Section 305 of the Gramm-Leach-Bliley Act added a new section 47 to the Federal Deposit Insurance Act requiring the federal banking regulators to jointly prescribe consumer protection rules to regulate insurance and annuity sales practices by depository institutions or by persons engaged in such activities at an office of or on behalf of a depository institution. The new Regulations became effective October 1, 2001.

Matters relating to sales practices, disclosures and advertising, the physical separation of banking and nonbanking activities and domestic violence discrimination are addressed by the new Regulations. For the most part, the new Regulations are consistent with or build upon guidance found in the Interagency Statement on Retail Sales of Nondeposit Investment Products. Bankers familiar with the Interagency Statement will recognize most of what the new Regulations provide. Certain provisions, however, merit comment.

The new Regulations now expressly provide that a referral fee may be paid to bank employees who accept deposits for referring to licensed personnel customers who seek to purchase an insurance product or annuity, provided that in each case the referral fee is a one-time, nominal fee of a fixed dollar amount that does not depend on whether the referral results in a transaction. The new Regulations, however, do not supersede state insurance laws that are inconsistent with or contrary to the Regulations. Thus, referral fees paid to unlicensed persons are still prohibited in Pennsylvania.

Banks are prohibited by the new Regulations from engaging in any practice that would lead a consumer to believe that an extension of credit is conditioned upon either: (1) the purchase of insurance from the bank; or (2) an agreement by the consumer not to obtain insurance from an entity not affiliated with the bank.

Both insurance and credit disclosures are required by the new Regulations. Insurance disclosures must be provided orally and in writing before the completion of a sale of an insurance product or annuity to a consumer. Credit disclosures must be made orally and in writing at the time the consumer applies for an extension of credit in connection with which an insurance product or annuity is solicited, offered or sold. In addition, the bank must obtain from the consumer, at the time the consumer receives the insurance and credit disclosures, or at the time of the consumer's initial insurance purchase, a written acknowledgment that the consumer received the disclosures. Variations on the timing and method of making the disclosures and obtaining acknowledgements apply in cases where sales of insurance products or annuities or applications for credit are made by mail, telephone or through electronic media.

Banks may not sell or offer for sale any life or health insurance product if the status of the applicant or insured as a victim of domestic violence or as a provider of services to victims of domestic violence is considered as a criterion in any decision with regard to insurance underwriting, pricing, renewal, scope of coverage or with regard to the payment of claims, except as required or expressly permitted under state law.

Please contact Dean Dusinberre or Chuck Ferry at (717) 233-5731 for additional information.