Header, the Administration of the Honorable Lincoln C. Almond
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August 7, 1996


I am transmitting to the Secretary of State, with my signature, 96-S-3316, Substitute A, "An Act Relating to Financial Institutions - Sale of Insurance."

This bill, entitled the "Financial Institution Insurance Act," would explicitly remove Rhode Island's statutory ban on the sale of insurance by state-chartered banks and regulate certain aspects of the sale of insurance by both federal and state chartered banks and their affiliates to Rhode Islanders. In particular, among other provisions, the Act: 1) prohibits the"' tying and bundling of any bank product with insurance; 2) requires disclosure that bank insurance products are not FDIC backed and that the purchase of insurance from a bank cannot be required as a condition of obtaining a loan; 3) mandates that bank solicitation for me purchase and sale of insurance be done only by employees whose responsibilities do not include loans or deposits; 4) prohibits a bank's use of certain "nonpublic" customer information to sell insurance; and 5) mandates that the place of a bank's sale of insurance be from an office physically separate from the banking activities of the institution, although that place may be in the same building. The Act specifically authorizes the Department of Business Regulation's commissioner of banking to promulgate regulations to implement the sale of insurance under the Act and "to ensure the safety and soundness of the banking and insurance businesses." Finally, the Act provides a civil penalty of up to one hundred dollars ($100) a day for violations of the Act and/or administrative regulations.

Since the decision this spring by United States Supreme Court decision in Barnett Bank v. Florida, 116 S. Ct. 1103 (U.S. 1996), federally-chartered banks nationwide have possessed the power to sell all lines of insurance. Rhode Island's state-chartered banks, however, arguably were prohibited from expanding into the insurance area by R.I. Gen. Laws §§ 27-3-46, the so-called "anti-affiliation" provision. On the other hand, just last year as part of a comprehensive revision to state's banking, laws R.I. Gen. Laws § 19-3-1, the so-called "parity" provision, was enacted. That provision allows every state financial institution to exercise "any power authorized for" federally-charted banks. The intent and effect of the parity provision was to provide state-chartered banks competitive equality with federally chartered banks. As such, even without this Act, state-chartered banks would have the right to sell insurance on terms and conditions comparable to federally-chartered banks. In fact, several states, including West Virginia and Vermont, have administratively ruled that their more recent "parity" provision trumps a dated "anti-affiliation" statute. Thus, I am not approving this Act based upon the notion that it is vital to allow state-chartered banks to sell insurance.

I will grant, however, that this Act clarifies that statutory authority - and thereby puts state-chartered institutions on a par immediately with federally-chartered banks (some of which have already received an insurance license from the Department of Business Regulation). Without the Act, litigation would likely ensue over the Department's ability to issue an insurance license to state banks.

Nonetheless, if I believed that the regulations established by this Act were illegal, would frustrate hamper or interfere with the ability of either federally or state-chartered banks to sell insurance or would place Rhode Island at a competitive disadvantage to other states, I would not approve this bill. A great deal of time has been spent on these issues both by the Department of Business Regulation and my staff. This Administration would not have supported the Act as originally proposed. This version, however, which incorporates extensive comments made by the Department, is significantly less intrusive than the original proposal.

After its passage, I attended extensive meetings on this Act with representatives of Rhode Island's federally-chartered and state-chartered banks. We conclude that a proper interpretation of the Act's requirements provide fair and reasonable consumer-protection measures, which are not illegal and do not hamper a bank's ability to sell insurance, and in fact place Rhode Island banks in a position equal to that of insurance agents. We also trust that the Department of Business Regulation will, as appropriate, use its rulemaking authority to promulgate regulations to ensure this result and to keep Rhode Island competitive with neighboring states.

For the foregoing reasons, I sign this bill into law.


Lincoln Almond