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Financial Services Law Insights and Observations

FDIC issues November enforcement actions

Bank Regulatory Federal Issues FDIC Enforcement Flood Disaster Protection Act Flood Insurance RESPA FTC Act FCRA Consumer Finance

On December 30, the FDIC released a list of orders of administrative enforcement actions taken against banks and individuals in November. The FDIC made public nine orders consisting of “two consent orders; two orders terminating deposit insurance; three orders to pay civil money penalties; one order terminating consent order; and one Section 19 order.” Among the orders is a civil money penalty against a Wisconsin-based bank related to violations of the Flood Disaster Protection Act. The FDIC determined that the bank had engaged in a pattern or practice of violations that included the bank’s failure to: (i) obtain adequate flood insurance on the building securing a designated loan at the time of loan origination; (ii) obtain adequate flood insurance at the time of the origination; (iii) notify borrowers that the borrower should obtain flood insurance where a determination had been made that flood insurance had lapsed or a loan was not covered with the required amount of insurance; (iv) provide borrowers with a Notice of Special Flood Hazard and Availability of Federal Disaster Relief Assistance when making, increasing, extending or renewing a loan; and (v) provide borrowers with a Notice of Special Flood Hazard and Availability of Federal Disaster Relief Assistance within a reasonable time before the completion of the transaction. The order requires the payment of a $39,000 civil money penalty.

The FDIC also issued a civil money penalty against an Oregon-based bank for allegedly violating Section 8(a) of RESPA “by entering into mortgage lead generation arrangements with the operator of a real estate website and the operator of an online loan marketplace that were used to facilitate and disguise referral payments for mortgage business.” The FDIC also determined that the bank violated the FTC Act “by making deceptive and misleading representations in three of the bank’s prescreened offers of credit” and violated the FCRA “by obtaining the consumer reports of former loan clients with recent credit inquiries without a legally permissible purpose.” The order requires the payment of a $425,000 civil money penalty.

Additionally, the FDIC issued a consent order against a Tennessee-based bank alleging the bank engaged in “unsafe or unsound banking practices relating to weaknesses in capital, asset quality, liquidity, and earnings.” The bank neither admitted nor denied the allegations but agreed, among other things, that its board would “increase its participation in the affairs of the bank by assuming full responsibility for the approval of the bank’s policies and objectives and for the supervision of the bank’s management, including all the bank’s activities.” The bank also agreed to maintain a Tier 1 Leverage Capital ratio equal to or greater than 8.50 percent and a Total Capital ratio equal to or greater than 11.50 percent. The FDIC also issued a consent order against a New Jersey-based bank claiming the bank engaged in “unsafe or unsound banking practices relating to, among other things, management supervision, Board oversight, weaknesses in internal controls, interest rate sensitivity, and earnings.” The bank neither admitted nor denied the allegations but agreed, among other things, that it would retain a third-party consultant “to develop a written analysis and assessment of the bank’s board and management needs (Board and Management Report) for the purpose of ensuring appropriate director oversight and providing qualified management for the bank.”