CONSUMER PROTECTIONS FOR BANK SALES OF INSURANCE

Monday,

December 4, 2000

Part II

Department of the

Treasury

Office of the Comptroller of the

Currency

Office of Thrift Supervision

Federal Reserve

System

Federal Deposit

Insurance

Corporation

12 CFR Parts 14, 208, 343, and 536

Consumer Protections for Depository

Institution Sales of Insurance; Final Rule

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Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

1 ‘‘Depository institution’’ means national banks

in the case of institutions supervised by the Office

of the Comptroller of the Currency (OCC), state

member banks in the case of the Board of Governors

of the Federal Reserve System (Board), state

nonmember banks in the case of the Federal Deposit

Insurance Corporation (FDIC), and savings

associations in the case of the Office of Thrift

Supervision (OTS).

2 Pub. L. 106–102, sec. 305, 113 Stat. 1338, 1410–

15 (codified at 12 U.S.C. 1831x).

3 A summary of the Agencies’ consultations with

the NAIC is available in the rule-making file.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Part 14

[Docket No. 00–26]

RIN 1557–AB81

FEDERAL RESERVE SYSTEM

12 CFR Part 208

[Docket No. R–1079]

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 343

RIN 3064–AC37

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 536

[Docket No. 2000–97]

RIN 1550–AB34

Consumer Protections for Depository

Institution Sales of Insurance

AGENCIES: Office of the Comptroller of

the Currency, Treasury; Board of

Governors of the Federal Reserve

System; Federal Deposit Insurance

Corporation; and Office of Thrift

Supervision, Treasury.

ACTION: Final rule.

SUMMARY: The Office of the Comptroller

of the Currency, Board of Governors of

the Federal Reserve System, Federal

Deposit Insurance Corporation, and the

Office of Thrift Supervision,

(collectively, the Agencies) are

publishing final insurance consumer

protection rules

the Federal Reserve

System; Federal Deposit Insurance

Corporation; and Office of Thrift

Supervision, Treasury.

ACTION: Final rule.

SUMMARY: The Office of the Comptroller

of the Currency, Board of Governors of

the Federal Reserve System, Federal

Deposit Insurance Corporation, and the

Office of Thrift Supervision,

(collectively, the Agencies) are

publishing final insurance consumer

protection rules. These rules are

published pursuant to section 47 of the

Federal Deposit Insurance Act (FDIA),

which was added by section 305 of the

Gramm-Leach-Bliley Act (the G–L–B

Act or Act). Section 47 directs the

Agencies jointly to prescribe and

publish consumer protection regulations

that apply to retail sales practices,

solicitations, advertising, or offers of

any insurance product by a depository

institution 1 or any person that is

engaged in such activities at an office of

the institution or on behalf of the

institution.

EFFECTIVE DATE: April 1, 2001.

FOR FURTHER INFORMATION CONTACT:

OCC: Stuart Feldstein, Assistant

Director, or Michele Meyer, Senior

Attorney, Legislative and Regulatory

Activities Division, (202) 874–5090; Asa

Chamberlayne, Senior Attorney,

Securities and Corporate Practices

Division, (202) 874–5210; Stephanie

Boccio, Asset Management, (202) 874–

4447; Barbara Washington, Core Policy

Development (202) 874–6037, Office of

the Comptroller of the Currency, 250 E

Street, SW., Washington, DC 20219.

Board: Richard M. Ashton, Associate

General Counsel, Legal Division, (202)

452–3750; Angela Desmond, Special

Counsel, Division of Banking

Supervision and Regulation, (202) 452–

3497; David A. Stein, Attorney, Division

of Consumer and Community Affairs,

47; Barbara Washington, Core Policy

Development (202) 874–6037, Office of

the Comptroller of the Currency, 250 E

Street, SW., Washington, DC 20219.

Board: Richard M. Ashton, Associate

General Counsel, Legal Division, (202)

452–3750; Angela Desmond, Special

Counsel, Division of Banking

Supervision and Regulation, (202) 452–

3497; David A. Stein, Attorney, Division

of Consumer and Community Affairs,

(202) 452–3667, Board of Governors of

the Federal Reserve System, 20th and C

Streets, NW, Washington, DC 20551. For

the hearing impaired only,

Telecommunications Device for the Deaf

(TDD), contact Janice Simms, (202) 872–

4984.

FDIC: Keith A. Ligon, Chief, Policy

Unit, Division of Supervision, (202)

898–3618; Michael B. Phillips, Counsel,

Supervision and Legislation Branch,

Legal Division, (202) 898–3581; Jason C.

Cave, Senior Capital Markets Specialist,

(202) 898–3548, Federal Deposit

Insurance Corporation, 550 17th Street,

NW, Washington, DC 20429.

OTS: Robyn Dennis, Manager,

Supervision Policy, (202) 906–5751;

Richard Bennett, Counsel (Banking and

Finance), (202) 906–7409; Sally Watts,

Counsel (Banking and Finance), (202)

906–7380; Mary Jane Cleary, Insurance

Risk Management Specialist, (202) 906–

7048, Office of Thrift Supervision, 1700

G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

Background

On November 12, 1999, President

Clinton signed the G–L–B Act into law.

Section 305 of the Act 2 added new

section 47 to the FDIA, captioned

‘‘Insurance Customer Protections.’’ This

section requires the Agencies jointly to

prescribe and publish consumer

protection regulations that apply to

retail sales practices, solicitations,

advertising, or offers of insurance

products by depository institutions or

persons engaged in these activities at an

office of the institution or on behalf of

the institution

ew

section 47 to the FDIA, captioned

‘‘Insurance Customer Protections.’’ This

section requires the Agencies jointly to

prescribe and publish consumer

protection regulations that apply to

retail sales practices, solicitations,

advertising, or offers of insurance

products by depository institutions or

persons engaged in these activities at an

office of the institution or on behalf of

the institution. Section 47 directs the

Agencies to include specific provisions

relating to sales practices, disclosures

and advertising, the physical separation

of banking and nonbanking activities,

and domestic violence discrimination.

Section 47 also requires the Agencies

to consult with the State insurance

regulators, as appropriate. The National

Association of Insurance Commissioners

(NAIC) has submitted a comment letter

in connection with the proposed rules.

In preparing the proposed rules and

these final rules, the Agencies also have

met and consulted with the NAIC.3

These final rules reflect these meetings

with, and comments from, the NAIC.

The texts of the Agencies’ final rules

are substantially identical. Any

differences in style or terms are not

intended to create substantive

differences in the requirements imposed

by the regulations.

Overview of Comments Received

On August 21, 2000, the Agencies

published a joint notice of proposed

rulemaking (the proposed rules) in the

Federal Register (65 FR 50882). The

Agencies received approximately 75

comments in response to the proposed

rules.

The majority of comments were

received from depository institutions.

These commenters offered a large

number of suggested changes, with the

most commonly advanced suggestions

including: modifying the ‘‘covered

person’’ definition; excepting various

types of insurance from coverage by the

final rules; eliminating certain

disclosure requirements; and limiting

the physical separation requirements to

the teller area of an institution

eived from depository institutions.

These commenters offered a large

number of suggested changes, with the

most commonly advanced suggestions

including: modifying the ‘‘covered

person’’ definition; excepting various

types of insurance from coverage by the

final rules; eliminating certain

disclosure requirements; and limiting

the physical separation requirements to

the teller area of an institution.

The NAIC submitted a comment on

behalf of the State insurance authorities

that generally supported the Agencies’

proposed rules. The NAIC advised the

Agencies to clarify in the final rules the

role of the States in regulating insurance

sales. The NAIC also requested more

detailed guidance in the Consumer

Grievance Appendix to the final rules.

Finally, the NAIC expressed its view

that the lending area of a depository

institution should be separated from the

area in which insurance is sold.

The Agencies have modified certain

provisions of the proposed rules in light

of the comments received. The most

significant comments, and the Agencies’

responses, are discussed in the

following section-by-section analysis.

As was done in the preamble discussion

of the proposed rules, the citations are

to sections only, leaving blank the

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Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

4 The Board’s rule is a new subpart of the Board’s

existing Regulation H, and not a separate regulation.

Accordingly, the sections of the Board’s rule are

numbered consecutively.

5 12 U.S.C. 4802.

6 These rules are not intended to have any effect

on whether annuities are considered to be

insurance products for purposes of any other

section of the G–L–B Act or other laws. That

question depends on the terms and purposes of

those laws, as interpreted by the appropriate agency

and the courts

regulation.

Accordingly, the sections of the Board’s rule are

numbered consecutively.

5 12 U.S.C. 4802.

6 These rules are not intended to have any effect

on whether annuities are considered to be

insurance products for purposes of any other

section of the G–L–B Act or other laws. That

question depends on the terms and purposes of

those laws, as interpreted by the appropriate agency

and the courts.

7 OTS does not intend the requirements of this

part to apply to other savings association operating

subsidiaries or service corporations by operation of

12 CFR 559.3(h). The OCC does not intend the

requirements of this part to apply to other national

bank operating subsidiaries by operation of 12 CFR

5.34(e)(3).

8 65 FR 35162 (June 1, 2000).

9 12 CFR 226.2(a)(12)(‘‘Consumer credit means

credit offered or extended to a consumer primarily

for personal, family, or household purposes.’’)

citations to the part numbers used by

each agency.4

The Agencies also received several

comments requesting the Agencies to

delay the effective date of these rules.

The commenters state that institutions

will need time to modify existing

disclosure forms, train personnel and

implement system changes. In

determining the effective date and

administrative compliance requirements

for new regulations, the Agencies are

required to consider any administrative

burden that the regulations would place

on depository institutions and to delay

the effective date until at least the first

day of a calendar quarter that begins on

or after the date on which the

regulations are published.5 The

Agencies recognize that ‘‘lead time’’ is

necessary for some institutions covered

by the final rules to adjust their systems

to comply, although others have systems

that already conform to some extent to

the requirements of the rules. The

Agencies therefore have made the

effective date April 1, 2001.

Section-by-Section Analysis

The discussion that follows applies to

each of the Agencies’ final rules

gencies recognize that ‘‘lead time’’ is

necessary for some institutions covered

by the final rules to adjust their systems

to comply, although others have systems

that already conform to some extent to

the requirements of the rules. The

Agencies therefore have made the

effective date April 1, 2001.

Section-by-Section Analysis

The discussion that follows applies to

each of the Agencies’ final rules.

Section ll.10 Purpose and Scope

Proposed § ll.10 identified the

purposes and scope of the rules. As

stated in the proposal, the rules are

intended to establish consumer

protections in connection with retail

sales of insurance products and

annuities 6 to consumers by any

depository institution or by any person

that is engaged in these activities at an

office of the institution or on behalf of

the institution. These rules address

certain consumer protection concerns

that arise from the conduct of insurance

activities by a depository institution, at

an office of the institution, or on behalf

of the institution and are not intended

to authorize new activities. These rules

are not exclusive and, for example,

applicable State laws administered by

State insurance commissioners may

apply, as provided by sections 104 and

305 of the G–L–B Act.

The Agencies received several

comments on the proposed scope of

these rules. Some of these commenters

noted that the Interagency Statement on

Retail Sales of Nondeposit Investment

Products (February 15, 1994)

(Interagency Statement) also may apply

in certain circumstances to sales of

insurance or annuities by depository

institutions. These commenters

requested clarification on how the

Agencies will apply the Interagency

Statement to those products subject to

both these rules and the Interagency

Statement. The Agencies note that in the

event of a conflict between the

Interagency Statement and the final

rules, the rules will prevail.

Certain of the definitions contained in

the final rules also address the

circumstances under which the rules

will apply

ted clarification on how the

Agencies will apply the Interagency

Statement to those products subject to

both these rules and the Interagency

Statement. The Agencies note that in the

event of a conflict between the

Interagency Statement and the final

rules, the rules will prevail.

Certain of the definitions contained in

the final rules also address the

circumstances under which the rules

will apply. Under the proposed rules,

only subsidiaries that are selling

insurance products or annuities at an

office of the institution or acting ‘‘on

behalf of’’ the depository institution as

defined in the rules 7 would be subject

to the requirements of the rules. Section

47 gives the Agencies discretion to

determine whether the Act’s consumer

protections should extend to a

depository institution’s subsidiary in

other circumstances. The Agencies

received only one comment supporting

broader application of the final rules to

depository institution subsidiaries. The

Agencies believe that extending the

rules to a depository institution’s

subsidiary in circumstances other than

when the subsidiary is selling insurance

products or annuities at an office of the

institution or acting ‘‘on behalf of’’ the

depository institution is unnecessary

and, therefore, the final rules retain the

approach taken in the proposed rules on

this issue. A more complete discussion

of when a person is engaged in

insurance activities ‘‘on behalf’’ of the

depository institution is set forth below

in the definition of ‘‘covered person.’’

Section ll.20 Definitions

The proposed rules contained several

definitions about which the Agencies

received little or no comment. The final

rules therefore retain the definitions of

‘‘affiliate,’’ ‘‘company,’’ ‘‘control,’’

‘‘domestic violence,’’ and ‘‘subsidiary’’

set forth in the proposed rules. The

definitions about which the Agencies

received more substantial comment are

discussed below.

Consumer (§ ll.20(d))

finitions

The proposed rules contained several

definitions about which the Agencies

received little or no comment. The final

rules therefore retain the definitions of

‘‘affiliate,’’ ‘‘company,’’ ‘‘control,’’

‘‘domestic violence,’’ and ‘‘subsidiary’’

set forth in the proposed rules. The

definitions about which the Agencies

received more substantial comment are

discussed below.

Consumer (§ ll.20(d)). The

proposed rules defined ‘‘consumer’’ as

an individual who obtains, applies for,

or is solicited to obtain insurance

products or annuities from a covered

person. The final rules make a clarifying

change by replacing the term ‘‘obtains’’

with ‘‘purchases’’ in the definition of

‘‘consumer.’’ A purchase includes any

transaction where there is a cost to the

consumer for the insurance either

directly or indirectly such as a higher

interest rate on a loan.

Several commenters asked the

Agencies to distinguish between the

terms ‘‘consumer’’ and ‘‘customer’’ in

the same way as the Final Rules on the

Privacy of Consumer Financial

Information (Privacy Rules).8 However,

unlike the Privacy Rules, section 47

uses the terms ‘‘consumer’’ and

‘‘customer’’ interchangeably without

distinguishing between the two terms.

For this reason, the Agencies believe

that Congress did not intend to

distinguish between consumers and

customers for purposes of section 47.

Thus, the Agencies have determined to

continue to use the single term

‘‘consumer’’ in the final rules.

The Agencies also requested comment

on whether the final rules should

expand the definition of ‘‘consumer’’ to

include small businesses. The majority

of those commenting on this issue

believed that the Agencies should not

expand the definition to include small

businesses because most Federal

consumer protection statutes apply only

to individuals. The Agencies agree with

these commenters and therefore have

not changed the definition of

‘‘consumer’’ to include small

businesses

e definition of ‘‘consumer’’ to

include small businesses. The majority

of those commenting on this issue

believed that the Agencies should not

expand the definition to include small

businesses because most Federal

consumer protection statutes apply only

to individuals. The Agencies agree with

these commenters and therefore have

not changed the definition of

‘‘consumer’’ to include small

businesses.

The Agencies also invited comment

on whether to limit the definition of

consumer to individuals who ‘‘obtain or

apply for insurance products or

annuities primarily for personal, family,

or household purposes.’’ One effect of

this change would be to exclude entities

such as sole proprietorships and

partnerships from the scope of the rules.

Several commenters preferred

limiting the definition in this manner to

be consistent with the Truth in Lending

regulation’s definition of ‘‘consumer

credit.’’ 9 The Agencies agree with the

commenters that depository institutions

are familiar with this approach because

it is used in other consumer protection

rules. Thus, the final rules apply to an

individual ‘‘who purchases or applies

for insurance products or annuities

primarily for personal, family, or

household purposes.’’

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Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

Covered person or you (§ ll.20(e)).

The proposal used the term ‘‘covered

person,’’ or ‘‘you,’’ to determine to

whom the requirements in these rules

apply. As defined in the proposed rules,

a covered person means any depository

institution or any other person selling,

soliciting, advertising, or offering

insurance products or annuities to a

consumer at an office of the institution

or on behalf of the institution

or you (§ ll.20(e)).

The proposal used the term ‘‘covered

person,’’ or ‘‘you,’’ to determine to

whom the requirements in these rules

apply. As defined in the proposed rules,

a covered person means any depository

institution or any other person selling,

soliciting, advertising, or offering

insurance products or annuities to a

consumer at an office of the institution

or on behalf of the institution. A

‘‘covered person’’ includes any person,

including a subsidiary or other affiliate,

if that person or one of its employees

sells, solicits, advertises, or offers

insurance products or annuities at an

office of an institution or on behalf of an

institution.

For purposes of this definition, the

proposed rules provided that a person’s

activities are ‘‘on behalf of’’ a depository

institution if:

(1) The person represents to a

consumer that the sale, solicitation,

advertisement, or offer of any insurance

product or annuity is by or on behalf of

the institution;

(2) The depository institution receives

commissions or fees, in whole or in

part, derived from the sale of an

insurance product or annuity as a result

of cross-marketing or referrals by the

institution or an affiliate;

(3) Documents evidencing the sale,

solicitation, advertising, or offer of an

insurance product or annuity identify or

refer to the institution or use its

corporate logo or corporate name; or

(4) The sale, solicitation, advertising,

or offer of an insurance product or

annuity takes place at an off-premises

site, such as a kiosk, that identifies or

refers to the institution or uses its

corporate logo or corporate name

ncing the sale,

solicitation, advertising, or offer of an

insurance product or annuity identify or

refer to the institution or use its

corporate logo or corporate name; or

(4) The sale, solicitation, advertising,

or offer of an insurance product or

annuity takes place at an off-premises

site, such as a kiosk, that identifies or

refers to the institution or uses its

corporate logo or corporate name.

In the preamble to the proposed rules,

the Agencies noted that the second

prong of the ‘‘on behalf of’’ test—the

receipt of commissions or fees—did not

include situations in which the

institution receives a fee solely for

performing a separate service or

function that may relate to an insurance

sale (such as processing a credit card

charge for the insurance premium, or

performing recordkeeping or payment

functions on behalf of the affiliate)

where the fee is based on that service or

function and is not calculated as a share

of the commissions or fees derived from

the insurance product or annuity sale.

The Agencies sought comment on the

proposed definition of covered person

and specifically on those activities that

would cause a person to be considered

to be acting ‘‘on behalf of’’ an

institution. The Agencies also invited

comment on whether the following

should be considered an activity on

behalf of the institution:

• The use of the name or corporate

logo of the holding company or other

affiliate, as opposed to the name or

corporate logo of the depository

institution in documents evidencing the

sale, solicitation, advertising, or offer of

an insurance product or annuity.

• The sale, solicitation, advertising,

or offer of an insurance product or

annuity at an off-premises site that

identifies or refers to the holding

company or other affiliate, as opposed

to the depository institution, or uses the

name or corporate logo of the holding

company or other affiliate.

The Agencies received several

comments on the proposed definition of

covered person

product or annuity.

• The sale, solicitation, advertising,

or offer of an insurance product or

annuity at an off-premises site that

identifies or refers to the holding

company or other affiliate, as opposed

to the depository institution, or uses the

name or corporate logo of the holding

company or other affiliate.

The Agencies received several

comments on the proposed definition of

covered person. Many commenters did

not believe that the second prong of the

‘‘on behalf of’’ test should include a

depository institution’s receipt of

commissions or fees as a result of cross

marketing. Those commenters suggested

that the risk of customer confusion is

small because a consumer typically

would not know about the receipt of

these fees. These commenters believed

that requiring disclosures in these

situations might actually result in

increased customer confusion. The

Agencies agree and therefore delete the

reference to cross-marketing in the final

rules. Thus, for example, while the

sharing of customer lists with an

unaffiliated third party would trigger

certain requirements under the Privacy

Rules, it would not trigger the

requirements under any of the prongs in

these final rules. The Agencies also note

that the institution’s receipt of

dividends from a subsidiary, or a

holding company’s receipt of dividends

from an affiliate, does not constitute

receipt of ‘‘commissions or fees’’ within

the meaning of this paragraph.

Several commenters also contended

that the term ‘‘on behalf of’’ should not

include sales of insurance products or

annuities that result from a referral to an

unaffiliated insurance agency by an

employee of a depository institution.

Unlike cross-marketing, a depository

institution making a referral is in a

position to influence a consumer’s

choice of insurance providers.

Therefore, the final rules retain the

reference to ‘‘referrals’’ in the second

prong of the ‘‘on behalf of’’ test, but

with an important modification

s that result from a referral to an

unaffiliated insurance agency by an

employee of a depository institution.

Unlike cross-marketing, a depository

institution making a referral is in a

position to influence a consumer’s

choice of insurance providers.

Therefore, the final rules retain the

reference to ‘‘referrals’’ in the second

prong of the ‘‘on behalf of’’ test, but

with an important modification.

Rather than applying to any

commission or fee derived from a sale

resulting from a referral, the second

prong of the ‘‘on behalf of’’ test in the

final rules applies only when a

depository institution has a contractual

arrangement with an insurance provider

to receive those fees. This is meant to

distinguish referral fees and

commissions received by a depository

institution under an arrangement based

on sales with an insurance provider

from those referral fees received by a

teller, which are limited by § ll.50(b).

Under § ll.50(b), any person who

accepts deposits from the public in an

area where such transactions are

routinely conducted may receive a

referral fee if it is a one-time, nominal

fee of a fixed dollar amount for each

referral that does not depend on

whether the referral results in a

transaction.

A number of commenters also

contended that the third prong of the

‘‘on behalf of’’ test should not cover

situations where documents or other

communications use the depository

institution’s corporate logo or corporate

name (a common logo or name used by

the corporate family and not just by the

depository institution). Those

commenters believe that these

circumstances alone are insufficient to

create a level of confusion that warrants

imposing the requirements under this

rule. Moreover, extending the rules in

this manner would cover transactions in

which a depository institution has no

involvement in the sale of insurance

mmon logo or name used by

the corporate family and not just by the

depository institution). Those

commenters believe that these

circumstances alone are insufficient to

create a level of confusion that warrants

imposing the requirements under this

rule. Moreover, extending the rules in

this manner would cover transactions in

which a depository institution has no

involvement in the sale of insurance.

The Agencies agree with these

commenters, and therefore, the third

prong of the ‘‘on behalf of’’ test in the

final rules has been modified so that it

does not cover documents that use a

corporate logo or corporate name. It

does, however, cover documents

evidencing the sale, solicitation,

advertising, or offer of an insurance

product or annuity that identify or refer

to the depository institution. Under the

final rules, insurance activities are

conducted on behalf of a depository

institution if the documents evidencing

the activity identify or refer to the

institution. In the Agencies’ view, the

circumstances when the relevant

documents refer to the institution for

purposes of this test will depend on the

facts involved.

The final rules also delete the fourth

prong of the proposed ‘‘on behalf of’’

test because it is covered by the three

remaining revised prongs. As revised,

the Agencies believe that the remaining

three prongs capture the appropriate

circumstances under which a person

could be said to be acting ‘‘on behalf of’’

a depository institution for purposes of

these rules.

Several commenters also noted that

the definition of ‘‘covered person’’ or

‘‘you’’ could be read to mean that once

a person is a ‘‘covered person,’’ all

insurance sales, solicitations,

advertisements or offers by that person

would be subject to these rules, whether

or not these activities are conducted at

an office of, or on behalf of, a depository

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you’’ could be read to mean that once

a person is a ‘‘covered person,’’ all

insurance sales, solicitations,

advertisements or offers by that person

would be subject to these rules, whether

or not these activities are conducted at

an office of, or on behalf of, a depository

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Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

10 Most of the comments concerning electronic

media were raised in the context of disclosures and

acknowledgments and are, therefore, discussed in

the sections below concerning those requirements.

11 12 U.S.C. 1972. Section 106(b) of the Bank

Holding Company Act Amendments of 1970 does

not apply to savings associations. Those institutions

are, however, subject to comparable prohibitions on

tying and coercion, under section 5(q) of the Home

Owners’ Loan Act (HOLA), 12 U.S.C. 1464(q).

Accordingly, OTS’s final rule cites the HOLA

provision.

institution. The Agencies do not intend

this result and have changed the

proposal to clarify that a covered person

is: (1) A depository institution; or (2)

any other person only when the person

sells, solicits, advertises or offers an

insurance product or annuity to a

consumer at an office of the institution

or on behalf of the institution.

Finally, in the preamble to the

proposed rules, the Agencies noted that

the use of electronic media may present

special issues in the application of the

‘‘on behalf of test’’ of the covered person

definition. The Agencies invited

comment on whether, and under what

circumstances, to require disclosures for

sales or solicitations by electronic

media

f the institution

or on behalf of the institution.

Finally, in the preamble to the

proposed rules, the Agencies noted that

the use of electronic media may present

special issues in the application of the

‘‘on behalf of test’’ of the covered person

definition. The Agencies invited

comment on whether, and under what

circumstances, to require disclosures for

sales or solicitations by electronic

media.

Several commenters suggested that

the purposes of the statute and the

rules—to avoid customer confusion

about the nature of the products offered

that arises because of the identity of the

seller or marketer—is not implicated in

all cases where a depository institution

acts solely to bring together buyers and

sellers of insurance products. For

example, the Agencies believe that links

established from depository institution

web sites through the Internet or

wireless services generally do not come

within the scope of the covered person

definition. To the extent there is a risk

of possible consumer confusion when a

customer leaves an institution’s web

site, the nature or type of these

disclosures may differ and is better

addressed in subsequent guidance or

rulemaking.

Electronic media (§ ll.20(g)).

Section 47 permits the Agencies to make

adjustments to the Act’s requirements

for sales conducted in person, by

telephone, or by electronic media to

provide for the most appropriate and

complete form of disclosure and

consumer acknowledgment of the

receipt of such disclosures. The

proposed rules set forth special rules for

electronic disclosures and consumer

acknowledgments. A discussion of

changes made to these provisions in the

final rules is set forth below. See

proposed § ll.40

s conducted in person, by

telephone, or by electronic media to

provide for the most appropriate and

complete form of disclosure and

consumer acknowledgment of the

receipt of such disclosures. The

proposed rules set forth special rules for

electronic disclosures and consumer

acknowledgments. A discussion of

changes made to these provisions in the

final rules is set forth below. See

proposed § ll.40.

In addition, the proposed rules

recognized the need for flexibility to

accommodate rapid changes in

communications technologies and thus

defined ‘‘electronic media’’ broadly to

include any means for transmitting

messages electronically between a

covered person and a consumer in a

format that allows visual text to be

displayed on equipment, such as a

personal computer. The Agencies

invited comment on this proposed

definition and on whether a more

expansive definition would be

consistent with the G–L–B Act’s

requirement for both written and oral

disclosures. The majority of commenters

supported the proposed definition of

‘‘electronic media’’ 10 because it

provided sufficient flexibility to address

future innovation. The final rule,

therefore, retains the proposed

definition of ‘‘electronic media.’’

Office (§ ll.20(h)). The proposed

rules defined ‘‘office’’ as the premises of

an institution where retail deposits are

accepted from the public. The Agencies

received several comments requesting

that this definition be limited to deposit

taking areas. The Agencies note that

specific provisions in these rules

relating to the physical separation of the

insurance activities and permissibility

of referral fees are limited to areas

where deposits are routinely taken.

However, the Agencies do not believe

that the overall protections afforded by

these rules should be limited in this

manner and, therefore, retain in the

final rules the definition of ‘‘office’’ set

forth in the proposed rules

ns in these rules

relating to the physical separation of the

insurance activities and permissibility

of referral fees are limited to areas

where deposits are routinely taken.

However, the Agencies do not believe

that the overall protections afforded by

these rules should be limited in this

manner and, therefore, retain in the

final rules the definition of ‘‘office’’ set

forth in the proposed rules.

The proposed rules did not define the

term ‘‘insurance product.’’ As explained

in the preamble to the proposed rules,

the Agencies recognize that there is no

single standard for defining the term

‘‘insurance’’ and that its definition may

vary significantly depending on the

context in which it is used. For

example, section 302 of G–L–B Act lists

certain types of products that are first

offered after January 1, 1999 that may

constitute insurance for purposes of

determining when a national bank may

underwrite, rather than sell, insurance.

Thus, the Agencies indicated that they

will look to a variety of sources in

determining whether a given product is

covered by the proposed rules,

including section 302(c), common

usage, conventional definitions, judicial

interpretations, and other Federal laws.

The Agencies invited comment on these

and other sources for determining

whether a product comes within the

scope of the proposed rules, or,

alternatively, whether the rule should

include a specific definition of the term

‘‘insurance.’’

Few commenters requested a specific

definition of insurance. Many

commenters, however, asked that we

exclude certain products from coverage

or at least not require certain disclosures

for those products. For example, those

commenters believe that the rules

should not cover credit insurance and

property and casualty insurance because

these products do not have an

investment component and have been

sold by and on behalf of depository

institutions for years without consumer

confusion

, asked that we

exclude certain products from coverage

or at least not require certain disclosures

for those products. For example, those

commenters believe that the rules

should not cover credit insurance and

property and casualty insurance because

these products do not have an

investment component and have been

sold by and on behalf of depository

institutions for years without consumer

confusion. Section 47 of the G–L–B Act,

however, does not distinguish between

types of insurance products nor are the

consumer protections under the statute

limited to instances where there is a risk

of investment loss or consumer

confusion. The final rules therefore do

not define the term ‘‘insurance’’ but, as

explained in the discussion of § ll.40,

provide more guidance on when certain

disclosures are required.

Section ll.30 Prohibited Practices

Under section 47(b) of the FDIA, the

Agencies’ regulations must prohibit a

covered person from engaging in any

practice that would lead a consumer to

believe that an extension of credit, in

violation of the anti-tying provisions of

section 106(b) of the Bank Holding

Company Act Amendments of 1970, 11

is conditional upon either:

(1) The purchase of an insurance

product or annuity from the depository

institution or any of its affiliates; or

(2) An agreement by the consumer not

to obtain, or a prohibition on the

consumer from obtaining, an insurance

product or annuity from an unaffiliated

entity. These prohibitions on tying and

coercion were set forth in proposed

§ ll.30(a).

Section 47(c)(2) of the FDIA also

requires the Agencies’ regulations to

prohibit a covered person from engaging

in any practice at any office of, or on

behalf of, a depository institution or a

subsidiary of a depository institution

that could mislead any person or

otherwise cause a reasonable person to

reach an erroneous belief with respect

to:

(1) The uninsured nature of any

insurance product or annuity offered for

sale by the covered person or

subsidiary;

lations to

prohibit a covered person from engaging

in any practice at any office of, or on

behalf of, a depository institution or a

subsidiary of a depository institution

that could mislead any person or

otherwise cause a reasonable person to

reach an erroneous belief with respect

to:

(1) The uninsured nature of any

insurance product or annuity offered for

sale by the covered person or

subsidiary;

(2) In the case of an insurance product

or annuity that involves investment risk,

the investment risk associated with any

such product; or

(3) The fact that the approval of an

extension of credit to a consumer by the

institution or subsidiary may not be

conditioned on the purchase of an

insurance product or annuity from the

institution or subsidiary, and that the

consumer is free to purchase the

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Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

12 The Agencies note that other provisions, such

as the prohibitions on misrepresentations and

certain required disclosures, also generally address

situations relating to consumer coercion.

insurance product or annuity from

another source.

These prohibitions on

misrepresentations were set forth in

§ ll.30(b) of the proposed rules.

The Agencies received several

comments on these prohibitions. A few

commenters asserted that the

prohibitions on tying an extension of

credit to the purchase of insurance

should apply only to depository

institutions and not all covered persons

because section 106(b) of the Bank

Holding Company Amendments of 1970

applies only to depository institutions.

Therefore, the commenters requested

the Agencies to amend proposed

§ ll.30(a) to delete references to

parties other than depository

institutions.

The commenter’s proposed changes to

§ ll.30(a) are not supported by the

statutory language, however

ry

institutions and not all covered persons

because section 106(b) of the Bank

Holding Company Amendments of 1970

applies only to depository institutions.

Therefore, the commenters requested

the Agencies to amend proposed

§ ll.30(a) to delete references to

parties other than depository

institutions.

The commenter’s proposed changes to

§ ll.30(a) are not supported by the

statutory language, however. Section

47(c)(2) is not limited to depository

institutions but also expressly applies to

persons selling at an office of a

depository institution or on behalf of the

institution. In addition, § ll.30(a) is

not a restatement of the section 106(b)

prohibition on coercion by depository

institutions. Rather, it is a prohibition

on misleading a consumer into believing

that an extension of credit could be

conditioned in a manner that is

prohibited by section 106(b). Section

47(c) of the G–L–B Act recognizes that

either a depository institution, or

someone selling at an office of a

depository institution or on its behalf

could mislead a consumer in this way.

Therefore, the Agencies decline to limit

§ ll.30(a) to depository institutions. 12

One commenter also questioned

whether §§ ll.30 (a) and (b) would

apply to ‘‘force placed’’ insurance.

‘‘Force placed’’ is a term used to

describe a situation in which a

depository institution purchases

insurance, and bills the customer for it,

because the customer has failed to

obtain, or allowed to lapse, required

insurance coverage for an asset used as

collateral for a secured loan. The

Agencies do not intend these final rules

to apply to force placed insurance

purchases since they are made by

depository institutions to protect loan

collateral rather than by consumers.

Finally, proposed § ll.30(c)

implemented section 47(e) of the FDIA,

which, as already noted, prohibits a

covered person from considering a

person’s status as a victim of domestic

violence or a provider of services to

domestic violence victims in making

decisions regarding certain types of

insurance products

ey are made by

depository institutions to protect loan

collateral rather than by consumers.

Finally, proposed § ll.30(c)

implemented section 47(e) of the FDIA,

which, as already noted, prohibits a

covered person from considering a

person’s status as a victim of domestic

violence or a provider of services to

domestic violence victims in making

decisions regarding certain types of

insurance products. One commenter

stated that this provision could be

difficult to comply with where a

covered person sells or offers for sale

insurance products for which a third

party makes the decisions regarding the

underwriting, pricing, renewal, scope of

coverage, or payment of claims.

However, the statute provides no

exception from the prohibition on

domestic violence discrimination in

these circumstances. Therefore, the final

rules as modified prohibit a covered

person from selling or offering for sale,

as principal, agent, or broker, 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, or scope

of coverage of such product, or with

regard to the payment of insurance

claims on such product, except as

required or expressly permitted under

State law.

Section ll.40 What a Covered Person

Must Disclose

In addition to prohibiting the

misrepresentations outlined above,

section 47(c) of the FDIA requires the

Agencies’ regulations to mandate that a

covered person make affirmative

disclosures in connection with the

initial purchase of an insurance product

or annuity. The proposed rules required

the following disclosures:

(1) The insurance product or annuity

is not a deposit or other obligation of,

or guaranteed by, the depository

institution or (if applicable) an affiliate;

7(c) of the FDIA requires the

Agencies’ regulations to mandate that a

covered person make affirmative

disclosures in connection with the

initial purchase of an insurance product

or annuity. The proposed rules required

the following disclosures:

(1) The insurance product or annuity

is not a deposit or other obligation of,

or guaranteed by, the depository

institution or (if applicable) an affiliate;

(2) The insurance product or annuity

is not insured by the Federal Deposit

Insurance Corporation (FDIC) or any

other agency of the United States, the

depository institution, or (if applicable)

an affiliate;

(3) In the case of an insurance product

or annuity that involves an investment

risk, there is investment risk associated

with the product, including the possible

loss of value; and

(4) The depository institution may not

condition an extension of credit on

either the consumer’s purchase of an

insurance product or annuity from the

depository institution or any of its

affiliates or the consumer’s agreement

not to obtain, or a prohibition on the

consumer from obtaining, an insurance

product or annuity from an unaffiliated

entity.

Several commenters believed that the

first disclosure—that the insurance

product or annuity is not a deposit or

other obligation of, or guaranteed by, the

depository institution—is unnecessary

and not required by section 47. These

commenters asserted that there is

minimal risk that a customer will

confuse an insurance product or annuity

with a deposit. The Agencies disagree

with this contention, particularly where

the product has a savings component.

Although the first disclosure is not

expressly required by the statute,

section 47 requires the Agencies to issue

regulations that are consistent with the

requirements of the G–L–B Act and

provide ‘‘additional protections for

customers’’ as necessary

e an insurance product or annuity

with a deposit. The Agencies disagree

with this contention, particularly where

the product has a savings component.

Although the first disclosure is not

expressly required by the statute,

section 47 requires the Agencies to issue

regulations that are consistent with the

requirements of the G–L–B Act and

provide ‘‘additional protections for

customers’’ as necessary. The Agencies

believe that requiring a covered person

to disclose that the insurance product or

annuity is not a deposit is necessary to

protect consumers from confusion about

the nature of the product offered.

There are, however, some instances

where the first and second disclosures

may not be accurate. Several

commenters noted that the second

disclosure—that a product is not

insured by the depository institution or

an agency of the United States—would

not be true for Federal Crop Insurance

and Federal Flood Insurance, both of

which are insured by United States

agencies. To address these concerns and

to ensure that the disclosures required

by § ll.40(a) are only made where

accurate, the Agencies have modified

§ ll.40(a) to require a covered person

to make the disclosures except to the

extent the disclosures would not be

accurate.

Several commenters also suggested

removing certain types of insurance,

such as property and casualty insurance

and credit-related insurance, from the

requirement to disclose that the product

is not FDIC-insured. These commenters

contend that there is little risk of

confusion in these circumstances and

that such disclosures may serve to

increase customer confusion about the

nature of the product offered. The

Agencies disagree with this contention

and favor requiring this disclosure in

connection with the sale of any

insurance product to prevent possible

confusion about the nature of the

product offered. The Agencies, however,

will review this requirement on an on-

going basis and make future changes if

necessary

ures may serve to

increase customer confusion about the

nature of the product offered. The

Agencies disagree with this contention

and favor requiring this disclosure in

connection with the sale of any

insurance product to prevent possible

confusion about the nature of the

product offered. The Agencies, however,

will review this requirement on an on-

going basis and make future changes if

necessary.

Several commenters objected to the

requirement that a covered person give

the anti-coercion disclosures twice

(once before the insurance sale and

again if the consumer applies for credit).

These commenters argued that section

47(a)(1)(A) provides that the Agencies’

regulations only require the anti-

coercion disclosure be made at the time

of an application for credit. The

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Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

13 Pub. L. 106–229, 114 Stat. 464 (June 30, 2000)

(codified at 12 U.S.C. 7001 et seq.) The E-Sign Act

generally took effect on October 1, 2000, although

there are delayed effective dates for provisions

other than those discussed in the text.

14 See 12 U.S.C. 7001(c)(1).

15 12 U.S.C. 7004(d)(1).

Agencies agree that this is a permissible

interpretation of the statute and believe

that the anti-coercion disclosure is most

meaningful and relevant at the time a

consumer is applying for credit. For this

reason, the final rules only require that

the anti-coercion disclosure be given at

the time of application for credit. The

Agencies have redesignated this

provision as § ll.40(b) in the final

rules.

Timing and Method of Disclosures

Under proposed § ll.40(b)(1), a

covered person must provide the

disclosures described in § ll.40(a)

orally and in writing before the

completion of the sale of an insurance

product or annuity to a consumer

that

the anti-coercion disclosure be given at

the time of application for credit. The

Agencies have redesignated this

provision as § ll.40(b) in the final

rules.

Timing and Method of Disclosures

Under proposed § ll.40(b)(1), a

covered person must provide the

disclosures described in § ll.40(a)

orally and in writing before the

completion of the sale of an insurance

product or annuity to a consumer. The

disclosures concerning the prohibition

on tying an extension of credit to an

insurance product or annuity purchase

(proposed § ll.40(a)(4)) also 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 will be

solicited, offered, or sold. Section 47 of

the FDIA authorizes the Agencies to

make necessary adjustments to the G–L–

B Act’s requirements for sales

conducted in person, by telephone, or

by electronic media. Section 47(a)(1)

also requires the Agencies to publish

final rules in a form that the Agencies

jointly determine to be appropriate.

Proposed §§ ll.40(b)(2) set forth

special timing and method of disclosure

rules for electronic and telephone

disclosures. Because the Agencies

modified the anti-coercion disclosure

and redesignated it as § ll.40(b), the

timing and method of disclosure rules

are contained in § ll.40(c).

The Agencies received several

comments on the timing and method of

disclosures. A few commenters

contended that it would be difficult if

not impossible to provide the required

oral disclosures in connection with

direct mail solicitations. The Agencies

recognize that providing oral

disclosures in circumstances like

these—where there is no means of

communicating orally at the time of the

sales presentation—would be

impracticable. Therefore, the final rule

provides that if the sale of an insurance

product or annuity is conducted by

mail, a covered person that sells, solicits

or offers an insurance product or

annuity by mail is not required to make

the oral disclosures required by

§ ll.40(a)

circumstances like

these—where there is no means of

communicating orally at the time of the

sales presentation—would be

impracticable. Therefore, the final rule

provides that if the sale of an insurance

product or annuity is conducted by

mail, a covered person that sells, solicits

or offers an insurance product or

annuity by mail is not required to make

the oral disclosures required by

§ ll.40(a). The final rule further

provides that if a covered person

receives an application for credit by

mail, the covered person is not required

to make the oral disclosure required by

§ ll.40(b). The Agencies also intend

this exception from the oral disclosure

requirements to apply to a situation

such as a ‘‘take one’’ credit application,

where the consumer picks up a blank

application form, completes the

application at home, and mails it back

to the institution.

A similar situation arises with respect

to offers, solicitations or sales by

telephone. Under the proposed rules, a

covered person who takes an

application for credit by telephone may

provide the written anti-coercion

disclosure by mail, if the covered person

mails it to the consumer within three

days starting on the next business day,

excluding Sundays and the legal public

holidays specified in 5 U.S.C. 6103(a).

Several commenters requested the

Agencies extend this flexible approach

to all of the written disclosures, not just

the anti-coercion disclosure, when

transactions are conducted by

telephone. The Agencies agree with this

concern and have changed the final

rules relating to telephone transactions

to extend the option of providing any

written disclosures by mail within a

three-day time period.

Under proposed § ll.40(b)(2)(i),

where the consumer affirmatively

consents, a covered person may provide

the written disclosures required by

§ ll.40(a) through electronic media

instead of on paper, if they are provided

in a format that the consumer may

retain or obtain later, for example, by

printing or storing electronically, such

as by downloading

closures by mail within a

three-day time period.

Under proposed § ll.40(b)(2)(i),

where the consumer affirmatively

consents, a covered person may provide

the written disclosures required by

§ ll.40(a) through electronic media

instead of on paper, if they are provided

in a format that the consumer may

retain or obtain later, for example, by

printing or storing electronically, such

as by downloading. Under proposed

§ ll.40(b)(2)(ii), if the sale of an

insurance product or annuity is

conducted entirely through the use of

electronic media and written

disclosures are provided electronically,

a covered person is not required to

provide disclosures orally. The proposal

also required a covered person to

comply with all other requirements

imposed by law or regulation for

providing disclosures electronically.

In the preamble to the proposed rules,

the Agencies also noted that new

legislation addressing the use of

electronic signatures and electronic

records may affect institutions that

provide disclosures and obtain

acknowledgments electronically. The

Electronic Signatures in Global and

National Commerce Act (the E-Sign

Act) 13 contains, among other things,

Federal rules governing the use of

electronic records for providing

required information to consumers. An

institution may satisfy a legal

requirement that the institution provide

written disclosures by using an

electronic disclosure if the consumer

affirmatively consents and if certain

other requirements of the E-Sign Act are

met

ional Commerce Act (the E-Sign

Act) 13 contains, among other things,

Federal rules governing the use of

electronic records for providing

required information to consumers. An

institution may satisfy a legal

requirement that the institution provide

written disclosures by using an

electronic disclosure if the consumer

affirmatively consents and if certain

other requirements of the E-Sign Act are

met. For example, the E-Sign Act

requires that, before a consumer

consents to receive electronically

information that is otherwise legally

required to be provided in writing, the

consumer must receive a ‘‘clear and

conspicuous statement’’ containing

certain information prescribed by the

statute.14 The statute authorizes Federal

regulatory agencies to exempt specified

categories or types of records from the

E-Sign Act requirements relating to

consumer consent only if an exemption

is necessary to eliminate a substantial

burden on electronic commerce and will

not increase the material risk of harm to

consumers.15 The Agencies invited

comment on whether—and, if so, how—

they should address the requirements of

the E-Sign Act in the context of these

proposed rules.

Two commenters suggested that

providing disclosures consistent with

the E-Sign Act should suffice.

Commenters did not support other

modifications of the final rule to address

the E-Sign requirements. The Agencies

believe electronic disclosures in lieu of

written disclosures are appropriate if

they meet the requirements of the E-

Sign Act. Thus, the final rules provide

that, subject to the requirements of

section 101(c) of the E-Sign Act, a

covered person may provide the written

disclosures required by section

ll.40(a) and (b) through electronic

media if the consumer affirmatively

consents to receiving disclosures

electronically and if the disclosures are

provided in a format that the consumer

may retain or obtain later. This option

is not limited to situations where the

sale is conducted entirely through the

use of electronic media, as in the

proposed rule

de the written

disclosures required by section

ll.40(a) and (b) through electronic

media if the consumer affirmatively

consents to receiving disclosures

electronically and if the disclosures are

provided in a format that the consumer

may retain or obtain later. This option

is not limited to situations where the

sale is conducted entirely through the

use of electronic media, as in the

proposed rule. Moreover, under the

final rules, any disclosures required by

ll.40(a) and (b) that are provided by

electronic media are not required to be

provided orally.

The Agencies made one additional

clarifying change to the timing and

method of the disclosure provisions to

avoid an open-ended time frame for

disclosures. The proposed rules

required a covered person to make the

anti-coercion disclosure ‘‘at the time the

consumer applies for an extension of

credit in connection with which an

insurance product or annuity will be

solicited, offered, or sold.’’ Section

ll.40(c)(1) requires that this

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Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

16 The FTC’s guidance, Dot Com Disclosures:

Information about Online Advertising is available at

www.ftc.gov/bcp/conline/pubs/buspubs/dotcom/

index.html.

disclosure be made ‘‘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,

if a solicitation, offer, or sale occurs in

connection with an application for

credit that is pending with the

depository institution, a covered person

must make the disclosure when the

solicitation, offer, or sale occurs.

The Agencies note that, consistent

with section 47(c), the final rules

require a covered person to provide the

disclosures in connection with the

‘‘initial purchase’’ of an insurance

product or annuity

, or sale occurs in

connection with an application for

credit that is pending with the

depository institution, a covered person

must make the disclosure when the

solicitation, offer, or sale occurs.

The Agencies note that, consistent

with section 47(c), the final rules

require a covered person to provide the

disclosures in connection with the

‘‘initial purchase’’ of an insurance

product or annuity. Accordingly, while

new disclosures are not required when

a consumer simply renews an insurance

policy or annuity, disclosures are

required if a consumer purchases a

different insurance product or annuity.

Disclosures Must Be Readily

Understandable, Designed To Call

Attention to the Information, and

Meaningful

Section 47 of the FDIA requires the

Agencies to promulgate regulations

encouraging the use of disclosures that

are conspicuous, simple, direct, and

readily understandable. Proposed

§ ll.40(b)(3) contained this

requirement and further required that

the disclosures also must be designed to

call attention to the nature and

significance of the information

provided. For example, the proposed

rules provided that a covered person

may use the following short-form

disclosures as may be appropriate:

• NOT A DEPOSIT

• NOT FDIC-INSURED

• NOT INSURED BY ANY FEDERAL

GOVERNMENT AGENCY

• NOT GUARANTEED BY THE BANK [OR

SAVINGS ASSOCIATION]

• MAY GO DOWN IN VALUE.

Several commenters requested that

the Agencies clarify the circumstances

in which a covered person may use the

short form disclosures. The Agencies

believe that provisions in the Joint

Interpretations of the Interagency

Statement on Retail Sales of Nondeposit

Investment Products (September 12,

1995) for use of short form disclosures

provide useful guidance on this issue.

Therefore, the final rules are changed to

provide that short form disclosures may

be used in visual media, such as

television broadcasts, ATM screens,

billboards, signs, posters, and in written

advertisements and promotional

materials, such as brochures

nt on Retail Sales of Nondeposit

Investment Products (September 12,

1995) for use of short form disclosures

provide useful guidance on this issue.

Therefore, the final rules are changed to

provide that short form disclosures may

be used in visual media, such as

television broadcasts, ATM screens,

billboards, signs, posters, and in written

advertisements and promotional

materials, such as brochures. The

Agencies note that it may be appropriate

to use the short form disclosures in

other circumstances. The Agencies will

monitor use of these disclosures and

issue further guidance if necessary.

In addition, several commenters

requested that the final rules provide a

short form of the anti-coercion

disclosures. However, the commenters’

suggested short form anti-coercion

disclosure did not adequately capture

all of the information contained in the

form set forth in § ll.40(b) of the final

rules. Moreover, the Agencies believe

that requiring the full anti-coercion

disclosure is not particularly

burdensome because the final rules

require the disclosure to be made only

in circumstances involving a

consumer’s application for credit in

connection with which insurance is

solicited, offered, or sold. Therefore, the

final rules do not provide a short form

of the anti-coercion disclosure.

The Agencies also invited comment

on whether the final rule should

provide specific methods of calling

attention to the material contained in

the disclosures. For example, the

Agencies suggested that the final rule

could provide that the disclosures are

designed to call attention to the nature

and significance of the information

provided if they use:

• A plain-language heading to call

attention to the disclosures;

• A typeface and type size that are

easy to read;

• Wide margins and ample line

spacing;

• Boldface or italics for key words;

and

• Distinctive type size, style, and

graphic devices, such as shading or

sidebars, when the disclosures are

combined with other information

e nature

and significance of the information

provided if they use:

• A plain-language heading to call

attention to the disclosures;

• A typeface and type size that are

easy to read;

• Wide margins and ample line

spacing;

• Boldface or italics for key words;

and

• Distinctive type size, style, and

graphic devices, such as shading or

sidebars, when the disclosures are

combined with other information.

Some commenters expressed concern

that including these examples in the

regulation would be viewed as adding

new requirements. These concerns,

however, are unfounded. The Agencies

believe that providing examples of

possible methods of calling attention to

the material contained in the

disclosures will provide useful guidance

to the industry. The Agencies therefore

have included these methods in the

final rules as examples of ways in which

a covered person could call a

consumer’s attention to the nature and

significance of the information provided

in the required disclosures. These

examples are not binding requirements.

Further, as provided in § ll.40(c)(6)

of the final rules, a disclosure is not

‘‘meaningfully’’ provided if a covered

person merely tells the consumer that

the disclosures are available in printed

material without also providing the

material and orally disclosing the

information to the consumer. Similarly,

a disclosure made through electronic

media is not meaningfully provided if

the consumer may bypass the visual text

of the disclosure before purchasing an

insurance product or annuity.

The Agencies invited comment on

whether these standards would

adequately address situations where

disclosures are made through electronic

media

terial and orally disclosing the

information to the consumer. Similarly,

a disclosure made through electronic

media is not meaningfully provided if

the consumer may bypass the visual text

of the disclosure before purchasing an

insurance product or annuity.

The Agencies invited comment on

whether these standards would

adequately address situations where

disclosures are made through electronic

media. For example, the Federal Trade

Commission (FTC) recently released

detailed guidance on online advertising

and sales reiterating that many of the

general principles of advertising law

apply to Internet advertisements, but

recognizing that developing technology

raises new issues.16 The Agencies

sought comment on whether the type of

detail provided in the FTC guidance is

necessary in these proposed rules.

The Agencies received several

comments on this issue, none of which

favored providing the type of detail

provided in the FTC guidance.

Accordingly, the final rule does not

include this level of detail.

Consumer Acknowledgment

Under the proposal, a covered person

must obtain from the consumer, at the

time the consumer receives the

disclosures set forth in proposed

§ ll.40(a), the consumer’s

acknowledgment of receipt. In keeping

with section 47’s express provision for

adjustments to the G–L–B Act’s

requirements for sales conducted by

electronic media and the E-Sign Act, the

proposal further provided that a

consumer who has received disclosures

through electronic media may

acknowledge receipt of the disclosures

electronically or in paper form.

Several commenters noted that it

would be difficult to comply with the

consumer acknowledgment requirement

in situations other than face-to-face

transactions. In mail or telephone

transactions, for example, a covered

person cannot control whether a

consumer completes and returns a

written acknowledgment

gh electronic media may

acknowledge receipt of the disclosures

electronically or in paper form.

Several commenters noted that it

would be difficult to comply with the

consumer acknowledgment requirement

in situations other than face-to-face

transactions. In mail or telephone

transactions, for example, a covered

person cannot control whether a

consumer completes and returns a

written acknowledgment. These

commenters requested that the Agencies

modify the proposed consumer

acknowledgment provision to waive the

written acknowledgment requirement in

transactions that are not face-to-face.

The Agencies appreciate the difficulties

with obtaining consumer

acknowledgments in non-face-to-face

transactions but note that section 47 of

the G-L-B Act contains no waiver for

consumer acknowledgments in those

situations. To address this problem, the

Agencies have modified the consumer

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17 E.g., OTS Customer Service Plan at

www.ots.treas.gov/consass/html.

acknowledgment provision to provide

that, if the disclosures required under

§ ll.40(a) or (b) are provided in

connection with a transaction that is

conducted by telephone, a covered

person must: (1) Obtain an oral

acknowledgment of receipt of the

disclosures and maintain sufficient

documentation to show that the

acknowledgment was given; and (2)

make reasonable efforts to obtain a

written acknowledgment from the

consumer. The final rules also clarify

that a covered person may in all

circumstances permit a consumer to

acknowledge receipt of the disclosure

electronically or in paper form. The

Agencies intend that the

implementation of this consumer

acknowledgment requirement will not

affect the substantive requirements of

the parties pursuant to contracts for the

sale of insurance products and annuities

under applicable State law

es also clarify

that a covered person may in all

circumstances permit a consumer to

acknowledge receipt of the disclosure

electronically or in paper form. The

Agencies intend that the

implementation of this consumer

acknowledgment requirement will not

affect the substantive requirements of

the parties pursuant to contracts for the

sale of insurance products and annuities

under applicable State law.

Advertisements and Other Promotional

Material for Insurance Products or

Annuities

In accordance with section 47(c)(1)(C)

of the FDIA, proposed § ll.40(c)

clarified that the disclosures described

in proposed § ll.40 are not required

in advertisements of a general nature

describing or listing the services or

products offered by the depository

institution. The final rules modify this

section slightly, and redesignate it as

§ ll.40(d), to clarify that the exclusion

of the disclosure requirements does not

apply to all advertisements and

promotional material for insurance

products or annuities but only to such

material that is of a general nature,

describing or listing the services or

products offered by the depository

institution. Further, § ll.40(d) refers

only to the disclosures described in

§ ll.40(a). The Agencies believe that

because the anti-coercion disclosure set

forth in § ll.40(b) is required to be

made only in the context of an

application for credit, it could be

confusing to the consumer if the

disclosures were required in all

advertisements and promotional

material for insurance products or

annuities.

Section ll.50 Where Insurance

Activities May Take Place

Section 47(d)(1) of the FDIA requires

that the Agencies’ regulations include

provisions to ensure that the routine

acceptance of deposits is kept, to the

extent practicable, physically segregated

from insurance product activity.

Proposed § ll.50(a) set forth this

general rule

ments and promotional

material for insurance products or

annuities.

Section ll.50 Where Insurance

Activities May Take Place

Section 47(d)(1) of the FDIA requires

that the Agencies’ regulations include

provisions to ensure that the routine

acceptance of deposits is kept, to the

extent practicable, physically segregated

from insurance product activity.

Proposed § ll.50(a) set forth this

general rule. It further required that, to

the extent practicable, a depository

institution identify areas where

insurance product or annuity sales

activities occur and clearly delineate

and distinguish them from the areas

where the institution’s retail deposit-

taking activities occur, in accordance

with section 47(d)(2)(A) of the FDIA.

The Agencies received several

comments on this provision, most of

which asked for clearer guidance on

what constitutes the area where deposits

are routinely accepted. Several asserted

that the physical segregation

requirement should not apply to an

institution’s ‘‘platform’’ areas and

should only apply to teller windows.

‘‘Platform’’ areas are typically areas of

an institution’s premises in which

employees other than tellers engage in

a variety of activities, including the

origination of loans, the sale of

insurance and annuity products, and

occasionally, the acceptance of deposits.

The Agencies wish to clarify for

purposes of these final rules that the

areas where retail deposits are routinely

accepted from the general public are

generally limited to traditional teller

windows and teller lines.

One commenter also recommended

physically segregating the area where

lending activities occur from the area

where insurance products or annuities

sales occur. The Agencies decline to

make this change because it would

extend significantly beyond the

restrictions set forth in the statute.

Proposed § ll.50(b) implemented

section 47(d)(2)(B) of the FDIA,

concerning referrals to insurance

product and annuity sales personnel by

a person who accepts deposits from the

public

nding activities occur from the area

where insurance products or annuities

sales occur. The Agencies decline to

make this change because it would

extend significantly beyond the

restrictions set forth in the statute.

Proposed § ll.50(b) implemented

section 47(d)(2)(B) of the FDIA,

concerning referrals to insurance

product and annuity sales personnel by

a person who accepts deposits from the

public. Under that proposed section,

any person who accepts deposits from

the public in an area where such

transactions are routinely conducted in

a depository institution may refer a

consumer who seeks to purchase an

insurance product or annuity to a

qualified person who sells that product.

The person making the referral may

only receive a one-time, nominal fee of

a fixed dollar amount for each referral.

The fee may not depend on whether the

referral results in a transaction. The

Agencies received several comments

requesting that the limits on referral fees

apply only to tellers. The Agencies

believe that the person described in the

regulation text—that is, a person ‘‘who

accepts deposits from the public in an

area where such transactions are

routinely conducted’’ will typically be a

teller. The Agencies also believe that a

description by function is preferable

because it is more precise. We have

therefore retained the language as

proposed.

Section ll.60 Qualification and

Licensing Requirements for Insurance

Sales Personnel

Section 47(d)(2)(C) of the FDIA

requires that the Agencies’ regulations

prohibit any depository institution from

permitting any person to sell or offer for

sale any insurance product in any part

of any office of the institution, or on

behalf of the institution, unless such

person is appropriately qualified and

licensed

on ll.60 Qualification and

Licensing Requirements for Insurance

Sales Personnel

Section 47(d)(2)(C) of the FDIA

requires that the Agencies’ regulations

prohibit any depository institution from

permitting any person to sell or offer for

sale any insurance product in any part

of any office of the institution, or on

behalf of the institution, unless such

person is appropriately qualified and

licensed. Thus, proposed section

ll.60 provided that a depository

institution may not permit any person to

sell or offer for sale any insurance

product or annuity in any part of its

office or on its behalf, unless the person

is at all times appropriately qualified

and licensed under applicable State

insurance licensing standards with

regard to the specific products being

sold or recommended. One commenter

expressed the opinion that this

provision is unnecessary because each

state’s insurance licensing agency is

already policing its licensing and

qualification requirements. The

Agencies retain this provision because it

is required by the statute.

Appendix—Consumer Grievance

Process

Section 47(f) of the FDIA requires that

the Agencies jointly establish a

consumer complaint mechanism for

addressing consumer complaints

alleging violations of these rules. Each

agency has procedures in place to

handle consumer complaints they

receive directly.17 The Agencies will

apply those procedures to complaints

involving these rules. The Appendix to

each agency’s final rule contains the

name and address of each agency’s

consumer complaint office. Any

consumer who believes that a

depository institution or any other

person selling, soliciting, advertising, or

offering insurance products or annuities

to the consumer at an office of the

institution or on behalf of the institution

has violated the requirements of these

rules may contact the consumer

complaint office listed in the Appendix.

Each agency already has entered into,

or is developing, agreements with State

insurance commissioners regarding the

sharing of consumer complaints

ting, advertising, or

offering insurance products or annuities

to the consumer at an office of the

institution or on behalf of the institution

has violated the requirements of these

rules may contact the consumer

complaint office listed in the Appendix.

Each agency already has entered into,

or is developing, agreements with State

insurance commissioners regarding the

sharing of consumer complaints. It is

expected that these agreements will

facilitate prompt resolution of consumer

complaints and ensure that incoming

complaints are directed to the

appropriate agency. Consumer

complaints alleging violations of these

rules that raise issues under State and

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local law will be shared with State

regulators pursuant to those agreements.

Effect on Other Authority

Section 47(g) sets forth a general

framework for determining the effect of

these final rules on State law. Under

that framework, the Agencies’ insurance

consumer protection rules will not

apply in a State where the State has in

effect statutes, regulations, orders, or

interpretations that are inconsistent

with or contrary to the provisions of the

Agencies’ rules. If the Board, FDIC and

OCC jointly determine, however, that

the protection afforded by a provision of

these final rules is greater than the

protection provided by comparable state

law or rulings, these final rules shall

preempt the contrary or inconsistent

State law or ruling. Prior to making this

determination, the Board, FDIC and

OCC must notify the appropriate State

regulatory authority in writing, and the

Board, FDIC and OCC will consider

comments submitted by the appropriate

State regulatory authorities

rules is greater than the

protection provided by comparable state

law or rulings, these final rules shall

preempt the contrary or inconsistent

State law or ruling. Prior to making this

determination, the Board, FDIC and

OCC must notify the appropriate State

regulatory authority in writing, and the

Board, FDIC and OCC will consider

comments submitted by the appropriate

State regulatory authorities. If the Board,

FDIC and OCC determine that a

provision of these final rules affords

greater protection than State provisions,

the Board, FDIC and OCC will send a

written preemption notice to the

appropriate State insurance authority

that the provision of these final rules

will be applicable unless the State

adopts legislation within three years to

override the preemption notice.

In the preamble to the proposed rules,

the Board, FDIC and OCC invited

comment on whether it would be

helpful to include a second appendix

restating these statutory requirements or

whether such a restatement would be

confusing absent a determination

regarding the applicability of specific

State laws. The comments generally did

not support the inclusion in the final

rules of a preemption appendix. The

Agencies do not believe it would be

useful to include such an appendix.

Regulatory Analysis

A. Paperwork Reduction Act

The Agencies may not conduct or

sponsor, and respondents are not

required to respond to, an information

collection unless it displays a currently

valid Office of Management and Budget

(OMB) control number. The OMB

control numbers and clearance

expiration dates are listed below:

OCC: 1557–0220; October 31, 2003.

Board: 7100–0295; November 30, 2003.

FDIC: 3064–0140; October 31, 2003.

OTS: 1550–0106; October 31, 2003.

The final rule contains requirements

to make disclosure at two different

times

mation

collection unless it displays a currently

valid Office of Management and Budget

(OMB) control number. The OMB

control numbers and clearance

expiration dates are listed below:

OCC: 1557–0220; October 31, 2003.

Board: 7100–0295; November 30, 2003.

FDIC: 3064–0140; October 31, 2003.

OTS: 1550–0106; October 31, 2003.

The final rule contains requirements

to make disclosure at two different

times. The respondents must prepare

and provide certain disclosures to

consumers: (1) Before the completion of

the initial sale of an insurance product

or annuity to a consumer; and (2) at the

time of application for the extension of

credit (if insurance products or

annuities are solicited, offered or sold in

connection with an extension of credit)

(§§ ll. 40(a) and (b)).

The Agencies received one comment

that addressed a perceived low burden

estimate stemming from these

disclosures. The commenter, however,

provided no suggestion as to an

appropriate higher estimate. Other

comments regarding the information

collection are discussed above in the

preamble discussion of §§ ll.20,

ll.40 (a) and (b).

OCC: The respondents are national

banks, District of Columbia banks, and

Federal branches and agencies of foreign

banks and any other persons selling,

soliciting, advertising, or offering

insurance products or annuities at an

office of a national bank or on behalf of

a national bank. OMB has reviewed and

approved the collections of information

contained in the rule under control

number 1557–0220, in accordance with

the Paperwork Reduction Act of 1995

(44 U.S.C. 3501 et seq.). There are 1,949

respondents with a total annual burden

of 19,490 hours.

Board: The respondents are state

member banks and any other persons

selling, soliciting, advertising, or

offering insurance products or annuities

at an office of a state member bank or

on behalf of a state member bank. In

accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C

uction Act of 1995

(44 U.S.C. 3501 et seq.). There are 1,949

respondents with a total annual burden

of 19,490 hours.

Board: The respondents are state

member banks and any other persons

selling, soliciting, advertising, or

offering insurance products or annuities

at an office of a state member bank or

on behalf of a state member bank. In

accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3506;

5 CFR 1320 Appendix A.1), the Board

approved the rule under the authority

delegated to the Board by OMB. The

OMB control number is 7100–0295.

There are 1,010 respondents with a total

annual burden of 46,090 hours.

FDIC: The respondents are insured

nonmember banks and any other

persons selling, soliciting, advertising,

or offering insurance products or

annuities at an office of an insured

nonmember bank or on behalf of an

insured nonmember bank. OMB has

reviewed and approved the collections

of information contained in the rule

under control number 3064–0140, in

accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3501

et seq.). There are 5,800 respondents

with a total annual burden of 76,667

hours.

OTS: The respondents are savings

associations and any other persons

selling, soliciting, advertising, or

offering insurance products or annuities

at an office of a savings association or

on behalf of a savings association. OMB

has reviewed and approved the

collections of information contained in

the rule under control number 1550–

0106, in accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3501

et seq.). There are 1,097 respondents

with a total annual burden of 47,286

hours.

The Agencies have a continuing

interest in the public’s opinion

regarding collections of information.

Members of the public may submit

comments, at any time, regarding any

aspect of these collections of

information. Comments may be sent to:

OCC: Jessie Dunaway, Clearance

Officer, Office of the Comptroller of the

Currency, 250 E Street, SW, Mailstop 8–

4, Washington, DC 20219.

Board: Mary M

hours.

The Agencies have a continuing

interest in the public’s opinion

regarding collections of information.

Members of the public may submit

comments, at any time, regarding any

aspect of these collections of

information. Comments may be sent to:

OCC: Jessie Dunaway, Clearance

Officer, Office of the Comptroller of the

Currency, 250 E Street, SW, Mailstop 8–

4, Washington, DC 20219.

Board: Mary M. West, Federal Reserve

Board Clearance Officer, Mailstop 97,

Division of Research and Statistics,

Board of Governors of the Federal

Reserve System, Washington, DC 20551.

FDIC: Steven F. Hanft, Assistant

Executive Secretary (Regulatory

Analysis), Federal Deposit Insurance

Corporation, Room F–4080, 550 17th

Street, NW, Washington, DC 20429.

OTS: Dissemination Branch (1550–

0106), Office of Thrift Supervision, 1700

G Street, NW, Washington, DC 20552.

B. Regulatory Flexibility Act

OCC: The Regulatory Flexibility Act

(5 U.S.C. 601–612) requires federal

agencies either to provide a Final

Regulatory Flexibility Analysis (FRFA)

with a final rule or certify that the final

rule ‘‘will not, if promulgated,’’ have a

significant economic impact on a

substantial number of small entities. On

the basis of the information currently

available, the OCC is of the opinion that

this final rule is unlikely to have a

significant impact on a substantial

number of small entities. Because the

final rules implement new legislation,

however, the OCC lacks historical

information specific to the requirements

in the final rules on which to base

estimates of cost. For this reason, the

OCC has prepared the following FRFA.

Reasons, Objectives, and Legal Basis for

the Final Rule

The OCC is issuing this final rule to

implement section 47 of the FDIA. A

fuller discussion of the reasons for,

objectives of, and legal basis for, the

final rule appears elsewhere in the

Supplementary Information

the requirements

in the final rules on which to base

estimates of cost. For this reason, the

OCC has prepared the following FRFA.

Reasons, Objectives, and Legal Basis for

the Final Rule

The OCC is issuing this final rule to

implement section 47 of the FDIA. A

fuller discussion of the reasons for,

objectives of, and legal basis for, the

final rule appears elsewhere in the

Supplementary Information.

Description of the Small Entities to

Which the Final Rule Would Apply

The final rule would apply to a

national bank or any ‘‘other person’’

who, at an office of a national bank or

on behalf of a national bank, sells,

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Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

18 The final rule also requires national banks to

keep the area where the bank conducts insurance

transactions physically separate from the areas

where retail deposits are routinely accepted from

the general public ‘‘to the extent practicable.’’ This

requirement, which is worded like the requirement

in the statute, leaves significant discretion to each

national bank to determine what costs, if any, the

bank must incur in order to avoid customer

confusion.

solicits, advertises, or offers insurance

products or annuities to consumers. The

final rule would apply regardless of the

size of the bank or other organization for

which a person worked.

Small national banks are generally

defined, for Regulatory Flexibility Act

purposes, as those with assets of $100

million or less. 13 CFR 121.201,

Division H (2000). As of January, 1999,

1,949 national banks or national bank

subsidiaries were engaged in insurance

activities that would bring them within

the scope of coverage of the final rule.

We estimated in the preamble to the

proposed rule that 976 of the national

banks that sold insurance as of January,

1999, had $100 million or less in assets

sets of $100

million or less. 13 CFR 121.201,

Division H (2000). As of January, 1999,

1,949 national banks or national bank

subsidiaries were engaged in insurance

activities that would bring them within

the scope of coverage of the final rule.

We estimated in the preamble to the

proposed rule that 976 of the national

banks that sold insurance as of January,

1999, had $100 million or less in assets.

We received no comment on this

estimate and believe it to be accurate.

Reporting, Recordkeeping, and

Compliance Requirements of the Final

Rule

The final rule requires national banks

(and entities acting on behalf of national

banks) to amend the written materials

and Internet web sites they use in

connection with the retail sale,

solicitation, advertising, or offer of

insurance products to consumers. The

final rule also requires national banks

(and entities acting on their behalf) to

obtain from consumers acknowledgment

that the consumer has received certain

disclosures. The substance of these

requirements is described in detail

elsewhere in the Supplementary

Information.18

The OCC believes that most national

banks will be able to satisfy the

disclosure provisions by including the

information required to be disclosed in

their written materials with minimal

cost. We estimate that most banks

maintain a 3 to 4 month inventory of

those materials. This final rule will not

become effective until April 1, 2001,

which should allow ample time for most

banks to exhaust their inventory of

printed materials and prepare new

materials. Nevertheless, our analysis

assumes that some banks may need to

amend the written materials they have

in inventory during an interim period

between the effective date of the final

rule and the next regularly scheduled

printing of those materials because their

inventories will not be depleted during

that time

e for most

banks to exhaust their inventory of

printed materials and prepare new

materials. Nevertheless, our analysis

assumes that some banks may need to

amend the written materials they have

in inventory during an interim period

between the effective date of the final

rule and the next regularly scheduled

printing of those materials because their

inventories will not be depleted during

that time. These banks—which are

probably smaller banks that order

written materials infrequently and in

large quantities to obtain reduced rates

on printing—would therefore incur

costs as a result of this requirement.

There are approximately 25 national

banks that sell insurance products over

the Internet. Our experience has been

that Internet banks regularly upgrade

their web sites. Adding the required

disclosures could be done as part of a

regular upgrade and would therefore

present only minimal additional costs to

the bank.

The primary cost associated with the

requirement that a bank obtain from the

consumer a written acknowledgment of

the consumer’s receipt of the

disclosures is, in the OCC’s opinion,

likely to be the cost of developing the

written acknowledgment. Banks that

sell insurance products over the Internet

should, as part of a regularly scheduled

upgrade, be able to revise their web sites

to include a series of ‘‘click throughs’’

that will require affirmation from the

customer that he or she has received the

required disclosures.

Summary of Significant Issues Raised by

the Public Comments in Response to

Initial Regulatory Flexibility Analysis

and Description of Steps the Agency

Has Taken To Minimize Burden

The issues raised by the commenters

are described more fully elsewhere in

the Supplementary Information

ick throughs’’

that will require affirmation from the

customer that he or she has received the

required disclosures.

Summary of Significant Issues Raised by

the Public Comments in Response to

Initial Regulatory Flexibility Analysis

and Description of Steps the Agency

Has Taken To Minimize Burden

The issues raised by the commenters

are described more fully elsewhere in

the Supplementary Information. The

issues that were raised by commenters

about the proposal’s impact on small

businesses were the following:

• The requirement that a covered

person obtain a written

acknowledgment of receipt of

disclosures for a telephone transaction

could require significant effort and

additional correspondence if the

customer does not return the

acknowledgment with other paperwork

for the policy. This effort would be a

significant burden for small financial

institutions.

• The requirement that such

insurance as credit and mortgage

insurance be sold in an area of the office

separate from where deposits are

routinely taken poses a particular

hardship for small financial institutions

where deposits and loan applications

are taken at the same place.

The OCC considered how to tailor the

form of disclosures and

acknowledgments to the form of the

sales transaction and how to make the

record of acknowledgment functional,

within the statutory constraints. In the

case of telephone applications for credit,

the proposed rule permitted the anti-

coercion disclosure due at the time of

applications to be given orally and

followed with written disclosures

mailed within three days. To extend the

principle more broadly, the final rule

applies this form of providing written

disclosures for telephone sales to all the

required disclosures. The timing has

been clarified to be three business days,

starting with the first business day after

the telephone transaction. With respect

to telephone sales, the final rule permits

an oral acknowledgment of the

disclosures if the covered person

documents the acknowledgment

adly, the final rule

applies this form of providing written

disclosures for telephone sales to all the

required disclosures. The timing has

been clarified to be three business days,

starting with the first business day after

the telephone transaction. With respect

to telephone sales, the final rule permits

an oral acknowledgment of the

disclosures if the covered person

documents the acknowledgment. In that

case, the final rule requires the covered

person also to make reasonable efforts to

obtain a written acknowledgment.

We have made an additional change

affecting disclosures relevant to sales

initiated by telephone. The proposed

rule limited the use of electronic

disclosures to those transactions taking

place entirely electronically.

Commenters were concerned that the

proposed rule did not permit electronic

disclosures to be used in transactions

that may have started with a telephone

contact. To address this concern, the

final rule provides that, if a transaction

involves telephone contact, but the

consumer affirmatively consents to

transmission of disclosures through

electronic media instead of on paper,

the covered person may provide the

‘‘written’’ disclosures electronically. Of

course, these electronic disclosures

must satisfy the rule’s requirement that

the format of disclosure be one that

permits the consumer to retain or to

obtain later, such as by printing or

storing electronically. Where

disclosures are made electronically, the

rule already provided that the consumer

could acknowledge them electronically.

Electronic acknowledgment of

electronic disclosures applies under the

final rule to these mixed media

transactions, as well. The final rule also

provides that oral disclosures are not

required where disclosures are provided

electronically. This exception applies

not only to disclosures provided in the

sale of insurance and annuities as in the

proposed rule, but also to the anti-

coercion disclosure provided with

credit applications

onic disclosures applies under the

final rule to these mixed media

transactions, as well. The final rule also

provides that oral disclosures are not

required where disclosures are provided

electronically. This exception applies

not only to disclosures provided in the

sale of insurance and annuities as in the

proposed rule, but also to the anti-

coercion disclosure provided with

credit applications.

In response to the concern expressed

about the difficulty of separating

functions in a small office, we have

clarified in the preamble to this final

rule that generally the location where

deposits are routinely taken is the teller

window and teller line. This distinction

permits a savings association to sell

insurance products and annuities from

the ‘‘platform area,’’ where loan

transactions may routinely be

conducted, if the savings association

distinguishes that area from the teller

window area. The regulation also

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Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

requires this segregation of functions

into separate areas ‘‘to the extent

practicable.’’ If it is not practicable for

a small institution to have separate

areas, it could make other efforts to

satisfy the separation of functions

between deposit taking and selling of

insurance.

We note that in addition to these

specific responses to concerns

expressed with reference to impact on

small entities, we have limited the

scope of the rule in other ways to

minimize compliance burdens. The

final rule:

• Only applies to retail sales,

solicitations, advertisements, or offers of

insurance products or annuities to

individuals purchasing for personal,

family, or household use. The Agencies

have determined, after requesting

comment on whether to also include

small business insurance purchases, not

to broaden the coverage

scope of the rule in other ways to

minimize compliance burdens. The

final rule:

• Only applies to retail sales,

solicitations, advertisements, or offers of

insurance products or annuities to

individuals purchasing for personal,

family, or household use. The Agencies

have determined, after requesting

comment on whether to also include

small business insurance purchases, not

to broaden the coverage.

• Does not apply to subsidiaries of

depository institutions, except where

the subsidiaries are selling, soliciting,

advertising, or offering insurance

products or annuities to consumers at

an office of a savings association or on

behalf of a savings association.

• Clarifies the scope of the rule and

the definition of ‘‘you’’ to apply only to

transactions conducted by the person

that are by, at an office of, or on behalf

of, the savings association.

• Defines ‘‘office’’ narrowly to

include only premises where retail

deposits are accepted from the public.

• Clarifies when certain disclosures

must be provided, including that a

disclosure such as ‘‘not insured by any

federal agency’’ is not to be given where

it would be inaccurate (as in the case of

federally-insured crop insurance or

flood insurance).

• Only requires the anti-coercion

disclosure to be made once, instead of

twice per transaction.

• Provides flexibility for covered

persons to use a variety of means to

provide disclosures that are readily

understandable and call attention to the

information.

• Provides that, in the case of

telephone sales, the duty to obtain a

consumer’s acknowledgment of

receiving the disclosures may be

satisfied by an oral acknowledgment of

disclosures combined with reasonable

efforts to obtain a written

acknowledgment.

• Does not require disclosures in

advertisements of a general nature

describing or listing the services or

products offered by the savings

association.

• Provides for a delayed effective

date, requiring compliance by April 1,

2001, to permit adequate time to prepare

disclosures and acknowledgment

materials and train staff

losures combined with reasonable

efforts to obtain a written

acknowledgment.

• Does not require disclosures in

advertisements of a general nature

describing or listing the services or

products offered by the savings

association.

• Provides for a delayed effective

date, requiring compliance by April 1,

2001, to permit adequate time to prepare

disclosures and acknowledgment

materials and train staff.

Significant Alternatives to the Final

Rule

Section 305 of the G-L-B Act

expressly prescribes the content of its

implementing regulations. The OCC’s

final rule does not depart materially

from the requirements of the statute.

The statute does not authorize the OCC

to provide exemptions or exceptions to

its requirements for small national

banks.

In preparing the final rule, the OCC

has considered the burden on small

national banks to the extent that it has

the discretion to do so. As set forth

above in the discussion of significant

issues raised in response to the Initial

Regulatory Flexibility Analysis, the

Agencies have modified the final rules

to minimize burden.

Duplicative, Overlapping, or Conflicting

Federal Rules

As used in the Interagency Statement,

the term ‘‘nondeposit investment

products,’’ includes some products,

such as annuities, that are covered by

section 47 of FDIA and these proposed

rules. The Interagency Statement

provides, among other things, that

institutions should disclose to

customers that such products are not

insured by the FDIC or the depository

institution and are subject to investment

risk including possible loss of principal.

It also provides that institutions should

obtain acknowledgments from

customers verifying that they have

received and understand the

disclosures

s. The Interagency Statement

provides, among other things, that

institutions should disclose to

customers that such products are not

insured by the FDIC or the depository

institution and are subject to investment

risk including possible loss of principal.

It also provides that institutions should

obtain acknowledgments from

customers verifying that they have

received and understand the

disclosures. The Interagency Statement

further provides that retail sales or

recommendations of nondeposit

investment products should be

conducted in a location physically

distinct from where retail deposits are

taken, that nondeposit investment

product sales personnel should receive

adequate training, and that referral fees

should be limited. The final rules do not

appear to conflict materially with the

Interagency Statement.

Board: The Regulatory Flexibility Act

(5 U.S.C. 601–12) requires federal

agencies either to provide a Final

Regulatory Flexibility Analysis with a

final rule or to certify that the final rule

will not have a significant economic

impact on a substantial number of small

entities. Based on available data, the

Board is unable to determine at this

time whether the final rule would have

a significant impact on a substantial

number of small entities. For this

reason, the Board has prepared the

following Final Regulatory Flexibility

Analysis.

Reasons, Objectives, and Legal Basis for

the Final Rule

A description of the reasons why the

Board is adopting this final rule and a

statement of the need for, and the

objectives of, the final rule are

contained in the supplementary

materials provided above. The Board’s

final rule is virtually identical to the

final rules being adopted by the other

Federal banking agencies for the

depository institutions over which they

have primary supervisory authority

description of the reasons why the

Board is adopting this final rule and a

statement of the need for, and the

objectives of, the final rule are

contained in the supplementary

materials provided above. The Board’s

final rule is virtually identical to the

final rules being adopted by the other

Federal banking agencies for the

depository institutions over which they

have primary supervisory authority.

Description of the Small Entities to

Which the Final Rule Would Apply

The final rule applies to all state

member banks and any other person

when that person sells, solicits,

advertises, or offers an insurance

product or annuity to an individual for

personal, family, or household purposes

at an office of a state member bank or

on behalf of the bank. As of year-end

1999, there were approximately 1,010

state member banks. The Board

estimates that approximately 480 state

member banks have assets less than

$100 million. Based on available data,

the Board is unable to estimate the

number of other persons who engage in

retail insurance activities at an office of

a state member bank or on behalf of the

bank, or how many of these other

persons are small entities.

Summary of Significant Issues Raised by

the Public Comments in Response to

Initial Regulatory Flexibility Analysis

and Description of Steps the Agency has

Taken to Minimize Burden

The issues raised by the commenters

generally are described more fully in the

supplementary material provided above.

The issues that were raised by

commenters in connection with impact

on small businesses, specifically, were

the following:

• The requirement that a covered

person obtain a written

acknowledgment of receipt of

disclosures for a telephone transaction

could require significant effort and

additional correspondence if the

customer does not return the

acknowledgment with other paperwork

for the policy. This effort would be a

significant burden for small financial

institutions

ll businesses, specifically, were

the following:

• The requirement that a covered

person obtain a written

acknowledgment of receipt of

disclosures for a telephone transaction

could require significant effort and

additional correspondence if the

customer does not return the

acknowledgment with other paperwork

for the policy. This effort would be a

significant burden for small financial

institutions.

• The requirement that such

insurance as credit and mortgage

insurance be sold in an area of the office

separate from where deposits are

routinely taken poses a particular

hardship for small financial institutions

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75833

Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

where deposits and loan applications

are taken at the same place.

The Board considered how to tailor

the form of disclosures and

acknowledgments to the form of the

sales transaction and how to make the

record of acknowledgment functional,

within the statutory constraints. In the

case of telephone applications for credit,

the proposed rule permitted the anti-

coercion disclosure due at the time of

applications to be given orally and

followed with written disclosures

mailed within three days. To extend the

principle more broadly, the final rule

applies this form of providing written

disclosures for telephone sales to all the

required disclosures. The timing has

been clarified to be three business days,

starting with the first business day after

the telephone transaction. With respect

to telephone sales, the final rule permits

an oral acknowledgment of the

disclosures if the acknowledgment is

documented. In that case, the final rule

requires also that reasonable efforts be

made to obtain a written

acknowledgment.

We have made an additional change

affecting disclosures relevant to sales

initiated by telephone

h the first business day after

the telephone transaction. With respect

to telephone sales, the final rule permits

an oral acknowledgment of the

disclosures if the acknowledgment is

documented. In that case, the final rule

requires also that reasonable efforts be

made to obtain a written

acknowledgment.

We have made an additional change

affecting disclosures relevant to sales

initiated by telephone. The proposed

rule limited the use of electronic

disclosures to those transactions taking

place entirely electronically.

Commenters were concerned that the

proposed rule did not permit electronic

disclosures to be used in transactions

that may have started with a telephone

contact. To address this concern, the

final rule provides that, if a transaction

involves telephone contact, but the

consumer affirmatively consents to

transmission of disclosures through

electronic media instead of on paper,

the covered person may provide the

‘‘written’’ disclosures electronically. Of

course, these electronic disclosures

must satisfy the rule’s requirement that

the format of disclosure be one that

permits the consumer to retain or to

obtain later, such as by printing or

storing electronically. Where

disclosures are made electronically, the

rule already provided that the consumer

could acknowledge them electronically.

Electronic acknowledgment of

electronic disclosures applies under the

final rule to these mixed media

transactions, as well.

In response to the concern expressed

about the difficulty of separating

functions in a small office, we have

clarified in the preamble to this final

rule that generally the location where

deposits are routinely taken is the teller

window and teller line. This distinction

permits a state member bank to sell

insurance products and annuities from

the ‘‘platform area,’’ where loan

transactions may routinely be

conducted, if the state member bank

distinguishes that area from the teller

window area

ce, we have

clarified in the preamble to this final

rule that generally the location where

deposits are routinely taken is the teller

window and teller line. This distinction

permits a state member bank to sell

insurance products and annuities from

the ‘‘platform area,’’ where loan

transactions may routinely be

conducted, if the state member bank

distinguishes that area from the teller

window area. The regulation also

requires this segregation of functions

into separate areas ‘‘to the extent

practicable.’’ If it is not practicable for

a small institution to have separate

areas, it could make other efforts to

satisfy the separation of functions

between deposit taking and selling of

insurance.

We note that in addition to these

specific responses to concerns

expressed with reference to impact on

small entities, we have limited the

scope of the rule in other ways to

minimize compliance burdens. The

final rule:

• Only applies to retail sales,

solicitations, advertisements, or offers of

insurance products or annuities to

individuals purchasing for personal,

family, or household use. The Agencies

have determined, after requesting

comment on whether to also include

small business insurance purchases, not

to broaden the coverage.

• Does not apply to subsidiaries of

depository institutions, except where

the subsidiaries are selling, soliciting,

advertising, or offering insurance

products or annuities to consumers at

an office of a state member bank or on

behalf of a state member bank.

• Clarifies the scope of the rule and

the definition of ‘‘you’’ to apply only to

transactions conducted by the person

that are by, at an office of, or on behalf

of, the state member bank.

• Defines ‘‘office’’ narrowly to

include only premises where retail

deposits are accepted from the public.

• Clarifies when certain disclosures

must be provided, including that a

disclosure such as ‘‘not insured by any

federal agency’’ is not to be given where

it would be inaccurate (as in the case of

federally-insured crop insurance or

flood insurance)

of, or on behalf

of, the state member bank.

• Defines ‘‘office’’ narrowly to

include only premises where retail

deposits are accepted from the public.

• Clarifies when certain disclosures

must be provided, including that a

disclosure such as ‘‘not insured by any

federal agency’’ is not to be given where

it would be inaccurate (as in the case of

federally-insured crop insurance or

flood insurance).

• Only requires the anti-coercion

disclosure to be made once, instead of

twice per transaction.

• Provides flexibility for covered

persons to use a variety of means to

provide disclosures that are readily

understandable and call attention to the

information.

• Provides that, in the case of

telephone sales, the duty to obtain a

consumer’s acknowledgment of

receiving the disclosures may be

satisfied by an oral acknowledgment of

disclosures combined with reasonable

efforts to obtain a written

acknowledgment.

• Does not require disclosures in

advertisements of a general nature

describing or listing the services or

products offered by the state member

bank.

• Provides for a delayed effective

date, requiring compliance by April 1,

2001, to permit adequate time to prepare

disclosures and acknowledgment

materials and train staff.

Reporting, Recordingkeeping, and

Compliance Requirements of the Final

Rule

The final rule requires a depository

institution to make required disclosures

in connection with insurance activities

and applications for credit if insurance

is sold or solicited in connection with

the credit. Some insurance products or

annuities that are covered by the final

regulation may also be subject to the

Interagency Statement. The Interagency

Statement provides for consumer

disclosure, acknowledgment, separation

of activities, and personnel qualification

requirements that are similar to the

provisions of the final rule. The Board

does not believe that the final rule

would conflict materially with the

Interagency Statement

nnuities that are covered by the final

regulation may also be subject to the

Interagency Statement. The Interagency

Statement provides for consumer

disclosure, acknowledgment, separation

of activities, and personnel qualification

requirements that are similar to the

provisions of the final rule. The Board

does not believe that the final rule

would conflict materially with the

Interagency Statement.

The final rule also prohibits certain

practices in the sale of insurance, such

as the tying of credit and insurance,

making misrepresentations, and

discriminating against the victims of

domestic violence. These prohibitions

incorporate the existing statutory

prohibition on tying arrangements in

section 106(b) of the Bank Holding

Company Amendments of 1970 (12

U.S.C. 1972). Existing laws also ban

many types of discrimination. To some

extent, therefore, state member banks

may already have the professional skills

needed to comply with the requirements

of the final rule.

Significant Alternatives to the Final

Rule

As explained above, the substantive

provisions of the final rule are required

by section 47 of the FDIA. The final rule

does not impose any new substantive

requirements that are not mandated by

the statute. Section 47 applies to all

depository institutions, regardless of

size, and does not provide the Agencies

with the authority to exempt a small

institution from the requirements of the

statute. Thus, the Board has only

limited discretion to consider

alternatives to minimize the economic

impact on small entities. As explained

above, the Agencies have made some

modifications to the proposed rule to

accommodate existing methods of

soliciting and selling insurance

products and annuities and to reduce

regulatory burden.

FDIC: The Regulatory Flexibility Act

(‘‘RFA’’), 5 U.S.C. 601–612, requires

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ined

above, the Agencies have made some

modifications to the proposed rule to

accommodate existing methods of

soliciting and selling insurance

products and annuities and to reduce

regulatory burden.

FDIC: The Regulatory Flexibility Act

(‘‘RFA’’), 5 U.S.C. 601–612, requires

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Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

19 The RFA defines the term ‘‘small entity’’ in 5

U.S.C. 601 by reference to definitions published by

the Small Business Administration (SBA). The SBA

has defined a ‘‘small entity of banking purposes as

a national or commercial, savings institution or

credit union with less than $100 million in assets.’’

See 13 CFR 121.201.

20 The final rule also requires banks to keep the

area where the bank conducts insurance

transactions physically separate from the areas

where retail deposits are routinely accepted from

the general public ‘‘to the extent practicable.’’ This

requirement, which is worded like the requirement

in the statute, leaves significant discretion to each

bank to determine what costs, if any, the bank must

incur in order to avoid customer confusion.

federal agencies either to provide a

Final Regulatory Flexibility Analysis

(FRFA) with a final rule or certify that

the final rule ‘‘will not, if promulgated,’’

have a significant economic impact on

a substantial number of small entities.

On the basis of the information

currently available, the FDIC believes

that this final rule is unlikely to have a

significant impact on a substantial

number of small entities. Because the

final rules implement new legislation,

however, the FDIC lacks historical

information specific to the requirements

in the final rules on which to base

estimates of cost. For this reason, the

FDIC has prepared the following FRFA.

Reasons, Objectives, and Legal Basis for

the Final Rule

hat this final rule is unlikely to have a

significant impact on a substantial

number of small entities. Because the

final rules implement new legislation,

however, the FDIC lacks historical

information specific to the requirements

in the final rules on which to base

estimates of cost. For this reason, the

FDIC has prepared the following FRFA.

Reasons, Objectives, and Legal Basis for

the Final Rule.

The FDIC is issuing this final rule to

implement section 47 of the FDIA. A

fuller discussion of the reasons for,

objectives of, and legal basis for, the

final rule appears elsewhere in the

Supplementary Information.

Description of the Small Entities to

Which the Final Rule Would Apply

The FDIC’s final rule applies to all

FDIC-insured, state-chartered banks that

are not members of the Federal Reserve

System (approximately 5800) and any

‘‘other person’’ who, at an office of the

bank or on behalf of the bank, sells,

solicits, advertises, or offers insurance

products or annuities to consumers. The

final rule applies regardless of the size

of the bank or other organization for

which a person worked. The FDIC

estimated in the preamble to the

proposed rule that approximately 3700

of this total are ‘‘small entities’’ as

defined by the RFA 19 We received no

comment on this estimate and believe it

to be accurate.

Reporting, Recordkeeping, and

Compliance Requirements of the Final

Rule

The final rule requires banks (and

entities acting on behalf of banks) to

amend the written materials and

Internet web sites they use in

connection with the retail sale,

solicitation, advertising, or offer of

insurance products and annuities to

consumers. The final rule also requires

banks (and entities acting on their

behalf) to obtain from consumers

acknowledgment that the consumer has

received certain disclosures. The

substance of these requirements is

described in detail elsewhere in the

Supplementary Information

es they use in

connection with the retail sale,

solicitation, advertising, or offer of

insurance products and annuities to

consumers. The final rule also requires

banks (and entities acting on their

behalf) to obtain from consumers

acknowledgment that the consumer has

received certain disclosures. The

substance of these requirements is

described in detail elsewhere in the

Supplementary Information. 20

The FDIC believes that most banks

will be able to satisfy the disclosure

provisions by including the information

required to be disclosed in their written

materials with minimal cost. We

estimate that most banks maintain a 3 to

4 month inventory of those materials.

This final rule will not become effective

until April 1, 2001, which should allow

ample time for most banks to use up

their inventory of printed materials and

prepare new materials. Nevertheless,

our analysis assumes that some banks

may need to amend the written

materials they have in inventory during

an interim period between the effective

date of the final rule and the next

regularly scheduled printing of those

materials because their inventories will

not be depleted during that time. These

banks—which are probably smaller

banks that order written materials

infrequently and in large quantities to

obtain reduced rates on printing—

would therefore incur costs as a result

of this requirement.

The primary cost associated with the

requirement that a bank obtain from the

consumer a written acknowledgment of

the consumer’s receipt of the

disclosures is, in the FDIC’s opinion,

likely to be the cost of developing the

written acknowledgment. Banks that

sell insurance products over the Internet

should, as part of a regularly scheduled

upgrade, be able to revise their web sites

to include a series of ‘‘click throughs’’

that will require affirmation from the

customer that he or she has received the

required disclosures

’s receipt of the

disclosures is, in the FDIC’s opinion,

likely to be the cost of developing the

written acknowledgment. Banks that

sell insurance products over the Internet

should, as part of a regularly scheduled

upgrade, be able to revise their web sites

to include a series of ‘‘click throughs’’

that will require affirmation from the

customer that he or she has received the

required disclosures.

Summary of Significant Issues Raised by

the Public Comments in Response to

Initial Regulatory Flexibility Analysis

and Description of Steps the Agency

Has Taken To Minimize Burden

The issues raised by the commenters

generally are described more fully in the

supplementary material provided above.

The issues that were raised by

commenters in connection with impact

on small businesses, specifically, were

the following:

• The requirement that a covered

person obtain a written

acknowledgment of receipt of

disclosures for a telephone transaction

could require significant effort and

additional correspondence if the

customer does not return the

acknowledgment with other paperwork

for the policy. This effort would be a

significant burden for small financial

institutions.

• The requirement that such

insurance as credit and mortgage

insurance be sold in an area of the office

separate from where deposits are

routinely taken poses a particular

hardship for small financial institutions

where deposits and loan applications

are taken at the same place.

The FDIC seriously considered how to

tailor the form of disclosures and

acknowledgments to the form of the

sales transaction and how to make the

record of acknowledgment functional,

within the statutory constraints. In the

case of telephone applications for credit,

the proposed rule permitted the anti-

coercion disclosure due at the time of

applications to be given orally and

followed with written disclosures

mailed within three days

tailor the form of disclosures and

acknowledgments to the form of the

sales transaction and how to make the

record of acknowledgment functional,

within the statutory constraints. In the

case of telephone applications for credit,

the proposed rule permitted the anti-

coercion disclosure due at the time of

applications to be given orally and

followed with written disclosures

mailed within three days. To extend the

principle more broadly, the final rule

applies this form of providing written

disclosures for telephone sales to all the

required disclosures. The timing has

been clarified to be three business days,

starting with the first business day after

the telephone transaction. With respect

to telephone sales, the final rule permits

an oral acknowledgment of the

disclosures if the covered person

documents the acknowledgment. In that

case, the final rule requires the covered

person also to make reasonable efforts to

obtain a written acknowledgment.

We have made an additional change

affecting disclosures relevant to sales

initiated by telephone. The proposed

rule limited the use of electronic

disclosures to those transactions taking

place entirely electronically.

Commenters were concerned that the

proposed rule did not permit electronic

disclosures to be used in transactions

that may have started with a telephone

contact. To address this concern, the

final rule provides that, if a transaction

involves telephone contact, but the

consumer affirmatively consents to

transmission of disclosures through

electronic media instead of on paper,

the covered person may provide the

‘‘written’’ disclosures electronically. Of

course, these electronic disclosures

must satisfy the rule’s requirement that

the format of disclosure be one that

permits the consumer to retain or to

obtain later, such as by printing or

storing electronically. Where

disclosures are made electronically, the

rule already provided that the consumer

could acknowledge them electronically

son may provide the

‘‘written’’ disclosures electronically. Of

course, these electronic disclosures

must satisfy the rule’s requirement that

the format of disclosure be one that

permits the consumer to retain or to

obtain later, such as by printing or

storing electronically. Where

disclosures are made electronically, the

rule already provided that the consumer

could acknowledge them electronically.

Electronic acknowledgment of

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Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

electronic disclosures applies under the

final rule to these mixed media

transactions, as well. The final rule also

provides that oral disclosures are not

required where disclosures are provided

electronically. This exception applies

not only to disclosures provided in the

sale of insurance and annuities as in the

proposed rule, but also to the anti-

coercion disclosure provided with

credit applications.

In response to the concern expressed

about the difficulty of separating

functions in a small office, we have

clarified in the preamble to this final

rule that generally the location where

deposits are routinely taken is the teller

window and teller line. This distinction

permits a depository institution to sell

insurance products and annuities from

the ‘‘platform area,’’ where loan

transactions may routinely be

conducted, if the savings association

distinguishes that area from the teller

window area. The regulation also

requires this segregation of functions

into separate areas ‘‘to the extent

practicable.’’ If it is not practicable for

a small institution to have separate

areas, it could make other efforts to

satisfy the separation of functions

between deposit taking and selling of

insurance

outinely be

conducted, if the savings association

distinguishes that area from the teller

window area. The regulation also

requires this segregation of functions

into separate areas ‘‘to the extent

practicable.’’ If it is not practicable for

a small institution to have separate

areas, it could make other efforts to

satisfy the separation of functions

between deposit taking and selling of

insurance.

We note that in addition to these

specific responses to concerns

expressed with reference to impact on

small entities, we have limited the

scope of the rule in other ways to

minimize compliance burdens. The

final rule:

• Only applies to retail sales,

solicitations, advertisements, or offers of

insurance products or annuities to

individuals purchasing for personal,

family, or household use. The Agencies

have determined, after requesting

comment on whether to also include

small business purchase, not to broaden

the coverage.

• Does not apply to subsidiaries of

depository institutions, except where

the subsidiaries are selling, soliciting,

advertising, or offering insurance

products or annuities to consumers at

an office of a bank or on behalf of a

bank. The FDIC is adopting this

approach even though, under section

47(a)(2) of FDIA, the FDIC could apply

the requirements to subsidiaries if it

determined that doing so was necessary

to ensure the consumer protections

provided by the statute.

• Clarifies the scope of the rule and

the definition of ‘‘you’’ to apply only to

transactions conducted by the person

that are by, at an office of, or on behalf

of, the bank.

• Defines ‘‘office’’ narrowly to

include only premises where retail

deposits are accepted from the public.

• Clarifies when certain disclosures

must be provided, including that a

disclosure such as ‘‘not insured by any

federal agency’’ is not to be given where

it would be inaccurate (as in the case of

federally-insured crop insurance or

flood insurance).

• Only requires the anti-coercion

disclosure to be made once, instead of

twice per transaction

ses where retail

deposits are accepted from the public.

• Clarifies when certain disclosures

must be provided, including that a

disclosure such as ‘‘not insured by any

federal agency’’ is not to be given where

it would be inaccurate (as in the case of

federally-insured crop insurance or

flood insurance).

• Only requires the anti-coercion

disclosure to be made once, instead of

twice per transaction.

• Provides flexibility for covered

persons to use a variety of means to

provide disclosures that are readily

understandable and call attention to the

information.

• Provides that, in the case of

telephone sales, the duty to obtain a

consumer’s acknowledgment of

receiving the disclosures may be

satisfied by an oral acknowledgment of

disclosures combined with reasonable

efforts to obtain a written

acknowledgment.

• Does not require disclosures in

advertisements of a general nature

describing or listing the services or

products offered by the bank.

• Provides for a delayed effective

date, requiring compliance by April 1,

2001, to permit adequate time to prepare

disclosures and acknowledgment

materials and train staff.

Significant Alternatives to the Final

Rule

Section 305 of the G–L–B Act

expressly prescribes the content of its

implementing regulations. The FDIC’s

final rule does not depart materially

from the requirements of the statute.

The statute does not authorize the FDIC

to provide exemptions or exceptions to

its requirements for small banks.

In preparing the final rule, the FDIC

has considered the burden on small

banks to the extent that it has the

discretion to do so. As set forth above

in the discussion of significant issues

raised in response to the Initial

Regulatory Flexibility Analysis, the

Agencies have modified the final rules

to minimize burden.

Duplicative, Overlapping, or Conflicting

Federal Rules

As used in the Interagency Statement,

the term ‘‘nondeposit investment

products,’’ includes some products,

such as annuities, that are covered by

section 47 of FDIA and these proposed

rules

ion of significant issues

raised in response to the Initial

Regulatory Flexibility Analysis, the

Agencies have modified the final rules

to minimize burden.

Duplicative, Overlapping, or Conflicting

Federal Rules

As used in the Interagency Statement,

the term ‘‘nondeposit investment

products,’’ includes some products,

such as annuities, that are covered by

section 47 of FDIA and these proposed

rules. The Interagency Statement

provides, among other things, that

institutions should disclose to

customers that such products are not

insured by the FDIC or the depository

institution and are subject to investment

risk including possible loss of principal.

It also provides that institutions should

obtain acknowledgments from

customers verifying that they have

received and understand the

disclosures. The Interagency Statement

further provides that retail sales or

recommendations of nondeposit

investment products should be

conducted in a location physically

distinct from where retail deposits are

taken, that nondeposit investment

product sales personnel should receive

adequate training, and that referral fees

should be limited. The final rules do not

appear to conflict materially with the

Interagency Statement.

OTS: The Regulatory Flexibility Act

(5 U.S.C. 601–612) requires federal

agencies to prepare a final regulatory

flexibility analysis (RFA) with a final

rule, unless the agency certifies that the

rule will not have a significant

economic impact on a substantial

number of small entities. OTS believes

that this rule will not have a significant

economic impact on a substantial

number of small thrifts or other small

entities because the burden imposed on

small entities stems in large part from

the G-L-B Act rather than from the final

rule. This final rule restates and clarifies

the statutory requirements. These

clarifications should reduce the burden

of complying with the G-L-B Act

provisions. OTS has revised the

proposed rule to reduce the regulatory

burden on financial institutions of all

sizes, as discussed below

s because the burden imposed on

small entities stems in large part from

the G-L-B Act rather than from the final

rule. This final rule restates and clarifies

the statutory requirements. These

clarifications should reduce the burden

of complying with the G-L-B Act

provisions. OTS has revised the

proposed rule to reduce the regulatory

burden on financial institutions of all

sizes, as discussed below. However,

OTS has prepared the following final

RFA, because the G-L-B Act creates

requirements that, in part, are new to

the OTS, the thrift industry, and others,

and because OTS is uncertain of the

economic impact of compliance with

the new requirements.

1. Statement of Need and Objectives

A description of the reasons why OTS

is adopting this final rule and a

statement of the objectives of, and legal

basis for, the final rule, are contained in

the supplementary materials provided

above.

2. Small Entities to Which the Final

Rule Would Apply

The final rule would apply to a

savings association or any ‘‘other

person’’ who, at an office of a savings

association or on behalf of a savings

association, sells, solicits, advertises, or

offers insurance products or annuities to

consumers. The final rule would apply

regardless of the size of the savings

association or other organization for

which a person worked.

Small savings associations are

generally defined, for Regulatory

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lls, solicits, advertises, or

offers insurance products or annuities to

consumers. The final rule would apply

regardless of the size of the savings

association or other organization for

which a person worked.

Small savings associations are

generally defined, for Regulatory

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75836

Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

Flexibility Act purposes, as those with

assets of $100 million or less. 13 CFR

121.201, Division H (2000). As of the

publication of the proposed rule, OTS

calculated that of the approximately

1,097 savings associations, a maximum

of 482 were small savings associations.

Currently, OTS calculates that of the

approximately 1,091 savings

associations, a maximum of 476 are

small savings associations. OTS

estimates that all of the small savings

associations sell, solicit, advertise, or

offer insurance products or annuities to

consumers.

OTS does not collect data on how

many ‘‘covered persons’’ that are not

savings associations sell, solicit,

advertise, or offer insurance products or

annuities to consumers at an office of a

savings association or on behalf of a

savings association, or on how many of

them are small entities. The initial RFA

published in the proposed rule sought

information about impact on entities

other than savings associations affected

by the rule to permit OTS to better

analyze the effect. Although OTS

received comments on the proposed

rule from insurance industry

representatives, who might have data

with respect to their members, none of

them provided information on the

number or size of entities other than

savings associations affected by the rule.

As a result, OTS is unable to determine

the number or size of entities other than

savings associations affected by this

final rule.

3

Although OTS

received comments on the proposed

rule from insurance industry

representatives, who might have data

with respect to their members, none of

them provided information on the

number or size of entities other than

savings associations affected by the rule.

As a result, OTS is unable to determine

the number or size of entities other than

savings associations affected by this

final rule.

3. Significant Issues Raised in Response

to Initial Regulatory Flexibility Analysis

and Changes Made To Minimize Burden

The issues raised by the commenters

generally are described more fully in the

supplementary material provided above.

The issues that were raised by

commenters in connection with impact

on small businesses, specifically, were

the following:

• The requirement that a covered

person obtain a written

acknowledgment of receipt of

disclosures for a telephone transaction

could require significant effort and

additional correspondence if the

customer does not return the

acknowledgment with other paperwork

for the policy. This effort would be a

significant burden for small financial

institutions.

• The requirement that such

insurance as credit and mortgage

insurance be sold in an area of the office

separate from where deposits are

routinely taken poses a particular

hardship for small financial institutions

where deposits and loan applications

are taken at the same place.

OTS seriously considered how to

tailor the form of disclosures and

acknowledgments to the form of the

sales transaction and how to make the

record of acknowledgment functional,

within the statutory constraints. In the

case of telephone applications for credit,

the proposed rule permitted the

disclosure on anti-tying due at the time

of applications to be given orally and

followed with written disclosures by

mail, provided that the written

disclosures were mailed within three

days. To extend the principle more

broadly, the final rule applies this form

of providing written disclosures for

telephone sales to all the required

disclosures

ications for credit,

the proposed rule permitted the

disclosure on anti-tying due at the time

of applications to be given orally and

followed with written disclosures by

mail, provided that the written

disclosures were mailed within three

days. To extend the principle more

broadly, the final rule applies this form

of providing written disclosures for

telephone sales to all the required

disclosures. The timing has been

clarified to be three business days,

starting with the first business day after

the telephone transaction. With respect

to telephone sales, the final rule permits

an oral acknowledgment of the

disclosures if the covered person

documents the acknowledgment. In that

case, the final rule requires the covered

person to make reasonable efforts to

obtain a written acknowledgment, as

well.

We have made an additional change

affecting disclosures relevant to sales

initiated by telephone. In response to

concerns expressed about the proposed

rule’s limitation of using electronic

disclosures to those transactions taking

place entirely electronically, and not

permitting them to be used in

transactions that may have started with

a telephone contact, we have removed

that limitation. Thus, if a transaction

involves telephone contact, but the

consumer affirmatively consents to

transmission of disclosures through

electronic media instead of on paper,

the covered person may provide the

‘‘written’’ disclosures electronically. Of

course, these electronic disclosures

must satisfy the rule’s requirement that

the format of disclosure be one that

permits the consumer to retain or to

obtain later, such as by printing or

storing electronically. Where

disclosures are made electronically, the

rule already provided that the consumer

could acknowledge them electronically.

Electronic acknowledgment of

electronic disclosures applies under the

final rule to these mixed media

transactions, as well. The final rule also

provides that oral disclosures are not

required where disclosures are provided

electronically

printing or

storing electronically. Where

disclosures are made electronically, the

rule already provided that the consumer

could acknowledge them electronically.

Electronic acknowledgment of

electronic disclosures applies under the

final rule to these mixed media

transactions, as well. The final rule also

provides that oral disclosures are not

required where disclosures are provided

electronically. This exception applies

not only to disclosures provided in the

sale of insurance and annuities as in the

proposed rule, but also to the anti-

coercion disclosure provided with

credit applications.

In response to the concern expressed

about the difficulty of separating

functions in a small office, we have

clarified in the preamble to this final

rule that generally the location where

deposits are routinely taken is the teller

window and teller line. This distinction

permits a savings association to sell

insurance products and annuities from

the ‘‘platform area’’ where loan

transactions may routinely be

conducted, if the savings association

distinguishes that area from the teller

window area. The regulation also

requires this segregation of functions

into separate areas ‘‘to the extent

practicable.’’ If it is not practicable for

a small institution to have separate

areas, it could make other efforts to

satisfy the separation of functions

between deposit taking and selling of

insurance.

We note that in addition to these

specific responses to concerns

expressed with reference to impact on

small entities, we have limited the

scope of the rule in other ways to

minimize compliance burdens. The

final rule:

• Only applies to retail sales,

solicitations, advertisements, or offers of

insurance products or annuities to

individuals purchasing for personal,

family, or household use. The Agencies

have determined, after requesting

comment on whether to also include

small business purchase, not to broaden

the coverage

limited the

scope of the rule in other ways to

minimize compliance burdens. The

final rule:

• Only applies to retail sales,

solicitations, advertisements, or offers of

insurance products or annuities to

individuals purchasing for personal,

family, or household use. The Agencies

have determined, after requesting

comment on whether to also include

small business purchase, not to broaden

the coverage.

• Does not apply to subsidiaries of

depository institutions, except where

the subsidiaries are selling, soliciting,

advertising, or offering insurance

products or annuities to consumers at

an office of a savings association or on

behalf of a savings association. OTS is

adopting this approach even though,

under section 47(a)(2) of FDIA, OTS

could apply the requirements to

subsidiaries if it determined that doing

so was necessary to ensure the

consumer protections provided by the

statute.

• Clarifies the scope of the rule and

the definition of ‘‘you’’ to apply only to

transactions conducted by the person

that are by, at an office of, or on behalf

of, the savings association.

• Defines ‘‘office’’ narrowly to

include only premises where retail

deposits are accepted from the public.

• Clarifies when certain disclosures

must be provided, including that a

disclosure such as ‘‘not insured by any

federal agency’’ is not to be given where

it would be inaccurate (as in the case of

federally-insured crop insurance or

flood insurance).

• Only requires the anti-coercion

disclosure to be made once, instead of

twice per transaction.

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disclosure such as ‘‘not insured by any

federal agency’’ is not to be given where

it would be inaccurate (as in the case of

federally-insured crop insurance or

flood insurance).

• Only requires the anti-coercion

disclosure to be made once, instead of

twice per transaction.

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75837

Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

• Provides flexibility for covered

persons to use a variety of means to

provide disclosures that are readily

understandable and call attention to the

information.

• Provides that, in the case of

telephone sales, the duty to obtain a

consumer’s acknowledgment of

receiving the disclosures may be

satisfied by an oral acknowledgment of

disclosures combined with reasonable

efforts to obtain a written

acknowledgment.

• Does not require disclosures in

advertisements of a general nature

describing or listing the services or

products offered by the savings

association.

• Provides for a delayed effective

date, requiring compliance by April 1,

2001, to permit adequate time to prepare

disclosures and acknowledgment

materials and train staff.

4. Projected Reporting, Recordkeeping

and Other Compliance Requirements

While the scope of the final rule

implementing section 47 of FDIA is

unique, there is some overlap with

certain prior guidance and Federal

statutes and rules. As used in the

Interagency Statement on Retail Sales of

Nondeposit Investment Products

(February 15, 1994) (‘‘Interagency

Statement’’), the term ‘‘nondeposit

investment products’’ includes some

products, such as annuities, that are

covered by section 47 of FDIA and this

final rule. The Interagency Statement

provides, among other things, that

institutions should disclose to

customers that such products are not

insured by the FDIC or the depository

institution and are subject to investment

risk including possible loss of principal

, the term ‘‘nondeposit

investment products’’ includes some

products, such as annuities, that are

covered by section 47 of FDIA and this

final rule. The Interagency Statement

provides, among other things, that

institutions should disclose to

customers that such products are not

insured by the FDIC or the depository

institution and are subject to investment

risk including possible loss of principal.

It also provides that institutions should

obtain acknowledgments from

customers verifying that they have

received and understand the

disclosures. The Interagency Statement

further provides that retail sales or

recommendations of nondeposit

investment products should be

conducted in a location physically

distinct from where retail deposits are

taken, that nondeposit investment

product sales personnel should receive

adequate training, and that referral fees

should be limited.

Other federal authorities that overlap

with the final rule include the statutory

prohibition on tying arrangements in

section 5(q) of the Home Owners’ Loan

Act (12 U.S.C. 1464(q)), and OTS’s

regulation prohibiting advertising that is

inaccurate or makes misrepresentations

(12 CFR 563.27). State consumer

protection rules also may apply to sales,

solicitations, advertisements, and offers

of insurance products or annuities. The

final rule does not appear to conflict

materially with the Interagency

Statement or these other authorities.

As a result of the overlap of the rule’s

requirements with the provisions of the

Interagency Statement and other federal

authorities discussed above, many

savings associations and other persons

may already be partly or fully prepared

to meet the requirements of the final

rule. Persons selling, soliciting,

advertising, or offering insurance

products or annuities may have to revise

printed materials and modify Internet

web sites

the rule’s

requirements with the provisions of the

Interagency Statement and other federal

authorities discussed above, many

savings associations and other persons

may already be partly or fully prepared

to meet the requirements of the final

rule. Persons selling, soliciting,

advertising, or offering insurance

products or annuities may have to revise

printed materials and modify Internet

web sites. Compliance with other

requirements, such as the prohibition on

domestic violence discrimination, will

call for similar types of resources as are

used to comply with other existing

nondiscrimination statutes such as the

Equal Credit Opportunity Act, 15 U.S.C.

1691–1691f, and the Fair Housing Act,

42 U.S.C. 3601 et seq. Covered persons

may need to provide further training or

additional personnel, including

personnel skilled in clerical, computer,

compliance, and legal matters. The

delayed effective date of the final rule

should provide adequate time for the

affected parties to develop revised

materials and to modify web sites, as

necessary.

5. Significant Alternatives

The requirements in the final rule

parallel those in section 47 of FDIA. The

final rule clarifies the statutory

requirements in some areas and restates

the requirements in a more

understandable manner in other areas.

The final rule does not impose any

requirements that differ substantially

from the statute. Since the requirements

are set by statute, OTS has only limited

discretion to consider alternatives. To

the extent that OTS does have

discretion, it has exercised that

discretion to minimize the burden as

discussed in section 3 above.

Congress has decided that ‘‘any

depository institution’’ and ‘‘any

person’’ that is engaged in retail sales,

solicitations, advertising, or offers of

insurance products (or annuities), at the

office or on behalf of a depository

institution, must comply with these

disclosure requirements. The G-L-B Act

does not expressly authorize OTS to

exempt small savings associations,

affiliates, or persons from these

requirements

that ‘‘any

depository institution’’ and ‘‘any

person’’ that is engaged in retail sales,

solicitations, advertising, or offers of

insurance products (or annuities), at the

office or on behalf of a depository

institution, must comply with these

disclosure requirements. The G-L-B Act

does not expressly authorize OTS to

exempt small savings associations,

affiliates, or persons from these

requirements. OTS does not interpret

the statute to permit such an exemption.

C. Executive Order 12866

OCC: The OCC has determined that

this final rule does not constitute a

‘‘significant regulatory action’’ for the

purposes of Executive Order 12866.

While the OCC’s cost estimates are

necessarily imprecise because the

requirements included in the final rule

result from new legislation, under the

most conservative cost scenarios that

the OCC can develop on the basis of

available information, the impact of the

final rule falls well short of the

thresholds established by the Executive

Order.

OTS: OTS has determined that this

final rule does not constitute a

‘‘significant regulatory action’’ for the

purposes of Executive Order 12866. The

rule follows closely the requirements of

section 305 of the G–L–B Act. Since the

G–L–B Act establishes the minimum

requirements for this activity, OTS has

little discretion to propose regulatory

options that might significantly reduce

costs or other burdens. OTS believes

that the impact of the rule would not

meet the thresholds of the Executive

Order, and consequently OMB review is

not necessary.

D. Unfunded Mandates Act of 1995

Section 202 of the Unfunded

Mandates Reform Act of 1995, 2 U.S.C.

1532 (Unfunded Mandates Act),

requires that an agency prepare a

budgetary impact statement before

promulgating any rule likely to result in

a Federal mandate that may result in the

expenditure by State, local, and tribal

governments, in the aggregate, or by the

private sector, of $100 million or more

in any one year

ates Act of 1995

Section 202 of the Unfunded

Mandates Reform Act of 1995, 2 U.S.C.

1532 (Unfunded Mandates Act),

requires that an agency prepare a

budgetary impact statement before

promulgating any rule likely to result in

a Federal mandate that may result in the

expenditure by State, local, and tribal

governments, in the aggregate, or by the

private sector, of $100 million or more

in any one year. If a budgetary impact

statement is required, section 205 of the

Unfunded Mandates Act also requires

the agency to identify and consider a

reasonable number of regulatory

alternatives before promulgating the

rule. However, an agency is not required

to assess the effects of its regulatory

actions on the private sector to the

extent that such regulations incorporate

requirements specifically set forth in

law. 2 U.S.C. 1531. Section 305(e) of the

G–L–B Act imposes the requirements

contained in the final rules concerning

domestic violence even without the

issuance of regulations. Sections 305(a)–

(d) of the G–L–B Act direct the Agencies

to issue regulations implementing

disclosure requirements and

requirements to segregate the areas in

which insurance activities are

conducted from the areas where

deposits are routinely accepted. The

burden the rules place on the private

sector is almost entirely attributable to

the G–L–B Act. Therefore, the OCC and

OTS have determined that the final

rules will not result in expenditures by

State, local, and tribal governments, in

the aggregate, or by the private sector, of

$100 million or more in any one year.

Accordingly, the OCC and OTS have not

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he G–L–B Act. Therefore, the OCC and

OTS have determined that the final

rules will not result in expenditures by

State, local, and tribal governments, in

the aggregate, or by the private sector, of

$100 million or more in any one year.

Accordingly, the OCC and OTS have not

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Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Rules and Regulations

prepared a budgetary impact statement

or specifically addressed the regulatory

alternatives considered.

E. Executive Order 13132—Federalism

OCC: Executive Order 13132 imposes

certain requirements when an agency

issues a regulation that has federalism

implications or that preempts State law.

Under the Executive Order, a regulation

has federalism implications if it has

substantial direct effects on the States,

on the relationship between the national

government and the States, or on the

distribution of power and

responsibilities among the various

levels of government. In general, the

Executive Order requires the agency to

adhere strictly to federal constitutional

principles in developing rules that have

federalism implications; provides

guidance about an agency’s

interpretation of statutes that authorize

regulations that preempt State law; and

requires consultation with State officials

before the agency issues a final rule that

has federalism implications or that

preempts State law.

This final rule satisfies the

requirements of the Executive Order. If

an agency promulgates a regulation that

has federalism implications and

preempts State law, the Executive Order

imposes upon the agency requirements

to consult with State and local officials;

to publish a ‘‘federalism summary

impact statement,’’ and to make written

comments from State and local officials

available to the Director of the Office of

Management and Budget (OMB)

the Executive Order. If

an agency promulgates a regulation that

has federalism implications and

preempts State law, the Executive Order

imposes upon the agency requirements

to consult with State and local officials;

to publish a ‘‘federalism summary

impact statement,’’ and to make written

comments from State and local officials

available to the Director of the Office of

Management and Budget (OMB).

In the OCC’s opinion, it is not clear

that Executive Order 13132 applies to

the OCC’s rules implementing section

305 of the G–L–B Act because the

statute itself directs most of the

significant policy choices that the

Agencies have made—that is, the statute

expressly prescribes both the

substantive content and the preemptive

effect of the rules. Moreover, the impact

of the language of the express

preemption provision in section 305 is

to preserve State laws, subject to certain

exceptions, rather than to preempt

them. Under that provision, the

insurance customer protections in the

Agencies’ rules generally will not have

preemptive effect in a State where the

State has in effect statutes, rules,

regulations, orders, or interpretations

that are inconsistent with or contrary to

the regulations prescribed by the

Agencies unless a provision in the

Agencies’ rules affords greater

protection to customers than is afforded

by a comparable State law. Section 305

prescribes a process for the Agencies to

use in order to determine jointly

whether a provision in the Agencies’

regulations satisfies this ‘‘greater

protection’’ standard. If the Agencies

make that joint determination, and

provide written notice to the affected

State that its law is preempted, then that

provision of State law will be

preempted unless, within 3 years after

the date that the Agencies issue the

written notice, the State adopts

legislation that overrides the

preemption

rovision in the Agencies’

regulations satisfies this ‘‘greater

protection’’ standard. If the Agencies

make that joint determination, and

provide written notice to the affected

State that its law is preempted, then that

provision of State law will be

preempted unless, within 3 years after

the date that the Agencies issue the

written notice, the State adopts

legislation that overrides the

preemption.

As we indicated in the

Supplementary Information that

accompanied the proposal, the

federalism implications and the

preemptive effect of the OCC’s rules

implementing section 305 depend, in

the first instance, on how the Agencies’

final rules compare with a particular

State’s laws and, ultimately, on whether

a State adopts the ‘‘opt-out’’ legislation

that section 305 permits.

Separately, section 305 of the G–L–B

Act requires the Agencies to consult

with State insurance regulators before

issuing final implementing regulations.

As described elsewhere in the

Supplementary Information, the OCC

and the other Agencies have consulted

with the NAIC in preparing this final

rule. The Agencies have provided the

OMB a copy of the NAIC’s written

comments on the proposed rule.

OTS: Executive Order 13132 imposes

certain requirements on an agency when

formulating and implementing policies

that will have substantial direct effects

on the States, on the relationship

between the national government and

the States, or on the distribution of

power and responsibilities among the

various levels of government, or taking

actions that preempt state law. Section

47(g) of FDIA, 12 U.S.C

: Executive Order 13132 imposes

certain requirements on an agency when

formulating and implementing policies

that will have substantial direct effects

on the States, on the relationship

between the national government and

the States, or on the distribution of

power and responsibilities among the

various levels of government, or taking

actions that preempt state law. Section

47(g) of FDIA, 12 U.S.C. 1831x, as added

by section 305 of the G–L–B Act,

provides that the insurance consumer

protections in the Agencies’ rules

generally will not apply to retail sales

practices, solicitations, advertising, or

offers of any insurance product or

annuity to a consumer by any savings

association or any person that is

engaged in such activities at an office of

the savings association or on behalf of

the savings association in a State where

the State has in effect statutes,

regulations, orders, or interpretations

that are inconsistent with or contrary to

the provisions of the federal regulations.

However, if the federal regulations

afford greater protection for insurance

consumers than a comparable State law,

rule, regulation, order, or interpretation,

the State provision may be preempted

by the Board, the OCC, and the FDIC in

accordance with certain specified

procedures described in greater detail in

the OCC’s statement on Executive Order

13132 above.

OTS has determined that application

of these statutorily-mandated provisions

will have federalism implications and

may result in the preemption of state

law. Section 47(a) of FDIA obligates

OTS to issue this regulation to

implement section 305 of the G–L–B

Act, which includes section 47(g) of

FDIA. Consistent with section 47(a)(3)

of FDIA and section 6(c) of Executive

Order 13132, OTS and the other

Agencies have consulted with the

National Association of Insurance

Commissioners (NAIC), as indicated in

the Supplementary Information

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