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On February 12, the Federal Reserve Board, Farm Credit Administration, FDIC, National Credit Union Administration, and the OCC issued a joint final rule amending regulations governing loans secured by properties in special flood hazard areas to implement the provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 concerning private flood insurance. As previously covered by InfoBytes, the provisions, among other things, require regulated lending institutions to accept policies that meet the statutory definition of “private flood insurance,” and clarify that lending institutions may choose to accept private policies that do not meet the statutory criteria for “private flood insurance,” provided the policies meet certain criteria and the lending institutions document that the policies offer “sufficient protection for a designated loan, consistent with general safety and soundness principles.” The final rule takes effect July 1.
Final rule subject to approval will require federally regulated lending institutions to accept private flood insurance
Recently, the FDIC and OCC approved a joint final rule governing the acceptance of private flood insurance policies. (The final rule must also be approved by—and is still under review with—the other agencies jointly issuing the rule: the Federal Reserve Board, Farm Credit Administration, and National Credit Union Association.) The final rule amends regulations governing loans secured by properties in special flood hazard areas to implement the provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert Waters) concerning private flood insurance (see previous InfoBytes coverage of the proposed rule here). The National Flood Insurance Act and the Flood Disaster Protection Act require flood insurance on improved property that secures a loan made, increased, extended, or renewed by a federally regulated lending institution (lending institution) if the property is in a special flood hazard area for which flood insurance is available under the National Flood Insurance Program (NFIP). Biggert Waters required the Agencies to adopt regulations directing lending institutions to accept insurance that meets the definition of “private flood insurance” in lieu of NFIP flood insurance.
The final rule, once approved by all five regulators, will institute the following provisions to take effect July 1:
- Lending institutions must accept private flood insurance policies meeting the definition of “private flood insurance.”
- Lending institutions may rely on a “streamlined compliance aid provision” to determine, without further review, that a policy meet the definition of “private flood insurance” if the policy (or an endorsement to the policy) contains the following language: “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”
- Lending institutions may choose to accept private policies that do not meet the statutory criteria for “private flood insurance” as long as the policies meet certain criteria and the lending institutions document that the policies offer “sufficient protection for a designated loan, consistent with general safety and soundness principles.”
- Lending institutions may exercise discretion when accepting non-traditional flood coverage issued by “mutual aid societies,” subject to certain conditions including that the lending institutions’ primary federal supervisory agency has determined that the plans qualify as flood insurance. However, the final rule does not require lending institutions to accept coverage issued by mutual aid societies.
On November 30, the FDIC announced a list of administrative enforcement actions taken against banks and individuals in October. Included among the actions is an order to pay a civil money penalty of $9,600 issued against a Louisiana-based bank for alleged violations of the Flood Disaster Protection Act in connection with alleged failures to obtain flood insurance coverage on loans at or before origination or renewal.
Consent orders were also issued against three separate banks related to alleged weaknesses in their Bank Secrecy Act (BSA) and/or BSA/anti-money laundering (BSA/AML) compliance programs. (See orders here, here, and here.) Among other things, the banks are ordered to: (i) implement comprehensive written BSA/AML compliance programs, which include revising BSA risk assessment policies, developing a system of BSA internal controls, and enhancing suspicious activity monitoring and reporting and customer due diligence procedures; (ii) conduct independent testing; and (iii) implement effective BSA training programs. The FDIC further requires the Florida and New Jersey-based banks to conduct suspicious activity reporting look-back reviews.
In addition, a Kentucky-based bank was ordered to pay a civil money of $300,000 for allegedly violating TILA by “failing to clearly and conspicuously disclose required information related to the [b]ank’s Elastic line of credit product” and Section 5 of the FTC ACT by “using a processing order for certain deposit account transactions contrary to the processing orders disclosed in the [b]ank’s deposit account disclosures.”
There are no administrative hearings scheduled for December 2018. The FDIC database containing all 17 enforcement decisions and orders may be accessed here.
On November 13, the Federal Reserve Board announced an enforcement action against an Illinois state bank for allegedly violating the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assesses a $15,000 penalty against the bank, but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty for a pattern or practice of violations under the NFIA is $2,000 per violation.
On September 24, the U.S. Court of Appeals for the 11th Circuit affirmed the district court’s dismissal of two class actions on grounds that the “filed-rate doctrine” precludes the plaintiffs’ claims. In their complaints, the plaintiffs alleged that their loan servicers charged “inflated amounts” for lender-placed insurance by receiving “rebates” or “kickbacks” from an insurance company without passing the savings on to consumers. The district court dismissed the actions with prejudice, holding that the filed-rate doctrine barred the plaintiffs’ claims. On appeal, the 11th Circuit upheld the lower court’s decision, finding that the plaintiffs’ allegations challenged the insurance company’s filed rate. As a result, the court determined that the plaintiffs’ allegations were textbook examples of claims barred by the nonjusticiability principle, which provides that duly-empowered administrative agencies have exclusive say over the rates charged by regulated entities because agencies are more competent than the courts at the rate-making process.
On August 28, the Federal Reserve Board (Board) announced an enforcement action against a New York state bank for allegedly violating the National Flood Insurance Act (NFIA). The consent order assesses a $16,000 penalty against the bank, but does not specify the number or nature of the alleged violations. The maximum civil money penalty under that NFIA is $2,000 per violation.
On August 31, the FDIC announced a list of administrative enforcement actions taken against banks and individuals in July. The 15 orders include “three Section 19 orders; four removal and prohibition orders; one civil money penalty; three terminations of consent orders; and four adjudicated decisions.” The FDIC assessed a $10,800 civil money penalty against a New Mexico-based bank for alleged violations of the Flood Disaster Protection Act in connection with alleged failures to (i) obtain flood insurance coverage on loans at or before origination or renewal; (ii) maintain flood insurance; (iii) notify borrowers that they were required to obtain flood insurance; and (iv) obtain flood insurance on a borrower’s behalf when the borrower did not obtain insurance within 45 days after receiving such notification. There are no administrative hearings scheduled for September 2018. The FDIC database containing all 15 enforcement decisions and orders may be accessed here.
On July 31, President Trump signed the “National Flood Insurance Program (NFIP) Extension Act of 2018” into law (see Public Law 115-225/S. 1182). The NFIP was set to expire that day. The short-term extension, which the Senate passed earlier that day, reauthorizes the NFIP through November 30, and provides Congress additional time to establish a long-term financial solution.
Visit here for continuing InfoBytes coverage on the NFIP.
On July 25, the House passed a bill by a vote of 366 - 52 to extend the National Flood Insurance Program (NFIP) through November 30. The “National Flood Insurance Program Extension Act of 2018” (S. 1182) is a short-term fix to extend coverage for lenders and borrowers during the upcoming hurricane season. As previously covered in InfoBytes, last November the House passed H.R. 2874, which would amend and reauthorize the NFIP through fiscal year 2022; however, the Senate Banking Committee has yet to act on the measure. The Senate must now pass S. 1182 to ensure the NFIP does not expire at the end of July.
On June 13, Freddie Mac released Guide Bulletin 2018-9, which among other things, updates servicer requirements for short-term, long-term, and unemployment forbearance plans and consolidates the offerings into a single plan. Effective December 1, the streamlined plan will allow servicers to approve forbearance plans lasting up to six months without requiring eligible borrowers to submit a Borrower Response Package. Servicers may also offer consecutive forbearance plans that do not exceed 12 months in total to qualifying borrowers. Separately, the Bulletin includes the introduction of Freddie Mac’s NextJob re-employment services company designed to serve high-needs areas and provide job search skills and training for unemployed or underemployed borrowers who have requested loss mitigation assistance.
On the same day, Fannie Mae updated its Servicing Guide to consolidate and simplify its forbearance policies into a single plan, and encouraged servicers to implement the changes immediately, but no later than December 1. Fannie Mae clarified, however, that forbearance plans “entered into prior to the servicer’s implementation would adhere to existing policy until the expiration of such forbearance plan.” Additional changes to the Servicing Guide include: (i) clarifications to the escrow advances reimbursement policy for real estate taxes and flood/property insurance premiums; and (ii) updates to be implemented by August 1 for when servicers are required to notify Fannie Mae that a mortgage loan has been placed under military indulgence.
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