The State Farm Insurance Bank is embroiled in a turf war which pits North Carolina regulators and the federal Office of Thrift Supervision to determine who has jurisdiction over State Farm’s sale of $100,000-plus CDs, known as “Jumbo CDs.” In the meantime, State Farm continues to sell the CDs in South Carolina.
State Farm entered the banking arena in 1999. It now has 355 agents in North Carolina and 244 in South Carolina. The company decided to sell banking products at a time when many banks are entering the insurance business.
In January the North Carolina Secretary of State ordered State Farm Insurance to stop selling all certificates of deposit, voicing concerns over $100,000-plus CDs — known as Jumbo CDs — which it considers to be securities because they are not federally insured.
The dispute revolves around whether or not it is legal for State Farm to sell securities in 18 states and under whose jurisdiction such sales fall – it has 16,000 agents nationwide selling the product. North Carolina regulators contend it is must follow their banking product regulations.
State Farm argues that it should be monitored only by the OTS, which regulates thrifts and savings and loans. The OTS issued an opinion in October backing the company’s contention.
Disputes between state and federal banking regulators have increased recently as state agencies have sought to increase their consumer protection muscle. Typically, federal agencies have won out, sometimes in court.
The state determined last month that the company was not meeting certain limitations, including the size of the CDs, said George Jeter, spokesman for the Secretary of State.
North Carolina is the only state that has told the company to stop selling CDs, according to State Farm spokesman Fraser Engerman. He says State Farm follows state registration laws in 17 other states, including South Carolina, that don’t want federal law superceding their jurisdiction.
“We will meet state regulations while we seek to resolve this,” Engerman said.
Current State Farm CD customers are not affected by the dispute, and North Carolina customers can continue to buy them through the company’s out-of-state banking call-center, he said.
Topics North Carolina South Carolina
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