Officials: Federal proposal would hurt Mainers

AUGUSTA – State regulatory officials, Attorney General Steven Rowe, and members of Maine’s congressional delegation are warning that proposals before Congress would pre-empt state regulation of insurance and financial institutions and leave consumers with fewer protections.

“H.R. 5840 would establish a new federal bureaucracy and give one person the power to invalidate state insurance laws that are perceived as inconsistent with international agreements,” Rowe wrote lawmakers. “The same individual could make an agreement with a foreign entity and give that agreement the force of law, overturning the actions of state legislatures.”

Rowe and Insurance Superintendent Mila Kofman wrote Maine’s congressional delegation to oppose legislation under consideration in the House that would effectively pre-empt state regulation of the insurance and finance sectors of the economy.

“The fact of the matter is that I will be deprived of my authority to help consumers when they have a problem with an insurer,” Kofman said in an interview. “This proposal does not really set up a federal regulatory structure while pre-empting the ability of the states to protect consumers.”

The legislation under consideration by the House Financial Services Committee is part of the overall effort by U.S. Treasury Secretary Henry Paulson to federalize regulation and oversight of both the insurance and the finance sectors of the economy. His proposal would create new offices within the Treasury Department to oversee the insurance sector and one to federalize the supervision of chartering of all banks and credit unions.

“When a financial institution is federally chartered,” said Maine Bureau of Financial Institutions Superintendent Lloyd LaFountain, “pre-emption of state law significantly impairs the ability of state authorities to intervene on behalf of Maine citizens.”

Banks and credit unions can be chartered by the states or the federal government under current law and Maine has a mix of state and federal institutions. Under Paulson’s proposals, the federal government would allow banks and credit unions to be federally regulated and exempt from any state oversight.

“I was a federal regulator, in the Department of Labor, and it is not the same as state regulation,” Kofman said. “This would be really bad for consumers when they have a problem with an insurer.”

She said last year the Maine Bureau of Insurance handled just over 11,000 consumer calls and was able to get more than $1.5 million in restitution for consumers. She doubted a federal bureaucracy would be as responsive to consumers as the state has been.

“I do not support Secretary Paulson’s proposals,” Sen. Olympia Snowe, R-Maine, said in an interview. “The federal government has not been doing a good job of regulating what it is supposed to regulate now. Just look at the failure to oversee oil futures trading.”

She said the proposal as outlined by Paulson would create a “huge” new federal bureaucracy that likely would duplicate what many states are doing at a significant new cost to the taxpayers. She said while there may be some ideas within Paulson’s sweeping proposals worth considering, the pre-emption of state regulation is not.

“The non-bank mortgage lenders were able to evade any regulation by the federal government,” she said. “The states were in a position to put in place a lot of restrictions and oversight and they should not be pre-empted.”

Sen. Susan Collins, R-Maine, served as Maine commissioner of business and professional regulation in the administration of Gov. John McKernan. She has long supported state regulation as more effective and efficient than federal regulation of banking and insurance.

Second District Rep. Mike Michaud, D-Maine, said he is willing to listen to Paulson’s proposals, but would not support pre-emption of the state consumer protection measures that apply to insurance or banking.

“I will not be voting to preempt state consumer protection laws,” Michaud said. “I am very concerned about that part of his proposals.”

Michaud said he is skeptical the proposals will get far this year with all the other measures stacked up before Congress. He said lawmakers have many other bills demanding attention in the fall.

First District Rep. Tom Allen, D-Maine, agreed with Michaud that the proposals will not make it to the floor for debate. But, he said, this is not the first time federal pre-emption of state regulation has been proposed and will not be the last.