We also conclude that the following provision of the Act is preempted only in part:

Finally, it is our opinion that Federal law does preempt the following provisions of the West Virginia Act with respect to national banks:

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. 3311A6, 3311A8 to 11, and 3311A13 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. 3311A6 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:

We also conclude that the following provision of the Act is preempted only in part:

Finally, it is our opinion that Federal law does preempt the following provisions of the West Virginia Act with respect to national banks:

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 GrammLeachBliley 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. 106102, 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 crossmarketing 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. 92that 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 preempting, 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 lawexpress preemption, preemption because Congress has ``occupied the field'' of
regulation, and preemption on account of a conflict between Federal and State lawas follows:

Sometimes courts, when facing the preemption question, find language in the federal statute that reveals an explicit
congressional intent to preempt state law. More often, explicit preemption 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 Stateimposed conditions, State statutes having only a small effect on the national bank's exercise of that power may still apply:

In defining the preemptive 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 3334 (citing ``Anderson Nat. Bank v. Luckett, 321 U.S. 233, 247252 (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 crossmarketing 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 activityother than insurance sales,
solicitation, or crossmarketingthat 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 salesrelated 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 crossmarketing 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 nondiscrimination 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 threestep 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 standardthat is, which subsection of section 104 governs. Second, if the State law pertains to an insurance sales, solicitation, or crossmarketing 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 crossmarketing 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 paragraphparagraph (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 crossmarketing 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 crossmarketing 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. 10644, 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 threestep 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 crossmarketing 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 identifiedsection 13 of the West Virginia statuteregulates 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. 16811681u (as amended by the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), Pub. L. No. 104208, tit. II, subtit. D, ch. 1, Secs. 24012422, 110 Stat. 3009426 to 3009454 (1996)).
\25\ The Supreme Court summarized the three bases on which a Federal statute may preempt State lawexpress preemption,
occupation of the field, and preemption by reason of conflictin 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. 10644, 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. 993917 (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 8Tying 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. 3311A8 (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. 91607, 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, 931216 (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. 80292, 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 antitying provisions that prohibit conduct ``that would not violate'' the Federal antitying 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]]
antitying 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 antitying 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 onestop 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 antitying 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 antitying regulation, the Board eliminated the ``separately available'' requirement. In describing its reasons for the changes made to the antitying provisions, the Board explained that these changes ``remove Boardimposed 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 lowercost service to customers.'' See 62 FR 9290 at 931213. 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 anticompetitive 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. 3311A11(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 9Disclosure 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. 3311A9(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 farreaching 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 persona 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 `` 3311A9(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 inperson 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 facetoface 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 facetoface 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, 7582829 (Dec. 4, 2000).
3. West Virginia Provisions That Are Preempted
Section 6Use 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. 3311A6 (2000).

There is no Safe Harbor that applies to this provision. Two of the Safe HarborsSafe 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 op

FOR FURTHER INFORMATION CONTACT

Mark Tenhundfeld, Assistant Director, or Mary Ann Nash, Counsel, Legislative and Regulatory Activities Division, (202) 8745090.