State Farm, a mega-financial services company, wants to avoid Connecticut’s banking laws.
State Farm Bank, a division of the well-known insurance company of the same name, thinks Connecticut’s banking rules don’t apply to them. So its lawyers argue in a complaint filed last month in U.S. District Court in Hartford. Federal banking laws should preempt a multitude of rules laid down by the state banking commissioner, the lawsuit said, meaning State Farm’s agents shouldn’t be forced to comply with Connecticut’s licensing, qualification fee, and bond requirements.The lawsuit is just one example of continuous pressure from the financial services industry to avoid state regulation of its products. This spring, the insurance industry pushed a bill in the General Assembly that would have removed the Connecticut’s ability to regulate certain annuity products. Instead, the bill would have vested that power with an interstate compact based out of state. The bill failed. State Farm Bank itself is a product of Congress’s 1999 repeal of Depression-era financial laws, which had prohibited insurers from owning banks. Attorney General Richard Blumenthal said he takes State Farm’s lawsuit “very very seriously” and will vigorously defend the banking commissioner’s authority. “This is a typical tactic of regulated industries these days, who think they should be regulated by the federal government, which of course has abandoned its scrutiny,” Blumenthal said. “It’s like going from some regulation, to no regulation.” State Farm uses exclusive in-state agents to provide customer service, it argued in the lawsuit. The company fears the banking commissioner will regulate its agents like mortgage brokers, and force them to pay annual fees, as well as to meet bond, net worth, and minimum experience requirements. Such regulations will prohibit these agents from providing customer service in the state, the lawsuit contended. The bank believes the federal Office of Thrift Supervision should have the sole authority to regulate its activities, the lawsuit said.Federal preemption is a common tactic used by many different industries in fighting state regulation, Blumenthal said. The attorney general’s fight against excessive ATM fees ultimately faltered when faced with that argument, he said.