I. INTRODUCTION
On December 4, 2000, the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (FRS), Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS) (collectively referred to as “federal regulators”) published rules relating to consumer protections for depository institution sales of insurance. The rules implement § 305 of the Gramm-Leach-Bliley Act (GLBA). For purposes of the rule, the term “depository institution” includes national banks, state member banks, state nonmember banks and savings associations.
The rules establish consumer protections with respect to retail sales practices, solicitations, advertising and offers of insurance products and annuities by depository institutions. The rules apply equally to persons selling on behalf of a depository institution or in an office in a depository institution, including depository institution affiliates and subsidiaries. The rules further prohibit certain practices, establish certain disclosure requirements, determine where insurance activities may take place, and require that depository institution employees obtain any applicable insurance license required by state law.
II. DEFINITIONS
Some of the more important definitions contained within the rules, along with some terms that were purposefully not defined, include the following:
A. Consumer
The rules apply to transactions involving “consumers.” The term “consumer” means an individual who purchases, applies to purchase or is solicited to purchase from a “covered person” insurance products or annuities primarily for personal, family, or household purposes (
B. Covered Persons
Persons covered by the rule are:
1. A bank; or
2. Any other person (including a subsidiary or other affiliate) when that person sells, solicits, advertises or offers an insurance product or annuity to a consumer at an office of a bank or on behalf of a bank. A person’s activities are “on behalf of a bank” if:
a. 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 bank;
b. The bank refers a consumer to a seller of insurance products or annuities and has a contractual arrangement to receive commissions or fees derived from the sale; or
c. Documents evidencing the sale, solicitation, advertising, or offer of an insurance product or annuity identify or refer to the bank.
NOTE: Only the OCC regulation uses the term “covered person.” The FRS, FDIC and OTS regulations refer to a covered person as “you.”
C. Domestic Violence
“Domestic violence” means the occurrence of one or more of the following acts by a current or former family member, household member, intimate partner, or caretaker:
D. Electronic Media
The term “electronic media” includes 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, for example, a personal computer monitor.
E. Office
An “office” is defined as the premises of the depository institution where retail deposits are accepted from the public.
F Insurance Product
The rule acknowledges that there is no single standard for determining the term “insurance” in that its definition may vary significantly depending on the context in which it is used. Therefore, the rule contains no definition of “insurance product.” Rather, the rule indicates that federal regulators will look to a variety of sources in determining whether a given product is covered, including § 302 of GLBA, common usage, conventional definitions, judicial interpretations and other federal laws. Section 302 of GLBA defines insurance as any product regulated as insurance by state insurance law as of January 1, 1999. It further states that insurance includes any product first offered after January 1, 1999, that a state insurance regulator determines shall be regulated because the product “insures, guarantees, or indemnifies against liability, loss of life, loss of health, loss through damage to or destruction of property, including but not limited to, surety bonds, life insurance, health insurance, title insurance, and property and casualty insurance.”
The banking industry requested that the rule exclude credit, property and casualty insurance from coverage because banks have traditionally sold these products and these products do not have an investment component. The federal regulators chose not exclude these products and they are covered under the rule.
NOTE: Purchases of “forced place” insurance are not covered by the rules since such purchases are made by the bank to protect the loan collateral and not by the consumer. This would include private mortgage insurance (PMI) if the bank itself purchases the insurance to protect its interest and merely passes the cost of the PMI on to its borrower.
III. PROHIBITED PRACTICES
For consumer protection purposes, the rule prohibits certain practices, including coercion, misrepresentation and domestic violence discrimination. Activities prohibited in a covered transaction include:
A. Anti-Coercion and Anti-Tying
A covered person cannot engage in any practice that would lead a consumer to believe that an extension of credit is conditioned upon either:
B. Misrepresentations
A covered person may not engage in any practice or use any advertisement at any office of, or on behalf of, the depository institution or its subsidiary that could mislead any person or otherwise cause a reasonable person to reach an erroneous belief with respect to:
1. The fact that an insurance product or annuity sold or offered by sale by a covered person or any bank subsidiary is not backed by the Federal government or the bank, or the fact that the insurance product or annuity is not insured by the FDIC;
2. In the case of an insurance product or annuity that involves investment risk, the fact that there is an investment risk including the potential that principal may be lost and that the product may decline in value; or
3. In the case of a bank or bank subsidiary in which insurance products or annuities are sold or offered for sale, the fact that:
a. The approval of credit to a consumer may not be conditioned on the purchase of an insurance product or annuity by the consumer from the bank or a bank subsidiary; and
b. The consumer is free to purchase the insurance product or annuity from another source.
C. Domestic Violence Discrimination
A covered person may not sell or offer 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 service 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.
IV. DISCLOSURE REQUIREMENTS
The rule requires depository institutions to provide disclosures in connection with the sale of insurance products. The depository institution may be required to provide two separate disclosures to consumers.
A. Anti-Coercion Disclosures
The first disclosure applies when a depository institution offers or sells insurance products in connection with a loan transaction. When an insurance product or annuity is solicited, offered or sold in connection with an application for credit, a covered person must disclose that the depository institution may not condition an extension of credit on the consumer’s purchase of an insurance product or annuity. A covered person must also disclose that the depository institution may not condition the extension of credit on either a prohibition on the consumer from obtaining, or the consumer’s agreement not to obtain, an insurance product or annuity from an unaffiliated entity. Depository institutions must provide these disclosures orally and in writing when the consumer applies for an extension of credit in connection with which an insurance product or annuity will be solicited, offered or sold.
B. Insurance Disclosures
The second disclosure is designed to help ensure that consumers understand the difference between an insured deposit account and an insurance product. To the extent accurate, a covered person must disclose to the consumer that the insurance product or annuity is not a deposit or other obligation of the depository institution or guaranteed by the depository institution or its affiliates; is not insured by the FDIC, any other federal agency, the depository institution or an affiliate; and that there is an investment risk associated with the product, including the possible loss of value. Depository institutions must provide the insurance disclosures orally and in writing before the sale of the insurance product is completed.
A covered person must disclose both orally and in writing, except to the extent that the disclosure would not be accurate, that:
NOTE: The federal regulators recognize the disclosure that the insurance is not insured “by any other agency of the united states” would not be accurate, and therefore not required, in the case of federal crop insurance and federal flood insurance, both of which are insured by United States agencies. Disclosure that the insurance product or annuity is not insured by the FDIC would be required in connection with the sale of any insurance product or annuity to prevent possible confusion about the nature of the product offered.
NOTE: Following this article are sample forms (Exhibits A and B) that may assist in complying with the anti-coercion disclosures and insurance disclosures to consumers requirements.
C. Timing of Disclosures
1. Insurance Disclosures
The insurance disclosures must be provided both orally and in writing before completion of the initial sale of the insurance product or annuity to a consumer.
2. Anti-Coercion Disclosures
The disclosures concerning the prohibition on tying and extension of credit to an insurance product or annuity purchase 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.
Since the insurance disclosures are required in connection with the initial purchase of an insurance product or annuity, new disclosures are not required if a consumer merely renews an insurance product or annuity (a “renewal” of insurance means continuation of coverage involving the same type of insurance for a consumer). Disclosures are required, however, if the consumer purchases a different insurance product or annuity.
D. Method of Disclosures
While the general rule stated above is that both the insurance disclosures and anti-coercion disclosures must be both provided orally and in writing, oral disclosures are not required when either:
When the sale is conducted by telephone, the oral disclosures must be provided before completion of the sale, and the written disclosures must be mailed to the consumer within three business days (“a business day” is every calendar day except for Sundays and the federal holidays specified in 5 U.S.C. 6103(a)) beginning on the first business day after the sale.
A covered person is required to make affirmative disclosures in connection with the initial purchase of an insurance product or annuity by a consumer. The covered person must provide consumers with an oral and written disclosure before the completion of the sale. A written acknowledgement that the consumer has received the disclosures must also be obtained.
Subject to the “Electronic Signatures and Global and National Commerce Act” (E-Sign Act) the insurance and anti-coercion disclosures may be provided electronically if certain conditions are met. If the disclosures are provided by electronic media, they are not required to be given orally. The insurance disclosures and anti-coercion disclosures may be provided through electronic media instead of on paper if:
E. Consumer Acknowledgement
A covered person must obtain from the consumer, an acknowledgement that the disclosures have been received. The acknowledgement must be obtained at the time of the initial purchase or at the time the consumer has received the disclosures. The consumer’s acknowledgement of receipt may be in paper form or electronically.
When the sale is conducted by telephone, the covered person must:
NOTE: The federal regulators have not prescribed steps to be taken in order to consider the depository institution’s efforts to be “reasonable.” Examples of reasonable efforts include, providing the consumer a return-address envelope or similar means to facilitate the consumer’s return of the written acknowledgement, making a follow-up phone call or contact, sending a second mailing or similar actions. A covered person should maintain documentation that the written disclosures and the request for written acknowledgement of receipt of those disclosures were mailed to the consumer, and should record its efforts to obtain the signed acknowledgement.
F. Disclosures Must be Meaningful and Readily Understandable
The rule requires the disclosures to be conspicuous, simple, direct and readily understandable and designed to call attention to the nature and significance of information provided. Examples what may be used to call attention to the nature and significance of the disclosures include:
1. A plain-language heading to call attention to the disclosure;
2. A typeface and type size that is easy to read;
3. Wide margins and ample line spacing;
4. Boldface or italics for key words; and
5. Distinctive type size, style, and graphic devices, such as shading or sidebars, when the disclosures are combined with other information.
The rule states that 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.
Disclosures made through electronic media are not meaningfully if the consumer may bypass the visual text of the disclosure before purchasing an insurance product or annuity.
G. Advertisements and Promotional Materials for Insurance Products or Annuities The rules allow banks to provide abbreviated disclosures for visual media, such as television, ATM screens, billboards, signs, posters, and written advertisements and promotional materials, such as brochures. The “short-form” disclosures which may be used, as appropriate, include the following: Not a deposit; Not FDIC-insured; Not insured by any federal government agency; Not guaranteed by the bank; or May go down in value. V. WHERE INSURANCE ACTIVITIES MAY TAKE PLACE A. General Rule To the extent practical, a depositor institution must conduct transactions involving the sale of insurance or annuities separate from the area where retail deposits are routinely accepted from the public, identify the areas where insurance products or annuities sales occur and clearly delineate those areas from the areas where the retail deposit-taking activities occur (presumed to be the traditional teller windows and teller lines). B. Referrals A person who accepts deposits from the public in the area where such transactions routinely occur (i.e., at a teller window or line) may refer a consumer seeking to purchase an insurance product or annuity to a qualified person who sells the product only if: The person making the referral receives no more than a one-time, nominal fixed-dollar amount for each referral; or The fee does not depend on whether the referral results in a transaction. VI. QUALIFICATION AND LICENSING REQUIREMENTS 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 appropriately qualified and licensed under applicable state law regarding the specific products being sold or recommended. VII. CONCLUSION On or after October 1, 2001, depository institutions that sell insurance products or annuities must apply the above-outlined rule. Procedures should be reviewed and modified to ensure compliance with the requirements of the rule. EXHIBIT AIMPORTANT INSURANCE DISCLOSURE Insurance products and annuities: Are not a deposit or other obligation of, or guaranteed by, the bank or any affiliate of the bank; Are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency of the United States, the bank, or any affiliate of the bank; [Involve investment risk, including the possible loss of value.] Note: This disclosure may not be required for all products. Please sign to acknowledge receipt of these disclosures: Name of Customer: _________________________________________ Customer Signature: ________________________________________ Date: ________________________________ NOTE: The disclosure set forth above should be utilized in connection with the initial purchase of insurance or annuity products that are not sold in connection with an extension of credit. EXHIBIT B IMPORTANT CREDIT AND INSURANCE DISCLOSURE In connection with your credit application, [name of bank or savings association] advises you of the following: [Name of bank or savings association] may not condition the extension of credit you are applying of on whether you purchase an insurance product annuity from the bank or the bank’s affiliate. [Name of bank or savings association] may not condition the extension of credit you are applying for on you agreement not to obtain, or a prohibition on your obtaining, an insurance product or annuity from an entity not affiliated with the bank. Insurance products and annuities: Are not a deposit or other obligation of, or guaranteed by, the bank or any affiliate of the bank; Are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency of the United States, the bank, or any affiliate of the bank; [Involve investment risk, including the possible loss of value.] Note: This disclosure may not be required for all products. Please sign to acknowledge receipt of these disclosures: Name of Customer: _________________________________________Customer Signature: ________________________________________ Date: ________________________________ NOTE: The disclosure set forth above should be utilized in connection with insurance products that are solicited, offered or sold in connection with an extension of credit.
The rules allow banks to provide abbreviated disclosures for visual media, such as television, ATM screens, billboards, signs, posters, and written advertisements and promotional materials, such as brochures. The “short-form” disclosures which may be used, as appropriate, include the following:
V. WHERE INSURANCE ACTIVITIES MAY TAKE PLACE A. General Rule To the extent practical, a depositor institution must conduct transactions involving the sale of insurance or annuities separate from the area where retail deposits are routinely accepted from the public, identify the areas where insurance products or annuities sales occur and clearly delineate those areas from the areas where the retail deposit-taking activities occur (presumed to be the traditional teller windows and teller lines). B. Referrals A person who accepts deposits from the public in the area where such transactions routinely occur (i.e., at a teller window or line) may refer a consumer seeking to purchase an insurance product or annuity to a qualified person who sells the product only if: The person making the referral receives no more than a one-time, nominal fixed-dollar amount for each referral; or The fee does not depend on whether the referral results in a transaction. VI. QUALIFICATION AND LICENSING REQUIREMENTS 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 appropriately qualified and licensed under applicable state law regarding the specific products being sold or recommended. VII. CONCLUSION On or after October 1, 2001, depository institutions that sell insurance products or annuities must apply the above-outlined rule. Procedures should be reviewed and modified to ensure compliance with the requirements of the rule. EXHIBIT AIMPORTANT INSURANCE DISCLOSURE Insurance products and annuities: Are not a deposit or other obligation of, or guaranteed by, the bank or any affiliate of the bank; Are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency of the United States, the bank, or any affiliate of the bank; [Involve investment risk, including the possible loss of value.] Note: This disclosure may not be required for all products. Please sign to acknowledge receipt of these disclosures: Name of Customer: _________________________________________ Customer Signature: ________________________________________ Date: ________________________________ NOTE: The disclosure set forth above should be utilized in connection with the initial purchase of insurance or annuity products that are not sold in connection with an extension of credit. EXHIBIT B IMPORTANT CREDIT AND INSURANCE DISCLOSURE In connection with your credit application, [name of bank or savings association] advises you of the following: [Name of bank or savings association] may not condition the extension of credit you are applying of on whether you purchase an insurance product annuity from the bank or the bank’s affiliate. [Name of bank or savings association] may not condition the extension of credit you are applying for on you agreement not to obtain, or a prohibition on your obtaining, an insurance product or annuity from an entity not affiliated with the bank. Insurance products and annuities: Are not a deposit or other obligation of, or guaranteed by, the bank or any affiliate of the bank; Are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency of the United States, the bank, or any affiliate of the bank; [Involve investment risk, including the possible loss of value.] Note: This disclosure may not be required for all products. Please sign to acknowledge receipt of these disclosures: Name of Customer: _________________________________________Customer Signature: ________________________________________ Date: ________________________________ NOTE: The disclosure set forth above should be utilized in connection with insurance products that are solicited, offered or sold in connection with an extension of credit.
A. General Rule
To the extent practical, a depositor institution must conduct transactions involving the sale of insurance or annuities separate from the area where retail deposits are routinely accepted from the public, identify the areas where insurance products or annuities sales occur and clearly delineate those areas from the areas where the retail deposit-taking activities occur (presumed to be the traditional teller windows and teller lines).
B. Referrals
A person who accepts deposits from the public in the area where such transactions routinely occur (i.e., at a teller window or line) may refer a consumer seeking to purchase an insurance product or annuity to a qualified person who sells the product only if:
VI. QUALIFICATION AND LICENSING REQUIREMENTS 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 appropriately qualified and licensed under applicable state law regarding the specific products being sold or recommended. VII. CONCLUSION On or after October 1, 2001, depository institutions that sell insurance products or annuities must apply the above-outlined rule. Procedures should be reviewed and modified to ensure compliance with the requirements of the rule. EXHIBIT AIMPORTANT INSURANCE DISCLOSURE Insurance products and annuities: Are not a deposit or other obligation of, or guaranteed by, the bank or any affiliate of the bank; Are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency of the United States, the bank, or any affiliate of the bank; [Involve investment risk, including the possible loss of value.] Note: This disclosure may not be required for all products. Please sign to acknowledge receipt of these disclosures: Name of Customer: _________________________________________ Customer Signature: ________________________________________ Date: ________________________________ NOTE: The disclosure set forth above should be utilized in connection with the initial purchase of insurance or annuity products that are not sold in connection with an extension of credit. EXHIBIT B IMPORTANT CREDIT AND INSURANCE DISCLOSURE In connection with your credit application, [name of bank or savings association] advises you of the following: [Name of bank or savings association] may not condition the extension of credit you are applying of on whether you purchase an insurance product annuity from the bank or the bank’s affiliate. [Name of bank or savings association] may not condition the extension of credit you are applying for on you agreement not to obtain, or a prohibition on your obtaining, an insurance product or annuity from an entity not affiliated with the bank. Insurance products and annuities: Are not a deposit or other obligation of, or guaranteed by, the bank or any affiliate of the bank; Are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency of the United States, the bank, or any affiliate of the bank; [Involve investment risk, including the possible loss of value.] Note: This disclosure may not be required for all products. Please sign to acknowledge receipt of these disclosures: Name of Customer: _________________________________________Customer Signature: ________________________________________ Date: ________________________________ NOTE: The disclosure set forth above should be utilized in connection with insurance products that are solicited, offered or sold in connection with an extension of credit.
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 appropriately qualified and licensed under applicable state law regarding the specific products being sold or recommended.
VII. CONCLUSION On or after October 1, 2001, depository institutions that sell insurance products or annuities must apply the above-outlined rule. Procedures should be reviewed and modified to ensure compliance with the requirements of the rule. EXHIBIT AIMPORTANT INSURANCE DISCLOSURE Insurance products and annuities: Are not a deposit or other obligation of, or guaranteed by, the bank or any affiliate of the bank; Are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency of the United States, the bank, or any affiliate of the bank; [Involve investment risk, including the possible loss of value.] Note: This disclosure may not be required for all products. Please sign to acknowledge receipt of these disclosures: Name of Customer: _________________________________________ Customer Signature: ________________________________________ Date: ________________________________ NOTE: The disclosure set forth above should be utilized in connection with the initial purchase of insurance or annuity products that are not sold in connection with an extension of credit. EXHIBIT B IMPORTANT CREDIT AND INSURANCE DISCLOSURE In connection with your credit application, [name of bank or savings association] advises you of the following: [Name of bank or savings association] may not condition the extension of credit you are applying of on whether you purchase an insurance product annuity from the bank or the bank’s affiliate. [Name of bank or savings association] may not condition the extension of credit you are applying for on you agreement not to obtain, or a prohibition on your obtaining, an insurance product or annuity from an entity not affiliated with the bank. Insurance products and annuities: Are not a deposit or other obligation of, or guaranteed by, the bank or any affiliate of the bank; Are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency of the United States, the bank, or any affiliate of the bank; [Involve investment risk, including the possible loss of value.] Note: This disclosure may not be required for all products. Please sign to acknowledge receipt of these disclosures: Name of Customer: _________________________________________Customer Signature: ________________________________________ Date: ________________________________ NOTE: The disclosure set forth above should be utilized in connection with insurance products that are solicited, offered or sold in connection with an extension of credit.
On or after October 1, 2001, depository institutions that sell insurance products or annuities must apply the above-outlined rule. Procedures should be reviewed and modified to ensure compliance with the requirements of the rule.
EXHIBIT A
IMPORTANT INSURANCE DISCLOSURE
Insurance products and annuities:
Please sign to acknowledge receipt of these disclosures:
Name of Customer: _________________________________________
Customer Signature: ________________________________________
Date: ________________________________
NOTE: The disclosure set forth above should be utilized in connection with the initial purchase of insurance or annuity products that are not sold in connection with an extension of credit.
EXHIBIT B IMPORTANT CREDIT AND INSURANCE DISCLOSURE In connection with your credit application, [name of bank or savings association] advises you of the following: [Name of bank or savings association] may not condition the extension of credit you are applying of on whether you purchase an insurance product annuity from the bank or the bank’s affiliate. [Name of bank or savings association] may not condition the extension of credit you are applying for on you agreement not to obtain, or a prohibition on your obtaining, an insurance product or annuity from an entity not affiliated with the bank. Insurance products and annuities: Are not a deposit or other obligation of, or guaranteed by, the bank or any affiliate of the bank; Are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency of the United States, the bank, or any affiliate of the bank; [Involve investment risk, including the possible loss of value.] Note: This disclosure may not be required for all products. Please sign to acknowledge receipt of these disclosures: Name of Customer: _________________________________________Customer Signature: ________________________________________ Date: ________________________________ NOTE: The disclosure set forth above should be utilized in connection with insurance products that are solicited, offered or sold in connection with an extension of credit.
IMPORTANT CREDIT AND INSURANCE DISCLOSURE
In connection with your credit application, [name of bank or savings association] advises you of the following:
NOTE: The disclosure set forth above should be utilized in connection with insurance products that are solicited, offered or sold in connection with an extension of credit.