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PIA National Says Federal Reserve Should Clarify Proposed Guidance

WASHINGTON, October 1, 2003 - The National Association of Professional Insurance Agents (PIA) has urged the Federal Reserve Board to make it clear that subsidiaries...
October 1, 2003

Fed Must Make Clear Bank Subsidiaries Are Subject to State Anti-Tying Laws

WASHINGTON, October 1, 2003 - The National Association of Professional Insurance Agents (PIA) has urged the Federal Reserve Board to make it clear that subsidiaries of national or state banks are subject to all state anti-tying and anti-rebating insurance laws.

The Fed has issued proposed guidance concerning anti-tying restrictions of Section 106 of the Bank Holding Company Act Amendments of 1970. Under Section 106, banks are barred from tying the sale of a product to the extension of credit. However, the Fed's proposed interpretation says that a financial subsidiary of a bank will be treated as an affiliate of the bank, not a subsidiary, and therefore not be subject to Section 106's anti-tying restrictions.

"PIA participated actively in the amendment process in 1970 and suggested the provision that ultimately became Section 106 of the Bank Holding Company Act," said PIA Senior Vice President Patricia A. Borowski. "PIA believed strongly then - and continues to believe strongly today - that banks must be prohibited from undertaking coercive practices, such as conditioning a customer's receipt of a desired product or service on the purchase of another product or service."

In comments filed with the Fed, PIA said that if the Fed adopts its proposed interpretation of Section 106, it needs to explicitly state in its guidance that bank subsidiaries are nonetheless subject to all applicable state insurance laws, including state anti-tying and anti-rebating laws.

"While the guidance in its present form indicates that subsidiaries remain subject to federal antitrust laws, it does not explain that subsidiaries are also subject to state anti-rebating laws," stated the PIA filing.

The PIA filing notes that the Gramm-Leach-Bliley Act, adopted in 1999, preserves the authority of states to regulate all insurance activities and mandates compliance with all state laws. The only restriction imposed by GLBA on state authority is that state laws cannot "prevent or significantly interfere with a bank's ability to engage in insurance sales." State anti-tying and anti-rebating laws do not, and therefore "all state insurance laws, including those prohibiting rebating, remain valid and enforceable and subsidiaries must comply with such laws."

Founded in 1931, PIA is a national trade association that represents member insurance agents and their employees who sell and service all kinds of insurance, but specialize in coverage of automobiles, homes and businesses.