial institution soliciting the purchase of or selling 
insurance, and any person soliciting the purchase of or selling 
insurance on the premises of, in connection with a product offering 
of, or using a name identifiable with, a financial institution, 
shall prominently disclose to customers, in writing in clear and 
concise language, including in any advertisement or promotional 
material, and orally during any customer contact, that insurance 
offered, recommended, sponsored, or sold:
    (1) Is not a deposit;
    (2) Is not insured by the federal deposit insurance corporation 
or, where applicable, the National Credit Union Share Insurance 
Fund;
    (3) Is not guaranteed by any insured depository institution; and
    (4) Where appropriate, involves investment risk, including 
potential loss of principal.
    W. V. Code Sec. 33-11A-9(a)(2000).
---------------------------------------------------------------------------

    The content of the disclosures required by section 9(a) is 
substantially the same as that of the disclosures protected by Safe 
Harbor (x). Although there are some differences in wording between 
the West Virginia provision and Safe Harbor (x), the similarities 
predominate so that it is ``no more burdensome or restrictive'' for 
a bank to give the State disclosures than to give those described in 
the Safe Harbor. Accordingly, the West Virginia requirement that 
these disclosures be given is not preempted.
    You have also asked us, however, to review two other aspects of 
the West Virginia disclosure requirements: the provisions that 
relate to the manner and timing of the disclosures and the provision 
requiring a bank to obtain acknowledgments that the disclosures have 
been given.

Section 9(a)--Manner and Timing of Required Disclosures

    Section 9(a) requires that national banks soliciting or selling 
insurance make the disclosures in writing, including in connection 
with advertisements and promotional material, and orally ``during 
any customer contact.'' \45\
---------------------------------------------------------------------------

    \45\ Id.
---------------------------------------------------------------------------

    The manner and timing requirements for the disclosures required 
by the West Virginia provision are more far-reaching than Safe 
Harbor (x). Section 9(a) requires the bank to make the disclosures 
``in any advertisement or promotional material, and orally during 
any customer contact.'' \46\ Safe Harbor (x) is more limited in 
scope, protecting only State law provisions that require the bank to 
make the disclosure ``prior to the sale'' of an insurance policy. 
Moreover, section 9(a) requires disclosures to be made ``prominently 
* * * in clear and concise language,'' whereas Safe Harbor (x) 
covers State laws that require the disclosures to be ``clear and 
conspicuous * * * where practicable.'' Omission of the phrase, 
``where practicable,'' eliminates an important qualification on the 
disclosure requirement.
---------------------------------------------------------------------------

    \46\ Id. (emphasis added).
---------------------------------------------------------------------------

    The West Virginia Insurance Commissioner acknowledged that 
requiring disclosures in advertisements and promotional material 
might ``be of concern,'' but the Commissioner believes they ``could 
arguably fall within'' Safe Harbor (iii).\47\ Although Safe Harbor 
(iii) does apply to advertisements or other insurance promotional 
material, it only protects State restrictions that prohibit 
misleading advertisements or other insurance promotional material; 
it does not protect State laws that require disclosures in 
advertisements and promotional material, nor does it address oral 
disclosures during any customer contact. Therefore, section 9(a) is 
not covered by any of the Safe Harbors because it is more far-
reaching than either Safe Harbor (x) or Safe Harbor (iii).
---------------------------------------------------------------------------

    \47\ Commissioner's Letter, supra note 31, at 6.
---------------------------------------------------------------------------

    In our opinion, the manner and timing requirements of section 
9(a) are preempted

[[Page 51508]]

under the Barnett standards. Requiring banks to include these 
disclosures in all advertisements or promotional materials would 
increase a bank's operating costs and substantively hamper the 
bank's marketing activities.\48\ For example, in cases where the 
promotional materials only mention insurance as one of several 
products offered the bank may nonetheless be required to provide the 
full panoply of disclosures. This is likely to confuse customers 
and, consequently, impair the bank's insurance solicitation and 
sales activities.\49\
---------------------------------------------------------------------------

    \48\ One commenter noted that the additional space required for 
advertisements and promotional materials would add to the marketing 
expense.
    \49\ By contrast, the Federal insurance consumer protection 
regulations do not require the disclosures to be made in 
advertisements and promotional materials that are of a general 
nature describing or listing the services or products offered by the 
bank. See 12 CFR Sec. 14.40(d).
---------------------------------------------------------------------------

    The requirement to provide the disclosures orally during any 
customer contact also substantially impedes the bank's ability to 
solicit and sell its insurance products. It places additional 
burdens on banks to train personnel and to develop procedures to 
ensure compliance with this requirement. The restriction is also 
impractical in that it may result in multiple disclosures to the 
same person--a scenario that could be confusing and adversely affect 
the bank's ability to market its product.
    This increased cost and burden is especially troublesome for 
small banks. The ability of these banks to meet community needs 
depends on the bank being able to provide these products and 
services in an affordable and efficient manner. These banks 
generally need to keep costs down to offer a full array of products 
and services in the communities they serve.
    Finally, unlike the Federal insurance consumer protection 
regulations,\50\ section 9(a) makes no exceptions for sales or 
solicitations that are conducted by telephone or through electronic 
means. This could have the effect of prohibiting insurance sales by 
telephone because it would be impossible to provide a written 
disclosure in those circumstances. Although we conclude that the 
manner and timing of the disclosure requirements of section 9(a) are 
preempted as applied to the solicitation and sale of insurance using 
traditional means, the potential effect of these requirements on 
solicitations and sales through alternative media provides an 
additional basis for preemption.
---------------------------------------------------------------------------

    \50\ See 12 U.S.C. 1831(x); 12 CFR part 14.
---------------------------------------------------------------------------

Section 9(c)--Written Acknowledgment of Required Disclosures

    Section 9(c) requires the bank to obtain, prior to or at the 
time of an application for insurance, a written acknowledgment that 
a customer has received the disclosures.\51\ It also requires the 
acknowledgment to be contained in a separate document.
---------------------------------------------------------------------------

    \51\ Section 9(c) of the West Virginia Act provides:
    (c) Any person required under subsections (a) or (b) of this 
section to make disclosures to a customer shall obtain a written 
acknowledgment of receipt by the customer of such disclosures, 
including the date of receipt and the customer's name, address, and 
account number, prior to or at the time of any application for 
insurance sold by the person. Such acknowledgment shall be in a 
separate document.
    W. Va. Code `` 33-11A-9(c) (2000).
---------------------------------------------------------------------------

    None of the GLBA Safe Harbors applies to section 9(c). Safe 
Harbors (ix) and (x) address required disclosures, but neither of 
those Safe Harbors protects State provisions requiring that banks 
obtain a written acknowledgment from customers.
    In our view, however, section 9(c) is not preempted under the 
Barnett standards when applied to in-person insurance applications. 
Several commenters suggested that the requirement to provide the 
written acknowledgment in a separate document at or prior to the 
time of application for a loan significantly interferes with the 
bank's ability to engage in insurance activities. Federal law, 
however, imposes a similar requirement.
    The insurance consumer protection standards required by section 
305 of the GLBA include a requirement that a bank obtain an 
acknowledgment of the disclosures specified by section 305.\52\ The 
implementing regulations issued by the OCC and the other Federal 
banking agencies require that this acknowledgment be written, unless 
the transaction is conducted online or over the telephone.\53\ There 
are differences between the acknowledgment required by section 305 
and the agencies' regulations and that required by section 9(c) of 
the West Virginia Act, including West Virginia's requirement as to 
the content of the acknowledgment and its requirement that the 
acknowledgment be contained in a separate document. These 
differences do not impose significant new costs or require the 
sacrifice of operational efficiencies because national banks are 
already required to adjust the way they solicit and sell insurance 
to allow for the obtaining of the acknowledgment required by Federal 
law.
---------------------------------------------------------------------------

    \52\ Section 305 of 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. 12 U.S.C. 1831x(a). Section 305(g)(2) explains the 
relationship between these regulations and State laws that are in 
effect in that jurisdiction. Pursuant to Sec. 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 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 case standards incorporated therein.
    \53\ See 12 U.S.C. 1831x(c)(1)(F); 12 CFR 14.40(c)(7) (OCC 
consumer acknowledgment requirement).
---------------------------------------------------------------------------

    We note, however, that section 9(c) does not provide any 
exceptions or alternatives for obtaining acknowledgements when 
insurance sales are conducted by means other than face-to-face 
contact between the sales representative and the customer. For 
example, it is unclear how a bank could obtain a written 
acknowledgement at the time of application if the sales transaction 
is conducted by telephone.\54\ The West Virginia Insurance 
Commissioner's office has stated that it will consider alternatives 
to accommodate this concern. Our conclusion that section 9(c) is not 
preempted under the Barnett standards therefore addresses only the 
application of the acknowledgement to face-to-face sales 
transactions. We believe that section 9(c) would be preempted if 
applied in the context of sales transactions conducted online or 
over the telephone.
---------------------------------------------------------------------------

    \54\ The Federal regulations permit a national bank to obtain an 
electronic acknowledgment when the insurance sale occurs over the 
Internet and, subject to certain conditions, permit oral 
acknowledgment when the sale is concluded over the telephone. See 12 
U.S.C. 1831x(c)(1)(F); 12 CFR 14.40(c)(7) & accompanying preamble 
discussion at 65 FR 75822, 75828-29 (Dec. 4, 2000).
---------------------------------------------------------------------------

3. West Virginia Provisions That Are Preempted

Section 6--Use of Separate Employees for Insurance Solicitations

    Section 6 generally prohibits financial institution employees 
with lending responsibilities from soliciting the sale of insurance. 
Financial institutions with locations having three or fewer 
individuals with lending authority may use one of these individuals 
to solicit insurance as long as that individual is not the person 
primarily responsible for making the loan. This provision also 
permits small institutions to seek a waiver from the state insurance 
commissioner where the same individual is the licensed agent or 
broker and the sole individual with lending authority.\55\
---------------------------------------------------------------------------

    \55\ Specifically, section 6 of the West Virginia Act provides 
that:
    (a) Solicitation for the purchase or sale of insurance by a 
financial institution shall be conducted only by individuals whose 
responsibilities do not include loan transactions or other 
transactions involving the extension of credit. Provided, That for a 
financial institution location having three or less individuals with 
lending authority, solicitation for the sale of insurance may be 
conducted by an individual with responsibilities for loan 
transactions or other transactions involving the extension of 
credit, as long as the individual primarily responsible for making 
the specific loan or extension of credit is not the same individual 
engaged in the solicitation of the purchase or sale of insurance for 
that same transaction.
    (b) In the event that in any small office, the same individual 
is the licensed agent or broker and the sole individual with lending 
authority, the commissioner may grant a waiver of the requirements 
of this section upon a written request. Such request shall include 
documentation that, due to the small office staff, compliance is not 
possible, and include identification of other steps which will be 
taken to minimize the customer confusion prohibited by this article.
    W. Va. Code Sec. 33-11A-6 (2000).
---------------------------------------------------------------------------

    There is no Safe Harbor that applies to this provision. Two of 
the Safe Harbors--Safe Harbor (xi) and Safe Harbor (xiii)--address 
the separation of the insurance transaction from the credit 
transaction. However, these Safe Harbors only cover State laws 
involving record keeping and documentation requirements; they do not 
address State laws that restrict individuals with lending 
responsibilities from soliciting the purchase or sale of insurance. 
None of the Safe Harbors protect State laws that prohibit bank

[[Page 51509]]

employees with lending responsibilities from also selling insurance.
    Section 6 prevents any employee engaged in lending activities 
from soliciting or purchasing the sale of insurance and, conversely, 
precludes an employee selling insurance from also having any lending 
responsibilities. The restriction would apply to loan officers, 
customer service representatives, and branch managers, even if there 
is no connection between a given lending activity and the employee's 
insurance solicitation and sales activities. Thus, at a minimum, 
section 6 would require national banks to maintain a separate sales 
force for insurance products.\56\
---------------------------------------------------------------------------

    \56\ Several commenters stated that this provision would require 
banks to hire additional personnel to sell insurance, incur 
additional expenses and limit the bank's most effective allocation 
of its resources.
---------------------------------------------------------------------------

    This requirement in essence prohibits a bank from using the 
bank's existing personnel resources to solicit and sell insurance, 
forcing it to artificially configure its operations to establish 
segregated personnel who sell insurance and may have no 
responsibilities related to extensions of credit. The requirement is 
thus hugely disruptive of normal bank operations since it would 
require the bank to specially isolate insurance sales personnel not 
just from typical loan applications, but also credit card 
applications and transactions, and even bank accounts with overdraft 
features. Not only does the requirement prevent the bank from 
operating efficiently by using the same employees to perform 
multiple duties, it forces the bank to operate inefficiently and to 
incur additional costs that undermine its ability to compete. This 
burden and intrusion into the substance of bank operations, in our 
view, cause section 6 to be preempted under the standards set forth 
in Barnett.\57\
---------------------------------------------------------------------------

    \57\ Section 6 also has subtle, but consequential, negative 
consumer protection implications which may substantially affect the 
reputation risk arising from banks' insurance sales activities. By 
requiring a separate insurance sales force, the provisions may 
effectively require many banks to use a sales force compensated 
through a traditional commission structure. If banks were able to 
use employees to sell insurance who also had other types of 
responsibilities within the bank, those employees would have other 
bases for their income and there would be less incentive for them to 
be overly aggressive selling insurance products. Forcing banks to 
use a particular type of insurance sales force thus could have 
safety and soundness implications by increasing a bank's reputation 
risk.
---------------------------------------------------------------------------

    Section 6 contains an exception from the general restriction for 
locations that have three or fewer individuals with lending 
authority. Individuals with lending authority in these locations 
also may sell insurance, provided that the same individual does not 
both lend and sell insurance on the same transaction. A bank also 
may seek a waiver from the general restrictions of section 6 for 
small offices where the same individual is the licensed agent or 
broker and the sole individual with lending authority.
    Neither of these exceptions saves the provision from preemption 
under Barnett. First, unless a Federal statute specifically directs 
the application of state law, a state may not limit or condition a 
national bank's exercise of its Federal authority to sell insurance 
or to engage in other permissible banking functions.\58\ Both the 
proviso and the waiver provision in section 6 of the West Virginia 
statute have the effect of imposing conditions on the exercise of 
those activities and both are, thus, impermissible under the Barnett 
standards.
---------------------------------------------------------------------------

    \58\ ``[W]here Congress has not expressly conditioned the grant 
of ``power'' upon a grant of state permission, the [Supreme] Court 
has ordinarily found that no such condition applies.''Barnett Bank 
of Marion County, N.A. v. Nelson, 517 U.S. 25, 34 (1996), citing 
Franklin Nat'l Bank of Frankin Square v. New York, 347 U.S. 373, 378 
& n.7 (1954). Cf. 66 Fed. Reg. 34792, 34798 (July 2, 2001) (adding 
to Part 9 of the OCC's rules a new subsection, to be codified at 12 
C.F.R. Sec. 9.7(e)(2), providing that, except as made applicable by 
Federal statute, state laws limiting or establishing preconditions 
on the exercise of fiduciary powers are not applicable to national 
banks).
---------------------------------------------------------------------------

Section 10(a)--Timing of Insurance-Related Referrals or 
Solicitations

    Section 10(a) generally prohibits a financial institution from 
making an insurance-related referral or solicitation of a loan 
customer until after the bank has approved the loan or credit. 
Subsection 10(b) permits a bank to inform a customer that insurance 
is required to obtain a loan and to contact consumers through direct 
or mass mailing so long as it is not done in connection with the 
bank's decision on whether to grant the consumer's application.\59\
---------------------------------------------------------------------------

    \59\ Specifically, section 10 of the West Virginia Act provides 
that:
    (a) No individual who is an employee or agent of a financial 
institution, or of a subsidiary or affiliate thereof, may, directly 
or indirectly, make an insurance-related referral to or solicit the 
purchase of any insurance from a customer knowing that such customer 
has applied for a loan or extension of credit from that financial 
institution before such time as the customer has received a written 
commitment with respect to such loan or extension of credit, or, in 
the event that no written commitment has or will be issued in 
connection with the loan or extension of credit, before such time as 
the customer receives notification of approval of the loan or 
extension of credit by the financial institution and the financial 
institution creates a written record of the loan or extension of 
credit approval.
    (b) This provision shall not prohibit any individual subject to 
subsection (a) above from:
    (1) Informing a customer that insurance is required in 
connection with a loan; or
    (2) Contacting persons in the course of direct or mass mailing 
to a group of persons in a manner that bears no relation to the 
person's loan application or credit decision.
    W. Va. Code Sec. 33-11A-10 (2000).
---------------------------------------------------------------------------

    None of the Safe Harbors protects a State law that restricts the 
timing of bank insurance solicitations.
    In our opinion, section 10(a) is preempted under the Barnett 
standards. The provision restricts the time and, therefore, 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. For example, section 10(a) 
would require banks to develop databases to keep track of customers 
that have loans pending with the bank. Banks also will have to 
institute methods of communicating this information to its sales 
force and of apprising the sales force of changes as they occur. 
Solicitations through mass mailings present additional difficulties 
requiring bank staff 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.
    Section 10(a) also imposes significant restrictions on the 
bank's ability to cross-market its products. For example, many banks 
offer one-stop shopping as a convenient and efficient means of 
servicing customers.\60\ Prohibiting the bank from soliciting 
insurance at this point will force the customer to shop elsewhere. 
For all of the foregoing reasons, therefore, in our view section 
10(a) is preempted.
---------------------------------------------------------------------------

    \60\ Some commenters have stated that the initial face-to-face 
meeting at which the credit application is taken is often the 
principal time at which insurance is offered and may, in some cases, 
be the only face-to-face meeting between the bank and the customer.
---------------------------------------------------------------------------

Section 13--Sharing of Insurance Information With Affiliated 
Entities

    Section 13 generally prohibits a financial institution from 
using insurance information obtained in the making of a loan to 
solicit or offer insurance to the customer, unless the bank first 
obtains the customer's written consent. You have asked us to opine 
specifically with respect to sections 13(b) and 13(c). Section 13(b) 
requires the customer to consent in writing to the bank's disclosure 
of insurance information to an agent or broker affiliated with the 
bank, no less than two days after the time of application for, 
approval of and making of the loan or extension of credit. Section 
13(b) requires the bank to obtain this consent in a separate 
document.\61\
---------------------------------------------------------------------------

    \61\ Specifically, section 13 of the West Virginia Act provides 
that:
    (a) When a financial institution requires a borrower to provide 
insurance information in connection with the making of a loan or 
extension of credit, neither such financial institution nor an 
insurance agent or broker affiliated with such financial institution 
may later use the information so obtained to solicit or offer 
insurance to such borrower, unless the consent required in 
subsection (b) below is first obtained.
    (b) A borrower may consent to the financial institution's 
disclosure of insurance information to an agent or broker affiliated 
with the financial institution, but any such consent must be in 
writing and be given at a time subsequent, which shall be no less 
than two days, to the time of the application for, approval of and 
making of the loan or extension of credit.
    (c) Consent under subsection (b) of this section shall be 
obtained in a separate document, distinct from any other 
transaction, and shall not be required as a condition for 
performance of other services for the customer.
    W. Va. Code Sec. 33-11A-13 (2000).
---------------------------------------------------------------------------

    As we indicated at the outset of this letter, the FCRA \62\ 
expressly preempts any state law that restricts or prohibits the 
sharing of

[[Page 51510]]

information among affiliated entities. The FCRA preemption provision 
states:
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 1681-1681u (as amended by the Economic Growth and 
Regulatory Paperwork Reduction Act of 1996 (EGRPRA), Pub. L. No. 
104-208, tit. II, subtit. D, ch. 1, Secs. 2401-2422, 110 Stat. 3009-
426 to 3009-454 (1996)).
---------------------------------------------------------------------------

    No requirement or prohibition may be imposed under the laws of 
any State * * * with respect to the exchange of information among 
persons affiliated by common ownership or common corporate control * 
* *. \63\
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 1681t(b)(2) (as amended by EGRPRA tit. II, 
subtit. D, ch. 1, Sec. 2419, 110 Stat. 3009-452 to 3009-453 (1996)). 
This preemption provision remains in effect until January 1, 2004. 
See id. Sec. 1681t(d)(2). The only state law not subject to this 
preemption is Vt. Stat. Ann. tit. 9, Sec. 2480e(a) or (c)(1). See 
id. Sec. 1681t(b)(2).
---------------------------------------------------------------------------

    The language of this provision is broad and, on its face, 
appears to cover the restrictions on information sharing with 
affiliates contained in section 13 of the West Virginia statute. To 
determine whether it preempts the West Virginia provision, we first 
briefly review the purposes and scope of the FCRA, then consider 
whether the special anti-preemption rule contained in the McCarran-
Ferguson Act applies.
    Purpose and scope of the FCRA as amended. The purpose of the 
FCRA is to require consumer reporting agencies to ``adopt reasonable 
procedures for meeting the needs of commerce for consumer credit, 
personnel, insurance, and other information'' that operate in a fair 
and equitable manner to ensure accuracy and confidentiality.\64\ To 
protect consumers, the FCRA imposes various obligations on 
``consumer reporting agencies' \65\ and on users of ``consumer 
reports.'' \66\
---------------------------------------------------------------------------

    \64\ Id. Sec. 1681(b) (emphasis added).
    \65\ A ``consumer reporting agency'' is any party that regularly 
assembles or evaluates consumer information for the purpose of 
furnishing consumer reports to third parties. Id. Sec. 1681a(f).
    \66\ A national bank may be either a consumer reporting agency 
or a user of a consumer report.
---------------------------------------------------------------------------

    A ``consumer report'' is ``any written, oral, or other 
communication of any information by a consumer reporting agency 
bearing on a consumer's credit worthiness, credit standing, credit 
capacity, character, general reputation, personal characteristics, 
or mode of living'' that is collected or used (or expected to be 
used) to establish the consumer's eligibility for ``credit or 
insurance to be used primarily for personal, family or household 
purposes; employment purposes; or any other purpose'' permissible 
under the Act.\67\ If information is not a ``consumer report,'' any 
person or entity may share and use the information. Under the FCRA, 
a ``consumer report'' does not include ``experience information,'' 
which is information that relates solely to transactions or 
experiences between the consumer and the person making the 
report.\68\
---------------------------------------------------------------------------

    \67\ 15 U.S.C. 1681a(d)(1) (as amended by the EGRPRA tit. II, 
subtit. D, ch. 1, Sec. 2402(e), 110 Stat. 3009-428 (1996)) (emphasis 
added).
    \68\ See id. Sec. 1681a(d)(2)(A)(i) (as amended by the EGRPRA 
tit. II, subtit. D, ch. 1, Sec. 2402(e), 110 Stat. 3009-428 (1996)).
---------------------------------------------------------------------------

    In addition to ``experience information,'' Congress enacted 
amendments to the FCRA in September 1996 (``FCRA amendments'') \69\ 
to expand the category of non-consumer report information to 
include:
---------------------------------------------------------------------------

    \69\ See EGRPRA, Pub. L. No. 104-208, 110 Stat. 3009 (1996) 
(generally effective Sept. 30, 1997).
---------------------------------------------------------------------------

    [A]ny communication of other information among persons related 
by common ownership or affiliated by corporate control, if it is 
clearly and conspicuously disclosed to the consumer that the 
information may be communicated among such persons and the consumer 
is given the opportunity, before the time that the information is 
initially communicated, to direct that such information not be 
communicated among such persons * * *. \70\
---------------------------------------------------------------------------

    \70\ 15 U.S.C. Sec. 1681a(d)(2)(A)(iii) (as amended by EGRPRA 
tit. II, subtit. D, ch. 1, Sec. 2402(e), 110 Stat. 3009-428 (1996)).
---------------------------------------------------------------------------

    The information that may be shared pursuant to the notice and 
opt-out requirements is not limited. It may include application 
information, medical information, consumer report information, 
information derived from consumer reports, and all other 
information. Thus, the FCRA amendments permit affiliated entities to 
share any or all information without becoming a ``consumer reporting 
agency.'' \71\ The affiliated entities must comply with the FCRA 
notice and opt-out requirements, however, before sharing any 
information other than experience information.\72\
---------------------------------------------------------------------------

    \71\ For a ``consumer reporting agency'' furnishing reports 
containing medical information, additional requirements under FCRA 
may be applicable. See, e.g., 15 U.S.C. Sec. 1681b(g) (as amended by 
EGRPRA tit. II, subtit. D, ch. 1, Sec. 2405, 110 Stat. 3009-434 
(1996)) (``A consumer reporting agency shall not furnish for 
employment purposes, or in connection with a credit or insurance 
transaction, a consumer report that contains medical information 
about a consumer, unless the consumer consents to the furnishing of 
the report.''). A national bank will not become a ``consumer 
reporting agency'' simply because it shares with an affiliate 
experience information or other information that ordinarily would be 
considered consumer report information so long as the bank shares 
the other information in accordance with the notice and opt-out 
requirements.
    \72\ There are no notice and opt-out requirements when any 
entities, whether affiliated or not, share ``experience 
information.'' Id. Sec. 1681a(d)(2)(A)(i) (as amended by EGRPRA tit. 
II, subtit. D, ch. 1, Sec. 2402(e), 110 Stat. 3009-428 (1996)). 
Prior to the FCRA amendments, a financial institution could 
regularly exchange consumer information between a branch or 
department of the financial institution, but not between 
correspondent financial institutions, a holding company and its 
subsidiaries or between subsidiaries of a holding company without 
becoming a consumer reporting agency. See Federal Trade Commission, 
Questions and Answers About the Fair Credit Reporting Act, at Qs and 
As Nos. 16-17, reprinted in 6 Consumer Cred. Guide (CCH) para. 
26,703 at 63,955 (May 24, 1971).
---------------------------------------------------------------------------

    The FCRA preemption provision ensures that affiliated entities 
may share customer information without interference from State law 
and subject only to the FCRA notice and opt-out requirements if 
applicable. The preemption is broad and extends beyond state 
information sharing statutes to preempt any State statute that 
affects the ability of an entity to share any information with its 
affiliates.\73\ Congress intended the preemption provision to 
establish a national uniform standard in this area, noting that 
``credit reporting and credit granting are, in many aspects, 
national in scope, and that a single set of Federal rules promotes 
operational efficiency for industry, and competitive prices for 
consumers.'' \74\
---------------------------------------------------------------------------

    \73\ Affiliate information sharing provisions of bills 
introduced in prior Congresses limited Federal preemption either by 
preserving state laws in effect on the date of proposed enactment or 
by preempting only state information sharing statutes. See e.g., 
Consumer Reporting Reform Act of 1994, H. Rep. No. 103-486, at 2 
(amending FCRA Sec. 624, 15 U.S.C. 1681t).
    \74\ S. Rep. No. 104-185, at 55 (1995) (accompanying S. 650) 
[hereinafter ``1995 Senate Report'']. The need for Federal 
preemption was reiterated in the floor debate by Senator Bond, who 
stated that the uniform federal standards ``will reduce the burdens 
on the credit industry from having to comply with a variety of 
different State requirements.'' 141 Cong. Rec. S5450 (daily ed. Apr. 
6, 1995). Earlier amendments to the FCRA, proposed by the House, 
were described as a ``compromise'' between establishing a uniform 
national standard and allowing states to enact laws stricter than 
the FCRA. 140 Cong. Rec. H4355, H4365-66 (daily ed. June 13, 1994) 
(statement of Rep. McCandless); see H.R. 1015, 103d Cong., 2d Sess. 
Secs. 101-625 (1994). However, in the final legislation, Congress 
decided that for the next eight years, the FCRA would be ``the law 
of the land'' and afterwards, states may enact more stringent 
legislation. The FCRA amendments preserve this compromise by 
establishing a ``sunset'' provision--the special federal preemption 
provisions will not apply to any provision of state law enacted 
after January 1, 2004 that (i) gives greater protection to consumers 
than the FCRA provides and (ii) explicitly states that the provision 
is intended to supplement the FCRA. See 15 U.S.C. Sec. 1681t(d)(2) 
(added by EGRPRA tit. II, subtit. D, ch. 1, Sec. 2419(2), 110 Stat. 
3009-452 to 3009-453 (1996)); 1995 Senate Report, supra, at 55.
---------------------------------------------------------------------------

    The McCarran-Ferguson Act. Section 2(b) of the Act shields a 
State law from Federal preemption if the purpose of the State law is 
to regulate the business of insurance and the conflicting Federal 
law does not ``specifically relate'' to the business of 
insurance.\75\ These key terms were analyzed by the Supreme Court in 
Barnett.\76\ The Court initially noted that the word ``relates'' is 
``highly general'' and has a ``broad common-sense meaning.'' \77\ 
More importantly, the Court found the word ``specifically'' to mean 
``explicitly.''\78\ In focusing on these terms, the Court observed 
that:
---------------------------------------------------------------------------

    \75\ Section 2 of the Act provides:
    (a) The business of insurance, and every person engaged therein, 
shall be subject to the laws of the several States which relate to 
the regulation or taxation of such business.
    (b) No Act of Congress shall be construed to invalidate, impair, 
or supersede any law enacted by any State for the purpose of 
regulating the business of insurance * * * unless such Act 
specifically relates to the business of insurance * * *.
    15 U.S.C. 1012.
    \76\ See Barnett, 517 U.S. at 38.
    \77\ Id.
    \78\ Id.
---------------------------------------------------------------------------

    [T]he Act does not seek to insulate state insurance regulation 
from the reach of all federal law. Rather, it seeks to protect state 
regulation primarily against inadvertent federal intrusion--say, 
through enactment of a federal statute that describes an affected 
activity in broad, general terms, of which the insurance business 
happens to constitute one part.\79\
---------------------------------------------------------------------------

    \79\ Id. at 39.

---------------------------------------------------------------------------

[[Page 51511]]

    According to the Court, the McCarran-Ferguson Act does not 
require the federal statute to relate predominantly to insurance; a 
statute may relate to more than one thing.\80\ These observations 
illustrate the importance the Court places on specific, explicit 
references to insurance in the federal legislation.\81\ In Barnett, 
the Court determined that a federal statute authorizing national 
banks' insurance powers, which used the word ``insurance'' five 
times, ``specifically related'' to the business of insurance.\82\
---------------------------------------------------------------------------

    \80\ Id. at 41. For example, the Court in Barnett recognized a 
statute may relate to banking and insurance. Likewise, the FCRA 
relates to consumer reporting agencies and insurance.
    \81\ As recognized by the Court, these types of references 
``will call the proposed legislation to the attention of interested 
parties'' and should guarantee that Congress has focused on the 
legislation's ``insurance-related effects.''
    \82\ Id. at 39.
---------------------------------------------------------------------------

    The affiliate information sharing provisions of the FCRA 
``relate'' to the business of insurance and do so ``specifically.'' 
The FCRA mentions ``insurance'' at least twenty-seven times. These 
references concern core provisions of the FCRA. For example, the 
FCRA defines ``consumer report'' expressly to include certain 
consumer information collected by a consumer reporting agency that 
is expected to be used ``in connection with the underwriting of 
insurance involving the consumer * * * ''\83\ The FCRA amendments 
also expand the list of permissible purposes for furnishing a 
consumer report to include ``credit or insurance transactions that 
are not initiated by the consumer''--i.e., prescreening potential 
customers for marketing credit or insurance products.\84\ Congress's 
definition of ``firm offer of credit or insurance'' also extends the 
current definition of ``firm offer of credit'' to include insurance 
for prescreening purposes.\85\
---------------------------------------------------------------------------

    \83\ 15 U.S.C. Secs. 1681a(d)(1), 1681b(a)(3)(C) (emphasis 
added). The affiliate information sharing provisions enacted in 1996 
specifically provide that when this type of information is shared 
between affiliated entities, it does not constitute a ``consumer 
report,'' and thus can be shared between affiliates, subject to 
specified procedures. See 15 U.S.C. Sec. 1681a(d)(2)(A)(ii).
    \84\ 15 U.S.C. Sec. 1681b(c) (added by EGRPRA tit. II, subtit. 
D, ch. 1, Sec. 2404, 110 Stat. 3009-431 (1996)).
    \85\ Id. Sec. 1681a(l) (added by EGRPRA tit. II, subtit. D, ch. 
1, Sec. 2402(b), 110 Stat. 3009-427 (1996) (emphasis added)).
---------------------------------------------------------------------------

    These specific references to insurance unambiguously demonstrate 
that Congress purposefully considered the effect of the FCRA 
amendments on insurance activities and did not merely enact a broad, 
general law that inadvertently affects insurance. A plain 
understanding of the FCRA, under the standards set forth by the 
Supreme Court in Barnett, results in a conclusion that the FCRA 
``specifically relates'' to insurance.
    Moreover, it is questionable whether the West Virginia provision 
passes the threshold of the first clause of section 2(b) of the 
McCarran-Ferguson Act, i.e., whether the State law was ``enacted * * 
* for the purpose of regulating the business of insurance * * *'' 
\86\
---------------------------------------------------------------------------

    \86\ Id. Sec. 1012(b).
---------------------------------------------------------------------------

    The Supreme Court's analysis of this question has focused 
consistently on the impact of the State law on the relationship 
between the insured and the insurer.\87\ Section 13 addresses a 
different relationship--the relationship between a financial 
institution and its customer. The West Virginia provision seeks to 
limit a financial institution's ability to use insurance information 
gathered in the course of a lending transaction for the purpose of 
soliciting or offering insurance.\88\ In this sense, the provision 
seeks to protect borrowers from the intrusion of unauthorized 
insurance solicitations by financial institutions and their 
subsidiaries; it does not offer any protection to policyholders. 
State laws that relate to insurance but regulate an activity outside 
the relationship between the insured and the insurer are not laws 
enacted for the purpose of regulating the business of insurance for 
purposes of McCarran-Ferguson.\89\ The Supreme Court made clear that 
to the extent a law is designed to further the interests of parties 
other than policyholders, it is not a law enacted for the purpose of 
regulating the business of insurance.\90\
---------------------------------------------------------------------------

    \87\ See e.g., SEC v. National Securities, Inc., 393 U.S. 453, 
457 (1969) (focus of the business of insurance is on the 
relationship between the insurance company and the policyholder and 
State law enacted to protect the interests of insurance company 
shareholders was not protected from preemption by McCarran-
Ferguson); Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 
25, 39 (1996) (relation of insured to insurer and the spreading of 
risk are matters at the core of the McCarran-Ferguson Act's 
concern); U.S. Dep't of Treasury v. Fabe, 508 U.S. 491, 503-04 
(1993) (performance of an insurance contract is central to the 
relationship between insurer and insured and therefore within the 
business of insurance).
    \88\ Likewise, section 13 limits the activities of financial 
institutions even where there is no insurance policy. The law could 
prohibit a financial institution from using information that a 
borrower did not have any insurance to solicit or offer insurance.
    \89\ See Autry v. Northwest Premium Services, Inc., 144 F.3d 
1037, 1044 (7th Cir. 1998) (state statute regulating premium 
financing for the purchase of automobile insurance served to protect 
the interests of borrowers and was not a law enacted for the purpose 
of regulating the business of insurance); Owensboro Nat'l Bank v. 
Stephens, 44 F.3d 388, 392 (6th Cir. 1994), cert. denied, 517 U.S. 
1119 (1996) (state statute that excluded financial institutions from 
certain insurance sales activities sought to regulate the conduct of 
the financial institutions and was not a law enacted for the purpose 
of regulating the business of insurance).
    \90\ Fabe, 508 U.S. at 508.
---------------------------------------------------------------------------

    The FCRA amendments thus permit a national bank and its 
affiliates, including insurance agency affiliates, to share and use 
experience information, including claims information, without any 
limitation and to share and use any other information, including 
medical information,\91\ pursuant to the notice and opt-out 
requirements.\92\ National banks and their affiliates may engage in 
these activities even if State laws restrict or otherwise limit such 
activities because the FCRA amendments expressly preempt any State 
law requirement or prohibition ``with respect to'' exchange of 
information between affiliated entities. Accordingly, we conclude 
that sections 13(b) and 13(c) of the West Virginia statute are 
preempted.
---------------------------------------------------------------------------

    \91\ Medical information may, however, be subject to the 
restrictions on information sharing imposed by the Health Insurance 
Portability Act of 1996. The Department of Health and Human Services 
has implemented information sharing provisions of this statute in 
its rule captioned ``Standards for Privacy of Individually 
Identifiable Health Information.'' See 65 FR 82462 (December 28, 
2000). This final rule, which took effect on April 14, 2001, is 
codified at 45 CFR Parts 160 and 164. Among other things, it covers 
electronic billing and fund transfers that include individually 
identifiable health information.
    \92\ Although the GLBA amended certain provisions of the FCRA 
relating to regulatory authority, nothing in GLBA, including the 
privacy provisions in Title V of that statute, alters the conclusion 
concerning the FCRA provisions on the sharing of information between 
affiliates or the preemptive effect of the FCRA. GLBA Sec. 506(c) 
expressly provides that ``nothing in this title shall be construed 
to modify, limit, or supersede the operation of the Fair Credit 
Reporting Act * * *'' 15 U.S.C. 6806.
---------------------------------------------------------------------------

Section 14--Physical Location of Insurance Sales

    Section 14 generally provides that the place of solicitation or 
sale of an insurance product by a financial institution must be 
clearly signed so as to be separate and distinct from the 
institution's lending and deposit-taking activities. The state law 
permits institutions with small physical facilities to seek a waiver 
from the state insurance commissioner if they do not have the 
physical space to comply with this provision.\93\
---------------------------------------------------------------------------

    \93\ Specifically, section 14 of the West Virginia Act provides 
that:
    The place of solicitation or sale of insurance by any financial 
institution or on the premises of any financial institution shall be 
clearly and conspicuously signed so as to be readily distinguishable 
by the public as separate and distinct from the financial 
institution's lending and deposit-taking activities. In the event 
that a person which would otherwise be subject to the requirements 
set forth in this provision does not have the physical space to so 
comply, the commissioner may grant a waiver of the requirements of 
this section upon a written request by such person demonstrating 
that, due to its small physical facilities, compliance is not 
possible, and including identification of other steps which will be 
taken to minimize customer confusion.
    W. Va. Code Sec. 33-11A-14 (2000).
---------------------------------------------------------------------------

    None of the Safe Harbors protect State provisions restricting 
the physical location where insurance sales take place, or requiring 
that insurance sales be physically separated from lending and 
deposit-taking activities.
    The text of the West Virginia provision creates some ambiguity 
about whether signage distinguishing the insurance sales area from 
the lending and deposit taking areas would be sufficient to comply 
with the statute, or whether physical segregation of these 
activities is required. The language in the provision suggests that 
physical separation is required because the requirement to use 
signage must be done in a manner so the locations are readily 
distinguishable by the public as separate and distinct. The waiver 
for small institutions also speaks in terms of not having the

[[Page 51512]]

physical space to comply--a condition that should not be relevant if 
all that is required is signage. The West Virginia Insurance 
Department also has suggested in informal discussions that this 
provision would require physical segregation.
    We therefore assume that section 14 requires the physical 
separation of insurance from lending and deposit-taking activities. 
Accordingly, in our view, the West Virginia requirement for physical 
segregation of insurance sales from lending and deposit-taking is 
preempted under the Barnett standards.
    In most banks, the deposit-taking area generally encompasses 
teller windows and teller lines. These spaces, which are different 
from the types of physical settings used in many other kinds of 
business offices, tend to be in a discrete area, characterized by a 
fairly quick movement through of customers. Both lending and 
insurance sales, on the other hand, are often done from desks in 
spaces apart from the teller services where the customer can speak 
with a representative for a longer time to discuss the transaction.
    The requirement to separate lending and deposit-taking 
activities from insurance sales affects the banks' insurance sales 
efforts significantly. Many banks, both large and small, are 
developing ways to streamline their delivery systems, for example, 
by the use of more compact physical facilities and a greater 
reliance on technology. At the same time, banks are striving to 
increase convenience and product choices to consumers.\94\ A 
restriction on the physical location of insurance activities would 
require the bank to devote more physical space to all three types of 
activities than is otherwise necessary, raising costs at bank 
facilities. Similar to the effect of the requirement in section 6 
for a separate insurance sales force, this requirement in section 14 
substantively intrudes into and disrupts bank operations by 
effectively prohibiting a bank from conducting all three activities 
without incurring substantial, unnecessary costs to reconfigure its 
physical space. Higher costs will impede the bank's ability to offer 
insurance products and reduce the availability of those products to 
consumers.
---------------------------------------------------------------------------

    \94\ From a consumer's standpoint, the OCC has noted, the 
convenience and ease of using a streamlined facility diminishes if 
the facility cannot offer the full panoply of services available at 
a traditional brick and mortar facility.
---------------------------------------------------------------------------

    The Federal insurance consumer protection statute and 
regulations avoid this result by requiring that the routine 
acceptance of deposits is kept, to the extent practicable, 
physically segregated from insurance product activity.\95\ In order 
to comply with Federal law, national banks must separate only 
deposit-taking from insurance sales, and only to the extent 
practicable.
---------------------------------------------------------------------------

    \95\ See 12 U.S.C. 1831 x (d); 12 CFR 14.50.
---------------------------------------------------------------------------

    The West Virginia statute permits the Commissioner to grant a 
waiver from the physical segregation requirement upon written 
request. However, the request must demonstrate that ``compliance is 
not possible,'' and must identify the steps the bank will take to 
``minimize customer confusion.'' As we have said in our discussion 
of section 6 of the West Virginia statute, a state-administered 
waiver provision does not erase the conflict between the state 
provision and Federal law. Under the Barnett standards, a state may 
not condition a national bank's exercise of a Federally authorized 
power unless a Federal statute directs that result. Here, the State 
law imposes requirements that are expensive, disruptive of ongoing 
bank operations, and, in some cases, impossible to implement. 
Accordingly, section 14 of the West Virginia statute is preempted.
    We trust the conclusions expressed in this letter are responsive 
to the preemption issues you have identified.

    Sincerely,

Julie L. Williams,
First Senior Deputy Comptroller and Chief Counsel.

[FR Doc. 01-25231 Filed 10-5-01; 8:45 am]
BILLING CODE 4810-33-P