After Congress passed the Gramm-Leach-Bliley Act, can Georgia still enforce O.C.G.A. § 33-3-23, which barred banks and their affiliates from selling insurance in cities with more than 5,000 people?

Plain-English summary

The Commissioners of Banking & Finance and of Insurance asked whether Georgia could keep enforcing a longstanding restriction (O.C.G.A. § 33-3-23) that barred banks, bank holding companies, and their subsidiaries and affiliates from being licensed to sell insurance in any Georgia municipality with a population over 5,000. The AG said no. The 1999 Gramm-Leach-Bliley Act repealed Glass-Steagall's separation between banking and insurance, expressly authorized financial holding companies to engage in insurance sales, and incorporated the Barnett Bank standard prohibiting state laws that "prevent or significantly interfere with" bank insurance activities. Because § 33-3-23 effectively shut bank affiliates out of insurance sales in much of urban Georgia, it failed the Barnett test and was preempted under the Supremacy Clause. (A pending state bill, HB 656, was already moving to repeal the population cap legislatively.)

Currency note

This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical context

Until 1999, federal law (the Glass-Steagall Act and related provisions) generally kept banks out of the insurance business. States like Georgia had layered their own bank-insurance separation rules on top, and § 33-3-23(b) was Georgia's: no lending institution, bank holding company, or any subsidiary or affiliate of either could be licensed to sell insurance in any Georgia municipality with more than 5,000 people. The "small towns" carve-out was a relic of older federal law that had let national banks sell insurance only in places of 5,000 or fewer.

Gramm-Leach-Bliley (Pub. L. 106-102, enacted November 1999) repealed Glass-Steagall and built a new framework. A bank holding company that met certain capital and management requirements could become a "financial holding company" under 12 U.S.C. § 1843(k) and engage in any activity that was "financial in nature," with insurance underwriting and sales explicitly designated as financial. To prevent states from blocking that authority through their own laws, Section 104 (codified at 15 U.S.C. § 6701) preserved general state authority to regulate insurance but said expressly: "no State may . . . prevent or significantly interfere with the ability of a depository institution, or an affiliate thereof, to engage, directly or indirectly, either by itself or in conjunction with an affiliate or any other person, in any insurance sales, solicitation, or cross-marketing activity." The standard came directly from the Supreme Court's 1996 Barnett Bank decision, which had struck down a Florida law barring banks from selling insurance in small towns.

The AG's analysis was straightforward. The Supremacy Clause makes federal law preempt conflicting state law (citing English and Cipollone). The Gramm-Leach-Bliley Act provided certain "safe harbors" allowing states to keep specified pre-existing restrictions, and § 33-3-23 did not fit any of them. Under the Barnett "prevent or significantly interfere" test, a Georgia rule that excluded bank affiliates from insurance sales in essentially every meaningful Georgia market (anywhere with more than 5,000 people) was a textbook significant interference. The state law had to yield.

The opinion also noted that the General Assembly had already passed House Bill 656, which repealed the population cap and allowed bank affiliates to be licensed to sell insurance in Georgia, with a July 1, 2000 effective date absent a gubernatorial veto. So the AG's federal-preemption holding lined up with where the state legislature was already heading.

For state regulators at the time

The Department of Banking & Finance and the Department of Insurance could not lawfully enforce the population cap in § 33-3-23 against bank affiliates seeking insurance licenses. Even before HB 656 took effect on July 1, 2000, federal preemption already controlled.

For banks and bank holding companies at the time

A bank holding company that elected to become a financial holding company under the new federal framework, or a depository-institution affiliate generally, could pursue insurance sales licenses without facing the 5,000-population bar. Other Georgia insurance regulations of general application still controlled (the Act preserved state insurance regulation outside the carve-out).

Common questions

Q: What did O.C.G.A. § 33-3-23 originally do?
A: It barred lending institutions, bank holding companies, and their subsidiaries and affiliates (and their officers and employees other than directors) from being licensed, directly or indirectly, to sell insurance in any Georgia municipality with a population over 5,000 by the latest decennial census.

Q: What is the Barnett standard?
A: From Barnett Bank of Marion County N.A. v. Nelson, 517 U.S. 25 (1996). The Supreme Court held that a federal statute authorizing national banks to sell insurance in small towns preempted a Florida statute that prohibited those sales, because the state law stood as an obstacle to a federal purpose. Gramm-Leach-Bliley codified the same "prevent or significantly interfere" test for state laws affecting bank insurance activities.

Q: Did the Act let states keep any insurance restrictions on banks?
A: Yes. Section 104(d)(2)(B) of the Act (15 U.S.C. § 6701(d)(2)(B)) lists specific "safe harbor" categories of state restrictions that survive (consumer protection rules in certain forms, anti-tying rules, certain disclosure rules, etc.). § 33-3-23's blanket population cap did not fit any of those.

Q: Does this preempt all of Georgia's insurance regulation?
A: No. The Act preserved state insurance regulation generally. It only knocked out state rules that prevented or significantly interfered with bank affiliates' insurance activities, and certain anti-bank-discrimination rules. Insurance solvency, licensing standards of general application, market conduct rules, and similar regulations remained in force.

Background and statutory framework

The repeal of Glass-Steagall and the creation of the financial holding company structure was the centerpiece of the Gramm-Leach-Bliley Act. A bank holding company could elect financial holding company status under 12 U.S.C. § 1843(k) if it met capital and management requirements. That status carried with it the right to engage in any "financial in nature" activity, including, by express definition, "insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death" (12 U.S.C. § 1843(k)(4)(B)).

The federalism balance in Section 104 preserved core state insurance regulation but capped state interference in three specific ways. The "Barnett standard" provision (15 U.S.C. § 6701(d)(2)(A)) applies generally. The nondiscrimination provision (15 U.S.C. § 6701(e)) bars state rules that single out depository institutions or their affiliates for adverse treatment relative to other insurance providers. And the safe-harbor list (15 U.S.C. § 6701(d)(2)(B)) preserves narrowly specified pre-existing state rules.

The opinion's footnotes also noted the parallel state law evolution. HB 656, then sitting on the Governor's desk, replaced the population cap with a flat authorization for banks and affiliates to be licensed to sell insurance, including credit insurance and credit life/accident/sickness underwriting, subject to general insurance regulation. It also blocked banks not in the title insurance business by April 1, 2000 from entering it. Absent veto, the new structure became effective July 1, 2000.

Citations and references

Constitutional and federal:
- U.S. Const., Art. VI, Cl. 2 (Supremacy Clause)
- Gramm-Leach-Bliley Act, Pub. L. 106-102, 113 Stat. 1338 (1999)
- 12 U.S.C. § 1843(k) (financial holding company)
- 15 U.S.C. § 6701 (state insurance regulation and preemption)

State:
- O.C.G.A. § 33-3-23 (Georgia bank-affiliate insurance ban)
- O.C.G.A. §§ 7-1-600, 7-1-605 (Georgia bank holding company definitions)
- O.C.G.A. § 1-3-4 (effective date of acts)

Cases:
- English v. General Electric Co., 496 U.S. 72 (1990)
- Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992)
- Barnett Bank of Marion County N.A. v. Nelson, 517 U.S. 25 (1996)

Source

• Landing page: https://law.georgia.gov/opinions/2000-4

Original opinion text

You have asked for my official opinion regarding whether certain provisions of O.C.G.A. § 33-3-23 are preempted by the federal Gramm-Leach-Bliley Act, Pub. L. No. 106-102, 113 Stat. 1338 (1999) (the "Act"). Pursuant to Article VI of the United States Constitution, the laws of the United States "shall be the supreme Law of the Land . . . any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." U.S. Const., Art.VI, Cl. 2. Thus federal law will preempt a conflicting State law. English v. General Electric Co., 496 U.S. 72, 78 (1990); Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992). In its present form, O.C.G.A. § 33-3-23 provides in relevant part, "No lending institution, bank holding company, or any subsidiary or affiliate of either of the foregoing doing business in this state, or any officer or employee of any of the foregoing not including any director may directly or indirectly be licensed to sell insurance in any municipality within this state which has a population which exceeds 5,000, according to the latest United States decennial census . . . ." O.C.G.A. § 33-3-23(b).1 This Code section is inconsistent with portions of Section 104 of the Act. The Act's stated intention is to "enhance competition in the financial services industry by providing a prudential framework for the affiliation of banks, securities firms, insurance companies, and other financial service providers . . . ." Pub. L. No. 106-102, 113 Stat. 1338 (1999). To that end, Congress has repealed the Glass-Stegall Act, which prohibited affiliations between banks and securities firms or insurance companies. Pub. L. No. 106-102, § 101(a), 113 Stat. 1338, 1341 (1999). The Gramm-Leach-Bliley Act, in contrast, permits banks to affiliate with securities firms and insurance companies by forming a "financial holding company." 12 U.S.C. § 1843(k).2 Section 103 of the Act authorizes a financial holding company to engage in any activity that is "financial in nature." 12 U.S.C. § 1843(k). The activities of "[i]nsuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death" are specifically designated as financial in nature. 12 U.S.C. § 1843(k)(4)(B). The Act provides for continued state regulation of the business of insurance. 15 U.S.C. § 6701. However, the broad authority of the States to regulate insurance is expressly limited under Section 104 of the Act, which provides, "In accordance with . . . Barnett Bank of Marion County N.A. v. Nelson, 517 U.S. 25 (1996), no State may . . . prevent or significantly interfere with the ability of a depository institution, or an affiliate thereof, to engage, directly or indirectly, either by itself or in conjunction with an affiliate or any other person, in any insurance sales, solicitation, or cross-marketing activity." 15 U.S.C. § 6701(d)(2)(A).3 Notwithstanding this provision, the Act lists certain "safe harbors" wherein States may continue to restrict the sale of insurance by banks and their affiliates. 15 U.S.C. § 6701(d)(2)(B). Since O.C.G.A. § 33-3-23 does not fall within one of the safe harbors, it must be analyzed under the Barnett standard. In Barnett, the United States Supreme Court found that a federal statute authorizing banks to sell insurance in small towns preempted a Florida statute prohibiting such sales. The Court reasoned that "the State's prohibition of those activities would seem to 'stan[d] as an obstacle to the accomplishment' of one of the Federal Statute's purposes . . . ." 517 U.S. at 31. The Court determined that Congress had not intended to condition its grant of authority on the approval of State law. Id. at 37. Here, Congress has incorporated the Barnett standard into the Act, and has further stated its intent to preempt any State law that would "prevent or significantly interfere with" a financial holding company's ability to engage in the sale of insurance as authorized under the Act. Enforcement of the "population of 5,000" provision contained in O.C.G.A. § 33-3-23(b) would effectively prohibit banks from selling insurance in a large portion of the State of Georgia, thereby presenting a "significant interference" with activities authorized by the Act. Therefore, it is my official opinion that the Gramm-Leach-Bliley Act preempts the provisions of O.C.G.A. § 33-3-23 restricting lending institutions, bank holding companies, and their subsidiaries and affiliates from selling insurance in municipalities with populations exceeding 5,000. Prepared by: KRISTIN L. MILLER Assistant Attorney General 1 The Georgia General Assembly has recently passed House Bill 656, which amends O.C.G.A. § 33-3-23 to provide as follows: (a) For the purposes of this Code section, the term: (1) "Bank holding company" means the definition as set forth in Code Section 7-1-600 and in Section 2 of an act of Congress entitled the Bank Holding Company Act of 1956, as amended. (2) "Lending institution" means any domestic institution that accepts deposits from the public and lends money, including banks and savings and loan associations. (b) A lending institution, bank holding company, or subsidiary or affiliate of either of the foregoing doing business in this state, or any officer or employee of any of the foregoing, may be licensed to sell insurance, including but not limited to credit insurance, in this state and may engage in underwriting and act as an underwriter for credit life insurance and credit accident and sickness insurance subject to the provisions of this title and in conformity with rules and regulations promulgated by the Commissioner of Insurance. (c) Nothing in this chapter shall prohibit the purchase of mortgage guaranty insurance, also called credit loss insurance, by a lending institution from a mortgage guaranty insurance company directly or indirectly. (d) No lending institution, bank holding company, or any subsidiary or affiliate of any of the foregoing doing business in this state that was not in the business of selling title insurance on or before April 1, 2000, shall be permitted to sell title insurance. Absent a veto by the Governor, House Bill 656 will become effective on July 1, 2000. See O.C.G.A. § 1-3-4. 2 A "financial holding company" is a "bank holding company" that meets certain additional requirements. 12 U.S.C. § 1841(p). The term "bank holding company" is defined as "any company which has control over any bank or over any company that is or becomes a bank holding company . . . ." 12 U.S.C. § 1841(a). Georgia law provides an identical definition of "bank holding company." See O.C.G.A. §§ 33-3-23(a); 7-1-600(2); 7-1-605(2). Therefore, any entity that qualifies as a bank holding company under Georgia law would be eligible to form a financial holding company in order to avail itself of the benefits of the Act. 3 Section 104 of the Act also contains a specific nondiscrimination provision, which states as follows: (e) NONDISCRIMINATION. Except as provided in any restriction described in subsection (d)(2)(B), no State may, by statute, regulation, order, interpretation, or other action, regulate the insurance activities authorized or permitted under this Act or any other provision of Federal law of a depository institution, or affiliate thereof, to the extent that such statute, regulation, order, interpretation or other action-- (1) distinguishes by its terms between depository institutions, or affiliates thereof, and other persons engaged in such activities, in a manner that is in any way adverse to any such depository institution, or affiliate thereof; (2) as interpreted or applied, has or will have an impact on depository institutions, or affiliates thereof, that is substantially more adverse than its impact on other persons providing the same products or services or engaged in the same activities that are not depository institutions, or affiliates thereof, or persons or entities affiliated therewith; (3) effectively prevents a depository institution, or affiliate thereof, from engaging in insurance activities authorized or permitted by this Act or any other provision of Federal law; or (4) conflicts with the intent of this Act generally to permit affiliations that are authorized or permitted by Federal law between depository institutions, or affiliates thereof, and persons engaged in the business of insurance. 15 U.S.C. § 6701(e). However, the nondiscrimination provision applies only to State action taken after September 3, 1998. 15 U.S.C. § 6701(d)(2)(C)(ii).