U.S. District Court Rules That OTS Opinion Letter On Exclusive Agents Preempts State Banking Statutes
Question: Does the preemptive authority of a federally chartered thrift extend to its exclusive agents?
Answer: Yes, according to the U.S. District Court for the District of Connecticut in State Farm Bank, F.S.B. v. Burke, D. Conn., No. 3:05 cv 808, order filed 6/21/06.
In 2004, the Office of Thrift Supervision issued an opinion letter to State Farm Bank, F.S.B. stating that when State Farm uses agents "to perform marketing, solicitation, and customer service activities related to [State Farm's] deposit and loan products and services and other authorized banking powers, state licensing and registration requirements that do not apply to [State Farm] also do not apply to [State Farm's] agents solely because they perform those activities for [State Farm]."
This letter was based upon representations made to the OTS by State Farm that each agent had entered into an exclusive agency agreement that permitted them to market only State Farm's products and services, had participated in State Farm in-house education and training programs, and were subject to State Farm oversight and compliance programs., but are independent contractors who are responsible for their own office overhead expenses.
State Farm sought declaratory and injunctive relief against the Banking Commissioner of the State of Connecticut, challenging on preemption grounds the constitutionality of certain state statutes purporting to regulate the activities of a federal savings association. On cross-motions for summary judgment, the district court issued a permanent injunction enjoining the Commissioner from (i) directly or indirectly regulating the mortgage lending and deposit-related activities of State Farm or its exclusive agents, or (ii) requiring that exclusive agents of State Farm be licensed in order to sell mortgage-related products and/or registered to sell certificates of deposit, and to pay fees associated with licensing and registration.
The court held the OTS' interpretation of the preemptive effect of its regulations was "neither plainly erroneous nor inconsistent with underlying regulations." Notably, the court adopted the OTS's view that a savings association's exclusive agents should be treated comparably to operating subsidiaries where an association exercises sufficient control over an agent's performance of authorized banking activities.
Click here to view an electronic copy of the opinion.
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