Insurance Agent Licensing: Background on Federal “NARAB” Legislation

Baird Webel
Specialist in Financial Economics

The individual states have been the primary regulators of insurance in this country for the past 150 years. Congress specifically authorized the states’ role in the 1945 McCarran-Ferguson Act (15 U.S.C. §§ 1011-1015) and state primacy in insurance regulation has been recognized in more recent laws shaping the financial regulatory system, such as 1999’s Gramm-Leach-Bliley Act (GLBA; P.L. 106-102) and 2010’s Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203). The system of multiple state regulators, however, has faced criticism over the years, with frequent focus on the efficiency of the system. One particular aspect of regulation that has been criticized by some as overly burdensome and inefficient is the licensure of insurance agents and brokers, known collectively as insurance “producers.” Every state requires specific licenses, sometimes with differing criteria, and insurance producers have identified the need to have multiple licenses as a significant expense for their operations.

Organizations such as the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL) create model laws and undertake other steps to harmonize insurance regulation and laws across the country, including the promulgation by the NAIC models for insurance producer licensing. The individual states, however, are sovereign entities and any models suggested by the NAIC or NCOIL must first be enacted by state legislatures. The state authorities may amend models or may completely reject suggestions from outside groups. Often this is done with the argument that laws and regulations need to be adapted to particular local circumstances or risks, such as hurricane risks along coastal areas.

Federal proposals addressing multiple state insurance producer licensing requirements through the creation of a National Association of Registered Agents and Brokers (NARAB) appeared as far back as the 102nd Congress and a version of NARAB was included in the Gramm-Leach- Bliley Act. These GLBA provisions, known generally as “NARAB I,” were conditional, and would not come into effect if a majority of states passed laws providing for uniformity or reciprocity in insurance producer licensing. Although a sufficient number of states met the GLBA requirements and thereby prevented the creation of NARAB, insurance producers continued to identify issues in the state licensing system. As a consequence, “NARAB II” legislation, mandating the creation of a NARAB organization, was introduced in every Congress since the 110th. It was passed by the House in the 110th Congress and the 111th Congress, but was not considered by the Senate.

In the 113th Congress, the National Association of Registered Agents and Brokers Act of 2013 was introduced in both the Senate (S. 534) and the House (H.R. 1155/H.R. 1064). Under this legislation, membership in the NARAB organization to be created would permit insurance producers to operate in multiple states without obtaining specific licenses from these states. To become a NARAB member, an insurance producer would be required to have a license from at least one state, pass a criminal background check, and meet other requirements to be set by the association. The legislation would require that these additional requirements be not “less protective to the public” than the NAIC model law on insurance producer licensing. The association would be governed by a 13-member board made up of 8 current or former state insurance commissioners and 5 representatives of the insurance industry. The President would appoint the board, with advice and consent of the Senate, and retain the ability to remove the board and override the NARAB organization’s rules or actions.


Date of Report: June 5, 2013
Number of Pages: 9
Order Number: R43095
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Compensatory Time and the Working Families Flexibility Act of 2013

Benjamin Collins
Analyst in Labor Policy

Gerald Mayer
Analyst in Labor Policy

On May 8, 2013, the House passed H.R. 1406, the Working Families Flexibility Act of 2013. If enacted, this bill would amend the Fair Labor Standards Act (FLSA) to allow private sector employers to provide future paid leave (compensatory time or comp time) in lieu of overtime wages.

Under current law, the FLSA requires employers to pay covered, nonexempt employees one and one-half times their regular hourly wage (“time and a half”) for any hours worked in excess of 40 in a single work week. If enacted, H.R. 1406 would give employers and employees the option to agree to replace overtime wages with one and one-half hours of paid time off for each hour of overtime worked. H.R. 1406 would not affect workers who are not presently covered by, or are exempt from, the overtime provisions of the FLSA such as many executive, administrative, and professional employees.

Under H.R. 1406, the replacement of overtime wages with comp time would be optional for both employers and employees. If an employer and an employee (or the representative of the employee) enter into a comp time agreement, either party may terminate the agreement. If such an agreement is terminated, any unused comp time would be converted to a cash payment to the employee.

Under a comp time agreement, employees would be permitted to accrue up to 160 hours of comp time. Once a year, employers would be required to convert all unused comp time to a monetary payment. Accrued comp time would also be converted to a monetary payment upon the voluntary or involuntary termination of an employee.

If enacted, the comp time provisions of H.R. 1406 would expire five years after enactment.


Date of Report: May 20, 2013
Number of Pages: 8
Order Number: R43088
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Small Business Administration 7(a) Loan Guaranty Program

Robert Jay Dilger
Senior Specialist in American National Government

The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs designed to encourage lenders to provide loans to small businesses “that might not otherwise obtain financing on reasonable terms and conditions.” The SBA’s 7(a) loan guaranty program is considered the agency’s flagship loan guaranty program. It is named from Section 7(a) of the Small Business Act of 1953 (P.L. 83-163, as amended), which authorized the SBA to provide business loans and loan guaranties to American small businesses.

In FY2012, the SBA approved 44,377 7(a) loans amounting to more than $15.1 billion. Proceeds from 7(a) loans may be used to establish a new business or to assist in the operation, acquisition, or expansion of an existing business.

Congressional interest in the 7(a) program has increased in recent years because of concerns that small businesses might be prevented from accessing sufficient capital to enable them to assist in the economic recovery. Some, including President Obama, argue that the SBA should be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations with the expectation that in so doing small businesses will create jobs. Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small business economic growth and job creation.

This report discusses the rationale provided for the 7(a) program; the program’s borrower and lender eligibility standards and program requirements; and program statistics, including loan volume, loss rates, use of proceeds, borrower satisfaction, and borrower demographics. It examines issues raised concerning the SBA’s administration of the 7(a) program, including the oversight of 7(a) lenders and the program’s lack of outcome-based performance measures.

It also examines congressional action taken during the 111th Congress to enhance small businesses access to capital, including providing more than $1.1 billion to temporarily subsidize the 7(a) and 504/CDC loan guaranty programs’ fees and to temporarily increase the 7(a) program’s maximum loan guaranty percentage to 90% (funding was exhausted on January 3, 2011), increasing the 7(a) program’s gross loan limit from $2 million to $5 million, and establishing an alternative size standard for the 7(a) and 504/CDC loan programs.

This report also examines legislation introduced during the 112th Congress to continue the fee waivers and increase the 7(a) program’s SBAExpress and Patriot Express programs’ maximum loan amounts. Two proposals in President Obama’s FY2014 budget request that would directly affect the 7(a) program are also discussed—$7 million for a single, streamlined application form for most 7(a) loans and a waiver of the SBA’s fees for 7(a) loans of $150,000 or less.

Information describing the 7(a) program’s SBAExpress, Patriot Express, Small Loan Advantage, and Community Advantage programs is also provided.


Date of Report: May 28, 2013
Number of Pages: 21
Order Number: R40126
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State and Local Restrictions on Employing Unauthorized Aliens

Kate M. Manuel
Legislative Attorney

In May 2011, the Supreme Court ruled in Chamber of Commerce of the United States of America v. Whiting that federal immigration law did not preempt an Arizona statute that authorized or required the suspension or termination of the licenses of businesses that knowingly or intentionally hire unauthorized aliens, and also required that employers within Arizona use the federal government’s E-Verify database to check employees’ work authorization.

The doctrine of preemption derives from the Supremacy Clause of the U.S. Constitution, which establishes that federal law, treaties, and the Constitution itself are “the supreme Law of the Land.” Thus, one essential aspect of the federal structure of government is that states can be precluded from taking actions that are otherwise within their authority if federal law is thereby thwarted. An act of Congress may preempt state or local action in a given area in any one of three ways: (1) the statute expressly states preemptive intent (express preemption); (2) a court concludes that Congress intended to occupy the regulatory field, thereby implicitly precluding state or local action in that area (field preemption); or (3) state or local action directly conflicts with or otherwise frustrates the purpose of the federal scheme (conflict preemption).

When it was enacted in 1952, the Immigration and Nationality Act (INA) did not regulate the employment of unauthorized aliens, and several states subsequently enacted measures prohibiting the employment of individuals who were not lawful residents of the United States. In a 1976 decision declining to find one such measure preempted, the Supreme Court recognized that it was “within the mainstream of [a state’s] police power” to restrict the employment of aliens within their jurisdiction whose presence in the United States was not authorized by the federal government. However, in 1986, Congress enacted the Immigration Reform and Control Act (IRCA), which amended the INA to sanction employers of unauthorized aliens and expressly preempt states and localities from sanctioning employers other than through “licensing and similar laws.” Then, in 1996, Congress enacted the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA), which authorized the creation of a pilot program for verifying work authorization that ultimately developed into the program known as E-Verify. Under federal law, use of E-Verify by private entities is generally voluntary, and the Secretary of Homeland Security may not require persons or entities not specified in IIRIRA to participate.

Prior to Whiting, the federal courts of appeals had disagreed as to whether IRCA and IIRIRA preempted state and local measures like the Arizona statute. Some found that state licensing measures were within IRCA’s “savings clause” even when the state independently determined whether an employer employed unauthorized aliens, and that IIRIRA did not prohibit states from requiring E-Verify use. Others found that licensing provisions disrupted the balance struck by Congress between deterring illegal immigration, minimizing burdens on employers, and preventing discrimination, and Congress did not want use of E-Verify to be mandatory.

The majority in Whiting relied primarily upon the “plain meaning” of IRCA and IIRIRA, while two dissents relied more heavily upon the legislative history and overall purpose of IRCA. The majority’s decision apparently opens the door to additional state and local restrictions upon employing unauthorized aliens. However, several lower court decisions subsequent to Whiting suggest that any state and local E-Verify measures, in particular, may need to parallel federal law to avoid being found to be preempted. Measures that would criminalize the seeking or performance of work by unauthorized aliens were not at issue in Whiting, but were later found to be preempted in the Supreme Court’s June 25, 2012, decision in Arizona v. United States.


Date of Report: May 16, 2013
Number of Pages: 17
Order Number: R41991
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Amending the JOBS Act: Issues in the 113th Congress

Gary Shorter Specialist in Financial Economics

On April 5, 2012, the Jumpstart Our Business Startups Act (JOBS Act; P.L. 112-106) was enacted with bipartisan support in the 112th Congress. The statute, examined in depth in the CRS Report R42427, U.S. Initial Public Stock Offerings and the JOBS Act, by Rena S. Miller and Gary Shorter, aims to boost corporate capital formation through amending parts of federal securities laws some viewed as an impediment to that process. The 113th Congress is currently considering legislation to amend the act in two ways: (1) expand coverage of the JOBS Act to more companies; and (2) accelerate Securities and Exchange Commission (SEC) rulemaking required for the implementation of a specific provision in the act.

Regulation A (Reg A) of the Securities Act of 1933 allows the SEC to exempt publicly offered securities from having to be registered if the value of the securities does not exceed $5 million during any 12-month period. Title IV of the JOBS Act raised that ceiling to $50 million during any 12-month period. Proponents of the provision said that it would provide new sources of capital for private enterprises. However, Title IV imposed no deadline on the SEC, which must adopt rules necessary for the provision’s implementation. To date, the agency has not completed the rulemaking process.

H.R. 701 (McHenry), which passed the House with bipartisan support on May 15, 2013, would impose a deadline of October 31, 2013, for completion of SEC rulemaking needed to implement the provision. The legislation is a congressional response to concerns that the SEC is not acting expeditiously enough to finish its rulemaking on what some regard as an important provision. SEC officials have indicated that they have begun the rulemaking process for the provision, but that they have been challenged by a multitude of rulemaking and regulatory obligations amidst resource constraints. Historically, under federal securities laws, banks and bank holding companies (BHCs) were generally required to register their publicly offered securities with the SEC if they have total assets exceeding $10 million and the shares are held by 500 or more shareholders. They were also allowed to stop registering the securities, and cease or reduce attendant reporting requirements, a process known as deregistration, when their shareholders of record fell to 300 or fewer. Title VI of the JOBS Act raised the shareholder registration threshold with the SEC from 500 to 2,000 and increased the deregistration threshold from 300 to 1,200, a provision that went into effect immediately after the JOBS Act’s enactment. As of December 2012, this has resulted in about 100 banks and BHCs deregistered since the provision went into effect, an unprecedented number.

Some say that the provision will make it easier for community banks to raise capital without triggering costly SEC registration requirements and enable some SEC-registered community banks to deregister, reducing their regulatory burdens and freeing up bank capital. Various community banks have taken advantage of Title VI’s liberalized registration trigger and have been able to raise shareholder equity capital without having to incur registration expenses. S. 872 (Toomey) and a companion bill, H.R. 801 (Womack), which has been ordered reported by committee, would expand the Title IV shareholder registration and deregistration thresholds to savings and loan holding companies. This report discusses these proposed amendments in more detail. It will be updated as developments warrant.


Date of Report: May 23, 2013
Number of Pages: 16
Order Number: R43084
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