STATE FARM TO RELY ON OTS LETTER ON THE AVAILABILITY OF FEDERAL PREEMPTION TO AGENTS OF A FEDERAL SAVINGS BANK
It has been reported that State Farm plans to bypass state licensing requirements that govern the sale of its bank subsidiary’s products in response to an Office of Thrift Supervision interpretive letter concluding that state licensing and registration requirements that do not apply to a federal savings bank also do not apply to the bank’s agents when the agents perform marketing, solicitation and customer service activities related to the bank’s deposit and loan products and services and other authorized banking powers. See OTS Letter 2004-7 from John E. Bowman, Esq., Chief Counsel (Oct. 25, 2004). It is anticipated that some state regulators will not accept the OTS position and will attempt to enforce state laws, including licensing requirements, against State Farm and others who take similar action.
In its letter, the OTS stated that it is beyond question that federal savings banks are authorized to contract with third parties to perform a variety of authorized activities for the bank. The OTS found that the state licensing and registration requirements under consideration interfere and conflict with the authority of the bank to exercise its deposit and lending powers by limiting the federal savings bank’s ability to market its products and services in the manner it chooses. Specifically, the federal savings bank can chose to use agents for these functions. The OTS found that the state requirements also thwart the congressional objective that the OTS has exclusive responsibility for regulating the operations of federal savings banks “giving primary consideration of the best practices of thrift institutions in the United States.”
To the extent a state law purports to regulate the way in which a federal savings bank can perform its authorized activities, the OTS found that the state law is an impermissible interference with bank powers and with OTS’s regulatory authority. However, for the preemption to extend to the agents of a federal savings bank the OTS stated that the savings bank must (i) consult with its appropriate OTS Regional Office and (ii) submit a business plan or proposal that provides in-depth information about how the arrangement with the agents will be structured and carried out. In addition, the OTS stated that a federal savings bank must comply, at a minimum, with the conditions set forth in Appendix A to the letter in connection with any arrangement with agents. Appendix A contains conditions that include entering into detailed written agreements with agents, providing in-depth training to agents and adopting detailed compliance programs to ensure adequate supervision and control over agents that contain the elements listed in the appendix. The OTS indicated that agents would be subject to supervision by the OTS.
The Office of the Comptroller of the Currency has indicated that it does not intend to issue an interpretive letter similar to that of the OTS with regard to agents of national banks.
Elizabeth Anstaett and Mike Tomkies