Banks Must Prepare Consumers.

Regulators outline rules for selling insurance through bank branches. And, an all-inclusive ergonomics lawsuit will be heard in Washington, D.C.

Banks, thrifts and their subsidiaries must begin telling consumers April 1 that insurance products aren't guaranteed the way deposits are, according to a final rule approved by federal banking regulators.

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corp. and the Treasury Department's Office of the Comptroller of the Currency and Office of Thrift Supervision approved the consumer-protection rules Dec. 4.

"We feel pretty good about the regulations," said Ken Reynolds, executive director of the Washington, D.C.-based Association of Banks-In-Insurance. "We're somewhat concerned with the implementation date, but our feeling is the handwriting has been on the wall long enough, so most organizations will be able to comply by that date, regardless of size."

As required by the federal Gramm-Leach-Bliley financial-services reform act passed in 1999, the banking regulators have published the rules in the Federal Register. They apply to any depository institution or any 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.

Also as required by Gramm-Leach-Bliley, the banking regulators consulted with the National Association of Insurance Commissioners in devising the rules. One area of particular interest to the NAIC is that the rules make clear that anyone selling insurance in a banking institution has to be licensed by the state and comply with state insurance regulations.

One anti-coercion regulation forbids any practice that would lead consumers to believe that approval for a bank loan is conditioned upon their buying insurance or an annuity. Banks also cannot make a consumer agree not to buy insurance or an annuity from another institution as part of a loan approval.

Disclosures to protect consumers are a key component of the new rules. Banks must clearly disclose to consumers that the insurance or annuity isn't a deposit, isn't insured by the FDIC or by any federal government agency and isn't guaranteed by the bank or savings association.

In the case of an insurance product or annuity that involves an investment risk, the bank must state that there is an investment risk associated with the product, including the possibility that the product may decrease in value.

Disclosures must be made orally and in writing before the sale is final. Sales by mail are exempt from the oral disclosure requirement, and the regulations allow electronic disclosures as long as the consumer agrees to receive them electronically. Electronic sales also are exempt from the oral-disclosure requirement.

The regulations also require banks to receive acknowledgment from the consumers verifying that they received and understand the disclosure.

The disclosures apply to the initial purchase of an insurance product or annuity. New disclosures aren't required when a person renews a contract, but new disclosures are required when a different insurance or annuity product is purchased.

The location of insurance sales and payment of referral fees also are addressed in the final rule. Banks must keep insurance and annuity sales activities physically separated from the areas where retail deposits are routinely accepted from the general public. In addition, bank employees may refer a consumer looking to buy insurance or annuities to a qualified salesperson. The referral fee may be no more than a one-time, nominal fee that doesn't depend on whether the referral results in a transaction.

When the rule was in its draft stage, Reynolds said bankers were concerned with wording that called for any agent acting on behalf of the bank to adhere to these disclosures. But regulators "pulled back" on the definition of what would be defined as a sale on behalf of a bank. "Now, a simple referral to a nonaffiliated agency would not be defined as a sale being done on behalf of the bank," Reynolds said.

Ergonomics Lawsuits Consolidated

Lawsuits filed against the Occupational Safety and Health Administration regarding its ergonomics standard have been consolidated and will be heard by the U.S. Circuit Court of Appeals for the District of Columbia.

Among the lawsuits is one by the National Coalition on Ergonomics, which was joined by the Alliance of American Insurers. There is no change in courts, since it was originally filed in the Washington circuit.

Attorney Baruch Fellner, a partner with the Washington law firm of Gibson Dunn & Crutcher LLP, said he also filed lawsuits on behalf of the National Association of Manufacturers and more than 60 other petitioning associations and companies challenging the new OSHA standard.

Dennis Kelly is Washington bureau manager.