IIABA Urges Fed to Clarify Reach of Anti-Tying Provisions for Bank Holding Company Act

October 2, 2003

Bank subsidiaries must remain bound by all state insurance laws, including anti-rebating laws, the Independent Insurance Agents & Brokers of America (IIABA) told the Federal Reserve Board (Fed) in response to the federal agency’s reportedly proposed interpretation of the anti-tying restrictions in the Bank Holding Company Act Amendments.

The comments to the Fed were submitted in writing jointly by IIABA and the National Association of Insurance and Financial Advisors (NAIFA).

IIABA reportedly supports the objective of Section 106 and agrees that banks should be prohibited from unfairly exerting their market power to coerce consumers into purchasing one product in order to receive another. However, under the Fed’s proposed interpretation of Section 106, a financial subsidiary of a national or state member bank will reportedly be construed as an affiliate of the bank and not as a subsidiary of the bank, and thus absolved from anti-tying restrictions.

IIABA said it believes it is critical for the Board of Governors to clarify that subsidiaries—while not obligated under Section 106—remain bound by all state insurance laws. While the Fed guidance in its present form states that subsidiaries remain subject to federal antitrust laws, it reportedly does not clarify that subsidiaries additionally are subject to all state laws, including state anti-rebating laws.

“Without this clarification, a bank subsidiary would not be subject to the anti-tying restrictions of Section 106,” said Maria Berthoud, IIABA senior vice president of federal government affairs. “The Board of Governors should explicitly state in its published guidance or interpretation that subsidiaries are subject to anti-rebating laws and all other applicable state insurance laws.”

IIABA noted that anti-rebating laws are on the books in 48 states. Reportedly, they are necessary and well-established regulations that make it illegal for an agent to rebate premiums, commissions or any paid consideration or inducement not specified in the policy or contract of insurance.

“Anti-rebating laws protect both consumers and the financial health of insurance companies. Exceptions simply cannot exist,” remarked Justin Roth, IIABA director of federal government affairs. “Any carve-outs would confuse consumers and create an unlevel playing field if an insurance agency affiliate of a bank is permitted to offer a discount on premiums. Additionally, such an arrangement would violate state anti-rebating laws.”

Berthoud also pointed out that the Federal Reserve Board previously addressed state anti-rebating laws several years ago and concluded that these laws remain valid and enforceable. The Gramm-Leach-Bliley Act (GLBA) has since strengthened that notion by compelling compliance with state laws and ensuring that the states retain the authority to regulate the insurance activities of all persons and entities.

The IIABA-NAIFA comment letter notes that “GLBA imposes only one restriction on the States’ authority to regulate insurance sales activities. States are limited in their regulation of insurance sales activities to the extent that a state law ‘prevents or significantly interfere[s] with the ability of a depository institution, or an affiliate thereof, to engage… in any insurance sales, solicitation, or cross- marketing activity.’ State anti-rebating laws unequivocally do not prevent or significantly interfere with insurance sales, solicitations, or cross-marketing activities undertaken by depository institutions. Thus, all state insurance laws, including those prohibiting rebating, remain valid and enforceable and subsidiaries must comply with such laws.”

Berthoud said the Board of Governors must make it entirely clear to all entities that state anti-rebating laws are valid and ongoing.

“Published guidance and interpretations of Section 106 must articulate that although subsidiaries are exempt from the prohibitions of Section 106, they conclusively remain bound by all applicable state insurance laws, including anti-rebating laws,” said Berthoud. “This issue is not about banks selling insurance, it is about whether everyone is playing by the same rules under state law.”

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