[Federal Register Volume 67, Number 56 (Friday, March 22, 2002)]
[Notices]
[Pages 13405-13410]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6918]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket No. 02-03]


Preemption Determination

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

ACTION: Notice.

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

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

SUPPLEMENTARY INFORMATION:
    On July 14, 2000, the OCC published in the Federal Register notice 
of a request from the Massachusetts Bankers Association (Requester) for 
the OCC's opinion concerning whether section 104 of the Gramm-Leach-
Bliley (GLBA), Pub. L. 106-102, 113 Stat. 1338, 1352-59 (Nov. 12, 
1999), preempts certain provisions of the Massachusetts Law. See Notice 
of Request for Preemption Determination, 65 FR 43827, (Notice). The OCC 
is publishing its response to the request as an appendix to this 
notice.
    In the Notice, the OCC requested public comment on whether Federal 
law preempts the provisions of the Massachusetts Law that the Requester 
had identified. In response, the OCC received 110 comments. Many of 
these commenters, primarily banks and banking trade associations, 
supported preemption of the Massachusetts Law provisions. These 
commenters maintained generally that the Massachusetts Law provisions 
do not fall within the safe harbor provisions of GLBA (the Safe 
Harbors) and that they prevent or significantly interfere with the 
exercise of national banks' authority to engage in insurance sales, 
solicitation, or cross-marketing activities.
    Commenters opposing preemption expressed several concerns. First, 
some commenters argued that some or all of the provisions under review 
fall within the Safe Harbors, or are substantially similar to the Safe 
Harbors, and are therefore protected from preemption. Several 
commenters asserted that the provisions not covered by a Safe Harbor 
nevertheless are protected from preemption because they do not 
``prevent or significantly interfere'' with the ability of a financial 
institution or its affiliate to engage in any insurance sales, 
solicitation, or cross-marketing activity.
    For the reasons described in the preemption opinion, the OCC has 
concluded that Federal law preempts the following provisions of the 
Massachusetts Law identified by the Requester:
     The Massachusetts Law provision prohibiting non-licensed 
bankpersonnel from referring prospective customers to a licensed 
insurance agent or broker except upon an inquiry initiated by the 
customer.
     The Massachusetts Law provision prohibiting non-licensed 
bank personnel from receiving any additional compensation for making a 
referral, even if the compensation is not conditioned upon the sale of 
insurance.
     The Massachusetts Law provision prohibiting banks from 
telling loan applicants that insurance products are available through 
the bank until the application is approved and, in the case of a loan 
secured by a mortgage on real property, until after the customer has 
accepted the bank's written commitment to extend credit.
    The analysis used to reach these conclusions and the reasons for 
each conclusion are described in detail in our reply to the Requester.

    Dated: March 5, 2002.
John D. Hawke, Jr.,
Comptroller of the Currency.
March 18, 2002.
Kevin F. Kiley,
Executive Vice President,
Massachusetts Bankers Association, Inc.,
73 Tremont Street, Suite 306,
Boston, MA 02108-3906.
Dear Mr. Kiley,
    This letter replies to your request, on behalf of the 
Massachusetts Bankers Association, for the opinion of the Office of 
the Comptroller of the Currency (OCC) concerning whether certain 
provisions of the Massachusetts Consumer Protection Act Relative to 
the Sale of Insurance by Banks and regulations promulgated pursuant 
to that statute apply to national banks.\1\
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    \1\ The provisions of the Massachusetts law and implementing 
regulations are collectively referred to in this letter as the 
``Massachusetts Law.''
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    The provisions you have asked us to review prohibit: (1) Non-
licensed bank personnel from referring a prospective customer to a 
licensed insurance agent or broker except upon an inquiry initiated 
by the customer; (2) a bank from compensating

[[Page 13406]]

an employee for such a referral; and (3) a bank from telling a loan 
applicant that insurance products are available through the bank 
until the application is approved and, in the case of a loan secured 
by a mortgage on real property, until after the customer has 
accepted the bank's written commitment to extend credit. For the 
reasons described in detail in this letter, we have concluded that 
federal law would preempt the provisions of the Massachusetts Law 
that you have asked us to review.
    In reaching this conclusion, we have reviewed the provisions of 
the Massachusetts Law under the legal standards, including the 
provisions of the Gramm-Leach-Bliley Act (GLBA),\2\ that govern the 
applicability of state law to national banks. We also have relied on 
our experience in supervising national banks that engage in 
insurance activities to evaluate the effects of the state law 
provisions under consideration here on national banks' ability to 
conduct an insurance agency business.
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    \2\ See Pub. L. No. 106-102, 113 Stat. 1338 (Nov. 12, 1999).
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    The first section of this letter provides background on the 
process we used to develop our opinion and addresses the significant 
comments that we received in response to our publication of notice 
of your request. Section II describes the framework that governs our 
legal analysis. Finally, Section III analyzes each of the provisions 
of the Massachusetts Law that you have asked us to review to 
determine whether, in our opinion, it is preempted by federal law.

I. Background and Comments

    On May 22, 1998, the Commonwealth of Massachusetts enacted 
legislation entitled Consumer Protection Act Relative to the Sale of 
Insurance by Banks.\3\ The Massachusetts Department of Banking and 
Insurance has promulgated regulations \4\ pursuant to this 
legislation. The statute and implementing regulations impose a 
number of requirements that affect the insurance sales, 
solicitation, or cross-marketing activities of financial 
institutions, including national banks.
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    \3\ Chapter 129 of the Acts of 1998. The provisions at issue 
here are codified at Mass. Gen. L. ch. 167F, Sec. 2A.
    \4\ 209 CMR 49.00, et seq. and 211 CMR 142.00, et seq.
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    By letter dated May 30, 2000, you requested the OCC's opinion on 
whether the three specific provisions of the Massachusetts Law that 
your letter identified are preempted pursuant to section 104 of the 
GLBA.\5\ In your request, you asserted that these state law 
provisions are not protected from preemption by the safe harbor 
provisions contained in section 104(d)(2)(B) of the GLBA (``Safe 
Harbors'') and that they prevent or significantly interfere with the 
ability of national banks to exercise their authority to engage in 
insurance sales, solicitation, or cross-marketing activities.
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    \5\ GLBA Sec. 104, 113 Stat. At 1352. Section 104 of the GLBA is 
codified at 15 U.S.C. 6701. In this letter, we cite section 104 of 
the GLBA rather than the provision as codified.
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    On July 14, 2000, the OCC published notice of your request in 
the Federal Register and requested comments on whether federal law 
preempts the Massachusetts Law provisions.\6\ We received a total of 
110 comments in response to the notice. Many of these commenters, 
primarily banks and banking trade associations, supported preemption 
of the Massachusetts Law provisions. These commenters maintained 
generally that the Massachusetts Law provisions do not fall within 
the Safe Harbors and that they prevent or significantly interfere 
with the exercise of national banks' authority to engage in 
insurance sales, solicitation, or cross-marketing activities. For 
the reasons set out in greater detail in Section III of this letter, 
we agree that federal law preempts each of the state laws in 
question.
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    \6\ See 65 FR 43827 (July 14, 2000).
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    Commenters opposing preemption expressed several concerns. 
First, some commenters argued that some or all of the provisions 
under review fall within the Safe Harbors, or are substantially 
similar to the Safe Harbors, and are therefore protected from 
preemption. Several commenters asserted that the provisions not 
covered by a Safe Harbor nevertheless are protected from preemption 
because they do not ``prevent or significantly interfere'' with the 
ability of a financial institution or its affiliate to engage in any 
insurance sales, solicitation, or cross-marketing activity. These 
points are addressed in detail in Section III of this letter.
    Some of the commenters opposed to preemption also argued more 
generally that the OCC lacks the authority to determine whether 
federal law preempts the Massachusetts Law. As these comments 
suggest, federal courts, rather than the OCC, are the ultimate 
arbiters of whether federal law preempts state law in a particular 
case. Nevertheless, Congress and the federal courts have recognized 
that the OCC has the authority to interpret, in the first instance, 
federal laws affecting national bank powers. Indeed, the National 
Bank Act contains specific provisions governing the issuance of 
opinions concerning preemption of state laws by the OCC.\7\ As the 
primary supervisor of national banks, the OCC is uniquely positioned 
to evaluate the effect of the Massachusetts Law on national banks' 
ability to exercise their federal authority to sell insurance.\8\ 
Further, from a practical perspective, in the absence of 
interpretive advice, national banks that sell, or wish to sell, 
insurance in Massachusetts will face added cost, burden, and 
uncertainty. Finally, Congress clearly envisioned that the federal 
banking agencies would be making determinations as to whether state 
laws regarding insurance sales and solicitations were preempted, 
because section 304 of the GLBA contains detailed provisions for 
judicial review of conflicts between a state insurance regulator and 
a federal regulator arising from such a determination.\9\
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    \7\ See 12 U.S.C. 43 (requiring, under certain circumstances, 
that the OCC publish notice of preemption issues as well as ``any 
final opinion letter'' on such issues).
    \8\ See United States v. Mead Corp., 121 S. Ct. 2164, 2173 n.13 
(2001) (describing the weight generally given by the courts to 
certain OCC interpretive opinions).
    \9\ See GLBA Sec. 304, 113 Stat. at 1338, codified at 15 U.S.C. 
6714.
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    A few commenters opposed to preemption asserted that the OCC 
should not find that federal law preempts the Massachusetts Law 
provisions because state insurance regulators are, pursuant to GLBA, 
responsible for the functional regulation of the business of 
insurance. The GLBA expressly provides, however, that the states' 
functional regulation authority over insurance activities is subject 
to federal preemption standards as incorporated in section 104.\10\ 
In particular, the question whether a state insurance sales law 
applies to national banks is resolved by application of the federal 
standards to the state provision in question.\11\
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    \10\ See GLBA Sec. 301, 113 Stat. at 1407, codified at 15 U.S.C. 
6711 (``The insurance activities of any person (including a national 
bank exercising its power to act as agency under [12 U.S.C. 92]) 
shall be functionally regulated by the States, subject to section 
104.'') (emphasis added).
    \11\ Several commenters also asserted that under section 305 of 
the GLBA, state insurance customer protection statutes may only be 
preempted if the Federal banking agencies jointly determine that the 
Federal regulations enacted pursuant to section 305 provide greater 
consumer protection than the state law. See GLBA, Sec. 305, 113 
Stat. at 1410-15, codified at 12 U.S.C. 1831x. Section 305 of the 
GLBA directed the Federal banking agencies to promulgate certain 
consumer protection regulations relating to the sale, solicitation, 
and advertising of insurance products by depository institutions and 
persons selling insurance on the premises of depository institutions 
or otherwise on behalf of such institutions. Section 305(g)(2) 
explains the relationship between these regulations and state laws 
that are in effect in that jurisdiction. Pursuant to section 
305(g)(2), these Federal regulations do not override inconsistent 
state laws unless the agencies jointly determine that the Federal 
regulations provide better consumer protections than the state 
provisions. The state then is given up to 3 years to override that 
determination. Section 305(g) relates solely to the preemptive 
effect that is to be given to Federal regulations promulgated under 
section 305(a). By its terms, it does not relate to the preemptive 
effect that is to be given to other Federal regulations or statutes. 
In the insurance sales area, this is determined pursuant to section 
104 of the GLBA and the Barnett standards it incorporates, as 
explained in Section II of this letter.
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    Commenters also expressed concerns about the impact an OCC 
opinion concerning the Massachusetts Law would have on similar laws 
enacted in at least 30 states. These commenters noted that these 
state laws were the products of extensive negotiations involving 
state regulators and the insurance and banking industries. This 
letter expresses no view with respect to state laws other than those 
specifically addressed here. We specifically note, however, that the 
conclusions reached in this letter do not result in a finding that 
any provisions of the Model Unfair Trade Practices Act adopted by 
the National Association of Insurance Commissioners (NAIC) would be 
preempted.\12\
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    \12\ The Model Unfair Trade Practices Act is available on the 
NAIC's Web site, www.NAIC.org.
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    The commenters opposed to preemption also urged the OCC to delay 
issuing its opinion until the Sixth Circuit resolves the appeal of 
the Federal District Court's decision in Association of Banks in 
Insurance, Inc. v. Duryee.\13\ In Duryee, a

[[Page 13407]]

national bank and trade association with national bank members 
sought a declaratory judgment that certain Ohio insurance licensing 
statutes as applied to national banks are preempted by the federal 
statute--12 U.S.C. 92--that authorizes national banks to sell 
insurance from agencies based in small towns without regard to 
affiliation or control. The District Court granted the plaintiffs' 
motion for summary judgment and issued the declaratory judgment and 
enjoined Ohio from enforcing its licensing statutes against national 
banks operating from small towns in the state. Commenters here 
asserted that the OCC should delay opining in this matter because 
the appellate decision in Duryee would clarify the parameters of the 
Barnett standards in matters involving the application of state 
insurance laws to national banks. However, in the time since the 
commenters submitted their comments on this matter, the Sixth 
Circuit issued its decision in the Duryee appeal, affirming the 
grant of a declaratory judgment and the issuance of a permanent 
injunction against the state's enforcement of the laws against 
national banks.\14\ The Sixth Circuit's decision in Duryee thus 
strongly supports the conclusions we reach in this letter.
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    \13\ 55 F. Supp. 2d 799 (S.D. Ohio 1999).
    \14\ 270 F.3d 397 (6th Cir. 2001). The Sixth Circuit remanded 
the case for further consideration of whether certain corporate 
organizational licensing requirements are preempted in light of 
GLBA. However, the Sixth Circuit resolved the issues of relevance to 
our consideration of the Massachusetts Law, namely, the legal 
standards to apply when considering whether a state law is 
preempted. As is explained further in Section II of this letter, the 
Sixth Circuit was clear that section 104 requires that the entire 
preemption test as set out in Barnett--and not one limited to a 
consideration of whether a state law ``prevents or significantly 
interferes'' with a federal power--is to be applied. The remand will 
resolve whether the corporate organizational requirements are 
preempted in light of Barnett and the anti-discrimination provision 
set out in section 104(e) of GLBA. However, the outcome of that 
remand will not affect the conclusions reached in this letter.
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    The next section of this letter summarizes the federal 
preemption standards that apply to the state laws you have asked us 
to review.

II. Federal Preemption Standards: The GLBA and Barnett

    In our recent letter concerning whether federal law preempts 
certain provisions of the West Virginia Insurance Sales Consumer 
Protection Act \15\ (the West Virginia Letter), we set forth a 
detailed analysis of the GLBA preemption framework. That analysis is 
incorporated by reference here and is summarized below.
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    \15\ Letter from Julie L. Williams, First Senior Deputy 
Comptroller and Chief Counsel, to Sandra Murphy, Esq., dated 
September 24, 2001. This letter was published in the Federal 
Register at 66 FR 51502 (October 9, 2001).
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    The GLBA establishes several different standards governing the 
applicability of state law to depository institutions and their 
affiliates, depending on whether the state law at issue affects: The 
institution's ability to engage in an affiliation that is 
``authorized or permitted by Federal law;'' its ability to engage in 
activities ``authorized or permitted'' pursuant to the GLBA; or its 
ability to engage in insurance sales, solicitation, and cross-
marketing activities.\16\ With respect to any insurance sales, 
solicitation, or cross-marketing activities, section 104(d)(2) 
establishes the following standard governing the applicability of 
state law:
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    \16\ GLBA Secs. 104(c)(1), (d)(1), and (d)(2), respectively.
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    In accordance with the legal standards for preemption set forth 
in the decision of the Supreme Court of the United States in Barnett 
Bank of Marion County N.A. v. Nelson, 517 U.S. 25 (1996), no state 
may, by statute, regulation, order, interpretation, or other action, 
prevent or significantly interfere with the ability of a depository 
institution, or an affiliate thereof, to engage, directly or 
indirectly, either by itself or in conjunction with an affiliate or 
any other person, in any insurance sales, solicitation, or 
crossmarketing activity.\17\
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    \17\ GLBA Sec. 104(d)(2)(A). State statutes that were enacted 
after September 3, 1998, also must meet certain non-discrimination 
standards with respect to those provisions not covered by the Safe 
Harbors. See GLBA Sec. 104(e). The Massachusetts Law was enacted on 
May 22, 1998, and therefore these nondiscrimination provisions are 
not applicable to this analysis.
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However, section 104 protects from preemption under this standard 13 
specified types of restrictions on insurance sales, solicitation, 
and cross-marketing activities--the Safe Harbors--as well as state 
restrictions that are ``substantially the same as but no more 
burdensome or restrictive than'' the Safe Harbors.\18\ State laws 
regarding any insurance sales, solicitation, and cross-marketing 
activities that are not covered by a Safe Harbor are subject to the 
standards for preemption set forth in Barnett, pursuant to section 
104(d)(2).
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    \18\ See GLBA Secs. 104(d)(2)(B)(i)-(xiii).
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    The Barnett standards represent an application, in the national 
bank context, of the analysis used by the Supreme Court to 
determine, under the Supremacy Clause of the U.S. Constitution, 
whether federal law conflicts with state law such that the state law 
is preempted. Under this analysis, the Court reviews whether a state 
law ``stands as an obstacle to the accomplishment and execution of 
the full purposes and objectives of Congress.'' \19\ In the national 
bank context, the Court applies this analysis by looking at whether 
the state law at issue conflicts with the exercise of a national 
bank's federally authorized powers. Thus, in holding that a Florida 
statute restricting a national bank's ability to sell insurance in 
that state was preempted, the Court in Barnett relied upon a number 
of its precedents holding that a particular state statute was 
preempted because it ``stood as an obstacle'' to a national bank's 
exercise of those powers.\20\
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    \19\ Barnett, 517 U.S. at 31, quoting Hines v. Davidowitz, 312 
U.S. 52, 67 (1941). The Court's quotation from the Hines case came 
at the conclusion of a paragraph summarizing the 3 traditional bases 
for federal preemption under the Supremacy Clause:
    Sometimes courts, when facing the pre-emption question, find 
language in the Federal statute that reveals an explicit 
congressional intent to pre-empt state law. More often, explicit 
pre-emption language does not appear, or does not directly answer 
the question. In that event, courts must consider whether the 
Federal statute's ``structure and purpose,'' or nonspecific 
statutory language, nonetheless reveal a clear, but implicit, pre-
emptive intent. A Federal statute, for example, may create a scheme 
of Federal regulation ``so pervasive as to make reasonable the 
inference that Congress left no room for the States to supplement 
it.'' Alternatively, Federal law may be in ``irreconcilable 
conflict'' with state law. Compliance with both statutes, for 
example, may be a ``physical impossibility,'' or, the state law may 
``stan[d] as an obstacle to the accomplishment and execution of the 
full purposes and objectives of Congress.''
    Id. at 31 (citations omitted).
    \20\ In describing this analysis, the Court said:
    [T]he Federal Statute says that its grant of authority to sell 
insurance is in ``addition to the powers now vested by law in 
national [banks].'' [12 U.S.C. 92] (emphasis added). In using the 
word ``powers,'' the statute chooses a legal concept that, in the 
context of national bank legislation, has a history. That history is 
one of interpreting grants of both enumerated and incidental 
``powers'' to national banks as grants of authority not normally 
limited by, but rather ordinarily pre-empting, contrary state law. 
See, e.g., First Nat. Bank of San Jose v. California, 262 U.S. 366, 
368-369 (1923) (national banks' ``power'' to receive deposits 
preempts contrary state escheat law); Easton v. Iowa, 188 U.S. 220, 
229-230 (1903) (national banking system normally ``independent, so 
far as powers conferred are concerned, of state legislation'').
    Barnett, 517 U.S. at 32 (parallel and ``cf.'' citations 
omitted).
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    The scope of the standard is illustrated by the Court's earlier 
decision in the Franklin National Bank case, which was relied upon 
by the Court in Barnett.\21\ In the Franklin case, the Court held 
that a state law that prohibited national banks from using the word 
``savings'' in their advertising was preempted. The Court's 
rationale was not that the state statute directly precluded national 
banks from engaging in the business of receiving savings deposits. 
The statute at issue did not have that effect. Instead, the Court 
said that the federal law authorizing national banks to take savings 
deposits must be read to authorize them to engage in the ordinary 
incidents of that business, such as advertising. Finding a ``clear 
conflict'' between the state and federal laws, the Court held that 
the state advertising restriction was preempted. The meaning of 
Franklin, expressly confirmed in Barnett,\22\ is that a national 
bank's power to engage in an activity necessarily includes the power 
to conduct the business effectively and competitively.
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    \21\ Franklin National Bank of Franklin Square v. New York, 347 
U.S. 373 (1954), cited in Barnett, 517 U.S. at 33.
    \22\ Barnett, 517 U.S. at 35 (``Thus, the Court's discussion in 
Franklin Nat. Bank, the holding of that case, and the other 
precedent we have cited above, strongly argue for a similar 
interpretation here--a broad interpretation of the word ``may'' that 
does not condition federal permission upon that of the State.'').
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    The Court recognized in Barnett that not every state law that 
affects a national bank activity ``stands as an obstacle'' to the 
accomplishment of the federal purpose:

    In defining the pre-emptive scope of statutes and regulations 
granting a power to national banks, these cases take the view that 
normally Congress would not want States to

[[Page 13408]]

forbid, or impair significantly, the exercise of a power that 
Congress explicitly granted. To say this is not to deprive States of 
the power to regulate national banks, where (unlike here) doing so 
does not prevent or significantly interfere with the national bank's 
exercise of its powers. See, e.g., Anderson Nat. Bank v. Luckett, 
321 U.S. 233, 247-252 (1944) (state statute administering abandoned 
deposit accounts did not ``unlawful[ly] encroac[h] on the rights and 
privileges of national banks''); McClellan v. Chipman, 164 U.S. 347, 
358 (1896) (application to national banks of state statute 
forbidding certain real estate transfers by insolvent transferees 
would not ``destro[y] or hampe[r]'' national bank functions); 
National Bank v. Commonwealth, 9 Wall. 353, 362 (1870) (national 
banks subject to state law that does not ``interfere with, or impair 
[national banks'] efficiency in performing the functions by which 
they are designed to serve [the Federal] Government'').\23\
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    \23\ Barnett, 517 U.S. at 33-34.
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In this portion of its analysis, the Court describes the boundary of 
the preemptive scope of the federal laws authorizing powers for 
national banks by describing circumstances under which a state law has 
been found not to stand as an obstacle to the accomplishment of the 
federal purpose.\24\
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    \24\ Thus, under Franklin, Barnett, and other federal cases, a 
conflict between a state law and federal law need not amount to a 
whole, or even partial, prohibition in order for the federal law to 
have preemptive effect. See Barnett, 517 U.S. at 31-32. Where a 
federal grant of authority is unrestricted, state law that attempts 
to place limits on the scope and effective exercise by a national 
bank of its express or incidental powers will be preempted. See, 
e.g., Franklin National Bank, 347 U.S. at 378; Duryee, 270 F.3d at 
409 (``The intervenors' attempt to redefine `significantly 
interfere' as `effectively thwart' is unpersuasive.''); New York 
Bankers Ass'n, Inc. v. Levin, 999 F. Supp. 716, 719 (W.D.N.Y. 1998) 
(holding that a New York statute that restricted the types of 
insurance banks could sell to their customers was preempted on the 
grounds that the state law ``constitutes an interference with 
[banks'] rights'' to sell insurance).
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    The variety in the language that the Supreme Court used in Barnett 
to describe the conflicts analysis that governed the result there shows 
that the analysis cannot be encapsulated by any one phrase. Rather, 
whatever words are used to describe it, the analysis requires an 
examination of the effect that a particular state statute has on a 
national bank's exercise of a federally authorized power--here, the 
power to sell insurance granted by federal statutes, including 12 
U.S.C. 92.\25\
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    \25\ National banks are authorized to engage in insurance 
activities by a number of federal statutory provisions, including: 
12 U.S.C. 24 (Seventh) (e.g., credit life insurance); 12 U.S.C. 24a 
(authority to engage in insurance sales through a financial 
subsidiary); 12 U.S.C. 92 (authority to sell insurance from ``small 
towns''); and 15 U.S.C. 6713 (title insurance, where permissible for 
state banks).
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    Section 104 of the GLBA follows this same approach. Though it 
specifically mentions the ``prevent or significantly interfere'' 
formulation quoted above, the full text of section 104(d)(1) introduces 
that phrase and provides its context with the words ``[i]n accordance 
with the legal standards for preemption set forth in [Barnett].'' This 
express reference to the Barnett decision in its entirety and without 
qualification and to its ``standards'' in the plural, rather than the 
singular, demonstrates that the statute imports the whole of the 
Barnett conflicts analysis as governing the preemption of state laws 
pertaining to insurance sales, solicitation, and cross-marketing 
activities. Any doubt on this point is resolved by the express 
preservation of the applicability of the Barnett case in a subsequent 
portion of section 104:

    (C) CONSTRUCTION.--Nothing in this paragraph shall be 
construed--
    (I) to limit the applicability of [Barnett] with respect to any 
State statute, regulation, order, interpretation, or other action 
that is not referred to or described in subparagraph (B) [i.e., the 
Safe Harbors]; or
    (II) to create any inference with respect to any State statute, 
regulation, order, interpretation, or other action that is not 
described in this paragraph.\26\
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    \26\ GLBA, Sec. 104(d)(2)(C)(iii). The words ``this paragraph'' 
in the lead-in language mean paragraph (2) of subsection (d). We 
construe the ``no inference'' language in the second clause to mean 
that a state law may not be inferred to be preempted under the 
``prevent or significantly interfere standard'' solely because it is 
excluded from coverage by one of the Safe Harbors. Accordingly, our 
analysis in Section III draws no such inferences.
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    The effect of this language is to reaffirm, following the 
listing of the Safe Harbors, that both the standards that the 
Supreme Court articulated in the Barnett decision and the analysis 
that the Court used in that case apply to state laws that are not 
protected by the Safe Harbors.\27\ Thus, the standards for 
preemption used by the Court in Barnett before enactment of GLBA are 
the same standards that apply today with respect to the application 
of state insurance sales, solicitation, or cross-marketing laws that 
are not covered by a Safe Harbor to insurance activities that are 
authorized for national banks under federal law.
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    \27\ As we noted in the West Virginia Letter, the legislative 
history of section 104 confirms that Congress intended to 
incorporate the whole of Barnett by referencing it in that section. 
The Senate Report accompanying the GLBA, in commenting on a 
provision prescribing the ``prevent or significantly interfere'' 
standard, using language that was almost identical to the language 
of section 104(d)(2) as ultimately enacted, states that: The 
Committee believes that State insurance sales, solicitation, and 
cross-marketing laws adopted prior to September 3, 1998 should be 
subject to preemption under the preemption standards applicable when 
such laws were adopted. Thus, it is the Committee's intent that such 
laws may be subject to preemption under applicable case law, and the 
statutory preemption standard set forth in subsection 104(d)(2)(A), 
which is patterned after such case law. There is an extensive body 
of case law related to the preemption of State law. For example, in 
Barnett Bank of Marion County, N.A. v. Nelson, 116 S.Ct. 1103 
(1996), the U.S. Supreme Court noted that Federal courts have 
preempted State laws that ``prevent or significantly interfere'' 
with a national bank's exercise of its powers; that ``unlawfully 
encroach'' on the rights and privileges of national banks; that 
``destroy or hamper'' national banks' functions; or that ``interfere 
with or impair'' national banks' efficiency in performing authorized 
functions.
    S. Rep. No. 44, 106th Cong. 1st Sess. At 13 (1999). (The 
limitation on the application of this standard to state laws adopted 
prior to September 3, 1998 was deleted in the final legislation.) 
The Senate Report described as affirmative preemption standards 
phrases that the Barnett Court used to describe cases in which state 
law was not preempted. This transposition does not change the 
substance of the point sought to be made in the Report, namely, that 
the intention of Congress was to incorporate into the statute the 
pre-existing standards described in the applicable caselaw and not a 
new standard comprising only the ``prevent or significantly 
interfere'' language. As we have previously described, it is the 
application of the conflicts analysis and not the particular words 
used to describe the effect of a state statute that comprise the 
Barnett standards. See H. Rep. 106-74 Part 3 at 139 (``Subsection 
104(b)(2)(C) reiterates the underlying principles of subsection 
104(b)(2)(A), affirming that the Barnett standard and case law 
continues to be applicable to insurance sales, solicitations, and 
cross-marketing activities that are not protected by the safe 
harbors set forth in subsection 104(b)(2)(B).''); and Duryee, 270 
F.3d at 409 (noting that ``the Barnett Bank opinion cited two cases 
that do not support the intervenors' interpretation of the 
standard'').
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III. Application of Federal Preemption Standards to the Massachusetts 
Law

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

A. The Massachusetts Restrictions on Referrals by Bank Personnel

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

    Officers, tellers and other employees of a bank who are not 
licensed as

[[Page 13409]]

insurance agents may refer a customer of said bank to a licensed 
insurance agent of the bank only when such customer initiates an 
inquiry relative to the availability or acquisition of insurance 
products. No such officer, teller or other employee shall be further or 
additionally compensated for making said referrals.\28\
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    \28\ MASS. GEN. L. ch. 167F, Sec. 2A(b)(2).
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    This statutory provision is implemented in regulations set forth at 
211 CMR Sec. 142.05(3) and 209 CMR Sec. 49.06(3). Section 142.05(3) of 
211 CMR provides:

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

    Section 49.06(3) of 209 CMR provides:

    (3) Solicitations and Sales by Bank Personnel. The solicitation 
and sale of insurance by banks shall be conducted by licensed 
personnel of such institutions to the extent required by applicable 
insurance laws and regulations. Unlicensed officers, tellers and 
other employees, however, may refer customers to licensed personnel 
only where:
    (a) the customer initiates an inquiry as to the availability or 
acquisition of insurance products; and
    (b) such unlicensed personnel are not additionally compensated 
for such referrals.

    The Director of the Massachusetts Office of Consumer Affairs and 
Business Regulation (the Massachusetts Director), who oversees the 
Massachusetts Department of Banking and Insurance, asserted in her 
comment letter that the Referral Prohibition and the Referral Fee 
Prohibition are protected by two of the GLBA Safe Harbors.\29\ Although 
the Massachusetts Director does not specify which Safe Harbors, there 
are two concerning referrals. Safe Harbor (iv) protects state laws that 
prohibit the payment of valuable consideration, such as referral fees, 
to unlicensed individuals for ``services as an insurance agent or 
broker.'' A referral by an unlicensed person who does not discuss 
specific policy terms and conditions, however, is expressly excluded 
from the term ``services as an insurance agent or broker.'' Safe Harbor 
(v) preserves state laws prohibiting referral fees based on the 
purchase of insurance by the customer.
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    \29\ See Comment Letter from Jennifer Davis Carey, Director, 
Consumer Affairs and Business Regulation, Commonwealth of 
Massachusetts, dated August 10, 2000, at 3 (hereinafter ``Director's 
Letter'').
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    As we have noted, the Safe Harbors protect state provisions that 
are ``substantially the same as but no more burdensome or 
restrictive than'' the restrictions in the federal statutory text. 
It is our opinion that the Referral Prohibition is not 
``substantially the same as'' Safe Harbor (iv) and that it is more 
burdensome and restrictive than Safe Harbor (iv). The plain language 
of Safe Harbor (iv) protects only those state laws restricting 
payment for referrals by unlicensed personnel that involve 
discussions of specific insurance policy terms and conditions. The 
Massachusetts Referral Prohibition, however, restricts all referrals 
by unlicensed bank personnel (unless initiated by the customer), 
including those that do not involve specific insurance policy 
discussions. In our view, this exceeds the scope of Safe Harbor 
(iv), and consequently is not protected.
    Similarly, in our view, the Massachusetts Referral Fee 
Prohibition is not protected by Safe Harbor (v). Safe Harbor (v) 
protects only those state restrictions on referral fees tied to a 
customer's purchase of insurance. The Massachusetts Referral Fee 
Prohibition goes further than this by prohibiting referral fees of 
any kind. As such, the Massachusetts Referral Fee Prohibition is 
more burdensome and restrictive than the restrictions contemplated 
in Safe Harbor (v).
    Because the Referral Prohibition and Referral Fee Prohibition 
are not protected by the GLBA Safe Harbors, we must consider whether 
they are preempted by the Barnett standards incorporated in GLBA 
section 104.
    The Massachusetts Referral Prohibition imposes significant 
limitations on a bank's ability to engage in insurance sales, 
solicitation, and cross-marketing activities. By limiting referrals 
to only those resulting from a customer's inquiry, the Massachusetts 
Referral Prohibition effectively deprives banks of important 
opportunities to offer insurance products to customers. The Referral 
Prohibition precludes non-licensed bank personnel, such as bank 
tellers and customer service personnel, from even mentioning to 
their customers the fact that qualified, licensed insurance agents 
employed by the bank are available to discuss with them their 
insurance needs, unless the customer happens to ask about the 
product. This will prevent in most cases the very bank employees 
likeliest to have contact with customers from engaging in the cross-
marketing activities that are permissible for national banks.
    By effectively eliminating cross-marketing activities by 
unlicensed bank staff, the Massachusetts Referral Prohibition runs 
afoul of the express language of section 104(d) of the GLBA. Under 
section 104(d)(2)(A), in accordance with the Barnett standards, no 
state may prevent or significantly interfere with the ability of a 
depository institution to engage in ``any . . . crossmarketing 
activity'' if that cross-marketing activity is not protected by the 
safe harbors for referrals set out in sections 104(d)(2)(B)(iv) and 
(v).\30\ The word ``any'' in section 104(d)(2)(A) clearly 
encompasses a bank's ability to engage in a wide range of cross-
marketing activities, including the referrals prohibited by 
Massachusetts.\31\
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    \30\ GLBA Sec. 104(d)(2)(A) (emphasis added).
    \31\ We note that federal law expressly contemplates that a 
national bank employee may make referrals, and receive compensation 
for making referrals, that would be prohibited under Massachusetts 
Law. Section 305 of the GLBA requires the OCC and the other federal 
banking agencies to prescribe regulations that include, among other 
provisions:
    [s]tandards that permit any person accepting deposits from the 
public in an area where such transactions are routinely conducted in 
a depository institution to refer a customer who seeks to purchase 
any insurance product to a qualified person who sells such product, 
only if the person making the referral receives no more than a one-
time nominal fee of a fixed dollar amount for each referral that 
does not depend on whether the referral results in a transaction.
    See also 12 CFR 14.50(b) (OCC implementing regulations). As 
noted above, Safe Harbor (iv) permits bank employees who are not 
licensed to engage in insurance activities to make referrals under 
certain circumstances; and Safe Harbor (v) protects from preemption 
only state prohibition of referral fees based on the customer's 
purchase of insurance. Thus, Congress clearly contemplated that bank 
employees would make referrals to persons in the bank licensed to 
sell insurance and receive compensation for doing so.
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    The Massachusetts Referral Fee Prohibition imposes a further, 
significant limitation on a bank's ability to cross-market insurance 
products. As many commenters noted, one effective way for a bank to 
cross-market it to offer a financial incentive for unlicensed bank 
personnel to refer a customer to qualified insurance personnel. By 
prohibiting a bank from offering that financial incentive, the 
Massachusetts Referral Fee Prohibition impermissibly prevents the 
bank from structuring its internal operations so that it can engage 
effectively in the cross-marketing activities permitted by GLBA.
    Thus, in our view, both the Massachusetts Referral Prohibition 
and the Massachusetts Referral Fee Prohibition would be preempted 
under the Barnett standards incorporated in section 104(d)(2) 
because they frustrate the authority of national banks to engage in 
insurance activities and activities incidental thereto. National 
banks' ability to engage in insurance activities encompasses their 
ability to engage in activities incidental to those insurance 
activities, such as marketing the availability of the insurance 
products. See 12 U.S.C. 24(Seventh); Franklin National Bank, 347 
U.S. at 377-378. The Massachusetts Referral Prohibition and the 
Massachusetts Referral Fee Prohibition conflict with these powers, 
in particular, with a bank's ability to engage, as described in 
section 104(d)(2)(A) of GLBA, in cross-marketing activities. As many 
commenters pointed out, the state law in question effectively 
deprives a bank of an important means of advertising the 
availability of an entire line of financial products that it is 
authorized to offer. Thus, consistent with the Supreme Court's 
holdings in Barnett and Franklin National Bank, we believe that the 
Massachusetts Referral Prohibition and the Massachusetts Referral 
Fee Prohibition are preempted because they conflict with national 
banks' authority to market the availability of products that the 
banks may offer under federal law and, therefore, to engage in the 
full range of

[[Page 13410]]

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

    The Massachusetts statute and regulations also prohibit banks 
from telling loan applicants that insurance products are available 
through the bank until the application is approved and, in the case 
of a loan secured by a mortgage on real property, until after the 
customer has accepted the bank's written commitment to extend credit 
(the Waiting Period Requirement).\33\ There are no limits in federal 
law that impose conditions on a national bank's insurance activities 
comparable to the limits imposed by the Waiting Period Requirement. 
Moreover, as the Massachusetts Director acknowledged in her 
letter,\34\ there are no GLBA Safe Harbors that would protect this 
requirement. Accordingly, the Waiting Period Requirement must be 
analyzed under the standards for preemption set forth in Barnett and 
made applicable to national banks' insurance activities by section 
104(d)(2).
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    \33\ Mass. Gen. L. 167F, Sec. 2A(b)(4)(ii) and (iii), 209 CMR 
Sec. 49.06(5)(b) and (c), and 211 CMR Sec. 142.06(2) and (3)(b). 
Specifically, Sec. 142.06(2) provides:
    No solicitation for the sale of insurance in conjunction with 
any application for the extension of credit shall be permitted until 
said application has been approved, such approval and the 
disclosures required by 211 CMR 142.06 have been provided to said 
applicant in writing, and the receipt of both said approval and 
disclosures has been acknowledged in writing by said 
applicant. . . .
    Section 142.06(3)(b) provides:
    (3) In the instance of an application to a bank for an extension 
of credit to be secured by a mortgage on real estate and in which it 
is necessary for the applicant to obtain a policy insuring said 
premises against loss and designating such bank as loss payee:
    * * * (b) such bank shall not, in any manner, solicit the 
applicant to purchase the required insurance from the bank until 
said commitment has been accepted by the applicant . . . .
    \34\ Pursuant to the Director's Letter, the Director's 
acknowledgement of this point ``shall [not] be construed in any way 
to waive or concede any issues . . . that may arise in any other 
proceeding regarding the Massachusetts bank insurance laws.'' 
Director's Letter, supra note 29, at 3.
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    In our opinion, the Waiting Period Requirement is preempted 
under those standards because of the requirement's impact on the 
ability of a depository institution to engage in insurance sales, 
solicitation, and cross-marketing activity. The Massachusetts 
Director asserts that the Waiting Period Requirement does not 
``significantly interfere'' with the ability of a bank to sell 
insurance because the requirement merely governs when the bank may 
solicit consumers.\35\ That characterization substantially 
understates the effect of the requirement on a bank's ability to 
cross-market its products, however. As we stated in the West 
Virginia Letter, based on our experience, restricting the timing of 
an insurance solicitation also restricts ``the methods by which a 
bank may solicit an insurance sale from a customer and thus 
substantively affects the bank's ability to solicit and sell 
insurance products.'' \36\ The Massachusetts Waiting Period 
Requirement, like the timing provision considered in the West 
Virginia letter, would preclude national banks from availing 
themselves of a prime opportunity to cross-market insurance 
products, that is, when the transaction is still in process.
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    \35\ We note that other Federal regulations contemplate, and in 
some instances require, that insurance solicitations occur prior to 
loan approval. Under the Truth-in-Lending-Act regulations, a lender 
must disclose to a consumer the finance charge, which in some 
instances includes insurance costs, associated with a loan. See 12 
CFR 226.4(d) and 226.18. The estimated finance charge disclosure in 
connection with a residential mortgage loan subject to the Real 
Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq., typically 
is required prior to loan approval. See 12 CFR 226.19(a) (disclosure 
must be made prior to the loan's consummation or mailed within three 
days of receipt of the consumer's application, whichever is 
earlier). Similarly, a lender must make the insurance disclosures 
required by the GLBA Section 305 regulations ``at the time the 
consumer applies for an extension of credit in connection with which 
an insurance product is solicited, offered or sold.'' See 12 CFR 
14.40(c)(1).
    \36\ West Virginia Letter at 25.
---------------------------------------------------------------------------

    It also would make subsequent cross-marketing much more costly 
by requiring banks to develop databases to keep track of customers 
that have loans pending with the bank. Banks would have to institute 
methods of communicating this information to its sales force and of 
apprising the sales force of changes as they occur. The Waiting 
Period Requirement also would significantly hamper a bank's mass 
mailing efforts since bank staff would be required to remove from 
the mass mailing those individuals who have loans pending with the 
bank. The cost of developing and maintaining these procedures would 
impair the bank's ability to engage in insurance activities and 
frustrate its ability to pursue particular sales activities.\37\
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    \37\ The Massachusetts Director argues that preemption of the 
Waiting Period Requirement would interfere with Massachusetts 
insurance laws and other consumer protection laws that prohibit 
``tying.'' We have not been asked to consider these other 
Massachusetts laws in this letter. We note, however, that national 
banks are required to comply with the significant tying restrictions 
imposed by federal law. Twelve U.S.C. 1972 generally prohibits a 
bank from extending credit, leasing or selling property, furnishing 
services, or fixing or varying prices of these transactions on the 
condition or requirement that the customer obtain additional credit, 
property, or service from the bank, subject to certain exceptions. 
Nothing in this opinion would allow national banks to engage in 
impermissible tying under section 1972. Moreover, section 305 of the 
GLBA requires that the OCC's insurance consumer protection 
regulations contain anti-tying provisions consistent with section 
1972. See 12 CFR 14.30(a).
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IV. Conclusions

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

    Sincerely,
Julie L. Williams,
First Senior Deputy Comptroller and Chief Counsel.
[FR Doc. 02-6918 Filed 3-21-02; 8:45 am]
BILLING CODE 4810-33-P