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President Trump Signs Government Funding Package, Temporarily Extends National Flood Insurance Program
On September 8, President Trump signed a government-funding package (H.R. 601) that temporarily extends the National Flood Insurance Program (NFIP), which was set to expire September 30, through December 8. The extension provides Congress additional time to establish a long-term financial solution. (See previous InfoBytes coverage on the NFIP here.) The Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017, also temporarily lifts the nation’s debt ceiling, funding the federal government through December 8, and delivers the first installment of emergency aid for victims of Hurricane Harvey.
On July 28, the FDIC released its list of 23 orders in administrative enforcement actions taken against banks and individuals in June. Civil money penalties were assessed against two banks, including one citing violations of the National Flood Insurance Act for (i) failing to obtain flood insurance before loan origination, and (ii) failing to follow force placed flood insurance procedures.
Also on the list are 13 Section 19 orders allowing applicants to participate in the affairs of an insured depository institution and four orders for removal and prohibition for bank employees breaching fiduciary duties and participating in “unsafe or unsound banking practices” leading to financial losses.
There are no administrative hearings scheduled for August 2017.
On July 17, Senate Committee on Banking, Housing & Urban Affairs Chairman Mike Crapo (R-Idaho) and Ranking Member Sherrod Brown (D-Ohio) released the text of the National Flood Insurance Program Reauthorization Act of 2017, which would reform the National Flood Insurance Program (NFIP) and extend it another six years. Among the provisions covered in the bill are: (i) risk mitigation, particularly in repeatedly flooded communities; (ii) compliance cost increases; (iii) predisaster hazard mitigation programs; (iv) flood risk disclosure requirements for sellers or lessors of real estate; (v) flood mapping program improvements; and (vi) various program improvements, including requirements for federal banking regulators to conduct annual compliance studies on mandatory purchase requirements in special flood hazard areas, and directions for “FEMA to annually study NFIP participation in areas outside of special flood hazard areas.”
“We have held multiple hearings and worked on a bipartisan basis to hear thoughts and concerns from the Program's stakeholders, regulators and from Banking Committee members,” Crapo and Brown stated in a joint release. “This bill represents the many areas where we have found agreement, and we look forward to working with our colleagues to address outstanding issues.”
On June 21, the House Financial Services Committee (Committee) approved changes to the National Flood Insurance Program (NFIP), passing five additional bills. As previously reported in InfoBytes, the committee passed two flood insurance measures on June 15. The approval of these latest bills completes a seven-bill package to reauthorize the NFIP.
According to the committee’s press release, the five newly passed bills include:
H.R. 2875 ,the “National Flood Insurance Program Administrative Reform Act of 2017”— introduced by Rep. Nydia Velazquez (D-N.Y.)— is intended to help NFIP policyholders when challenging claim denials and to also cut down on claim fraud. The bill passed in a 58-0 vote.
H.R. 1558, the “Repeatedly Flooded Communities Preparation Act” —introduced by Rep. Ed Royce (R-Cal.)—was approved by the committee in a voice vote. The bill will “ensure community accountability for areas repetitively damaged by floods” by requiring these flood-prone areas to design mitigation plans.
H.R. 1422, the “Flood Insurance Market Parity and Modernization Act”— introduced by Rep. Dennis Ross (R-Fla.)—allows homeowners to use private flood insurance to satisfy the flood insurance mandate, if the private policies are sufficiently similar to NFIP insurance policies. This bill passed by a vote of 58-0.
H.R. 2246, the “Taxpayer Exposure Mitigation Act of 2017”—introduced by Rep. Blaine Luetkemeyer (R-Mo.)—eliminates the requirement that commercial properties located in flood hazard areas must maintain flood insurance coverage. Additionally, the measure will “provide for greater transfer of risk . . . to private capital and reinsurance markets,” and will allow state and local governments to develop their own flood maps. The committee approved the bill in a 36-24 vote.
H.R. 2565, also introduced by Rep. Luetkemeyer, will “require the use of replacement cost value in determining the premium rates for flood insurance coverage.” The committee approved it in a 34-25 vote.
House Financial Services Committee Advances Two Flood Insurance Measures, Delays Action on Other Bills
On June 15, the House Financial Services Committee announced it had passed two flood insurance measures during a meeting to consider several bills to reform and reauthorize the National Flood Insurance Program (NFIP).
The Committee approved the 21st Century Flood Reform Act of 2017 (H.R. 2874) by a vote of 30-26. The bill, sponsored by Rep. Sean Duffy (R-Wis.), is designed to (i) improve the financial stability of the NFIP; (ii) improve the development of more accurate flood risk estimates through new technology and better maps; (iii) “increase the role of private markets in the management of flood insurance risks”; and (iv) “provide for alternative methods to insure against flood peril.”
Also approved by a vote of 53-0 was the National Flood Insurance Program Policyholder Protection Act of 2017 (H.R. 2868). The bill, sponsored by Rep. Lee Zeldin (R-N.Y.), is designed to protect NFIP policyholders from “unreasonable premium rates” and require FEMA to analyze “the unique characteristics of flood insurance coverage of urban properties” such as cooperative housing projects.
The Committee will consider additional measures the week of June 19.
On June 13, a bipartisan group of senators introduced draft legislation to reauthorize the National Flood Insurance Program (NFIP) for six years, while incorporating reforms to address sustainability, affordability, and efficiency. Senator Bob Menendez (D-N.J.), a senior member of the Senate Banking Committee overseeing the NFIP, and a co-sponsor of the Sustainable, Affordable, Fair and Efficient National Flood Insurance Program Reauthorization Act of 2017 (SAFE NFIP), stated in a press release issued by his office, “SAFE NFIP addresses critical problems with the program, administered by the Federal Emergency Management Agency (FEMA), following Superstorm Sandy and other disasters: unsustainability, low participation rates, inaccurate flood maps, an indifference to the benefits of flood control infrastructure, agency mismanagement, unsustainable debt service costs and contractor profiteering.” Among other things, the Act proposes a cap on premium rate hikes and an interest freeze on the NFIP’s debt to the Treasury for six years after enactment and fosters investments in mitigation efforts. U.S. Senators John Kennedy (R-La.), Chris Van Hollen (D-Md.), Marco Rubio (R-Fla.), Elizabeth Warren (D-Mass.), Thad Cochran (R-Miss.), Cory Booker (D-N.J.), and Bill Nelson (D-Fla.) cosponsored the bill.
On May 26, the FDIC released its list of 18 administrative enforcement actions taken against banks and individuals in April. Among the consent orders on the list are civil money penalties for violations of the Flood Disaster Protection Act of 1973 and its flood insurance requirements. Also on the list are a cease and desist order and a civil money penalty assessment issued to a Louisiana-based bank (Bank) for violations of the Bank Secrecy Act (BSA), EFTA, RESPA, TILA, HMDA, and the National Flood Insurance Program. According to the cease and desist order, the FDIC Board of Directors agreed with the Administrative Law Judge’s recommended decision that the Bank engaged in unsafe or unsound practices, which warranted a cease and desist order and civil money penalty. The order also addressed a number of shortcomings identified by the Bank’s examiners, including the following: (i) the Bank’s BSA program lacked adequate internal controls to ensure compliance; (ii) it failed to provide correct and compete electronic funds transfer disclosures to consumers; (iii) borrowers were provided “untimely and improperly completed” good faith estimates; and (iv) the Bank repeatedly failed to accurately report required HMDA information to federal agencies.
An additional eight actions listed by the FDIC related to unsafe or unsound banking practices and breaches of fiduciary duty, including five removal and prohibition orders. There are no administrative hearings scheduled for June 2017. The FDIC database containing all of its enforcement decisions and orders may be accessed here.
OCC, Federal Reserve Issue Flood Insurance Violations; Reauthorization of National Flood Insurance Program Discussions Continue
During the month of May, the OCC and the Board of Governors of the Federal Reserve (Board) took action against certain banks for violations of the Flood Disaster Protection Act (FDPA) and National Flood Insurance Act (NFIA). Concurrently, House Financial Services Subcommittee Republicans circulated a package of draft legislation to reform and reauthorize the National Flood Insurance Program (NFIP), which expires at the end of September.
OCC Action. On May 19, as part of its monthly listing of enforcement actions taken against national banks, federal savings associations, and former institution-affiliated parties, the OCC announced that it had fined a Texas-based federal savings association $87,500 in April for violations of the FDPA. According to the consent order, the bank allegedly failed to “ensure the timely notification and force-placement of the requisite amounts of flood insurance on property securing loans in a special flood hazard area in which flood insurance is available under the NFIA.”
Federal Reserve Action. On May 25, the Board announced an enforcement action against a Georgia-based bank for violations of the NFIA. Although the consent order fines the bank $1.5 million, it does not specify how many violations there were or what they related to. However, the maximum civil money penalty under that law is $2,000 per violation. The NFIA has a number of requirements for banks, which include ensuring that a borrower has adequate flood insurance before originating a loan for a property in a special flood hazard area and providing notice to the borrower in a reasonable time before closing that they are required to have flood insurance.
National Flood Insurance Program Discussion. As previously covered in InfoBytes, several committees—including the Senate Committee on Banking, Housing, and Urban Affairs and the House Financial Services Committee—are discussing the reauthorization of the NFIP. On May 25, Rep. Sean Duffy (R-Wis.), Chairman of the House Financial Services Subcommittee, issued a series of reauthorization discussion drafts and summaries. The six bills (see below) included in the package would (i) reauthorize the NFIP for five years; (ii) limit annual premium increases; (iii) authorize states to voluntary create flood insurance affordability programs; (iv) eliminate the mandatory purchase requirement for commercial properties; (v) establish a private market for flood insurance; (vi) reform the flood zone mapping process to increase accuracy and fairness in mapping; (vii) require covered flood prone areas to develop plans to mitigate flood risks if they have repeated structure losses; and (viii) address fraud in the claims process.
- National Flood Insurance Program Policyholder Protection and Information Act of 2017—Discussion Draft and Summary;
- Private Flood Insurance Market Development Act of 2017—Discussion Draft and Summary;
- National Flood Insurance Program Mapping Fairness Act of 2017—Discussion Draft and Summary;
- Flood Risk Mitigation Act of 2017—Discussion Draft and Summary;
- National Flood Insurance Program Integrity Improvement Act of 2017—Discussion Draft and Summary; and
- National Flood Insurance Program Administrative Reform Act of 2017—Discussion Draft and Summary.
Duffy noted, “We’re releasing this discussion draft so that all sides can continue to provide input into protecting the program integrity of the NFIP.” He added, “The ideas stemming from this open process will ensure that everyone who needs flood insurance will have access to it while ensuring that the NFIP does not fall further into debt.”
Senate Committee on Banking, Housing and Urban Affairs Hears Testimony About National Flood Insurance Program
On May 4, the Senate Committee on Banking, Housing, and Urban Affairs held the second in a series of hearings entitled “Reauthorization of the National Flood Insurance Program, Part II,” to further debate the reauthorization of the National Flood Insurance Program (NFIP). Committee Chairman Mike Crapo (R-Idaho) opened the full committee hearing asserting that by “[w]orking together, and balancing reforms that protect taxpayers and assist consumers, we can reauthorize the Program on time.” However, Sen. Crapo further stressed the need to answer important questions including “[h]ow to offer consumers more choice by growing the private market and ensuring shared risk by both the government and private sector and how long the Program should be reauthorized,” among others. The May 4 hearing included testimony and recommendations to help modernize and reform the NFIP from the following witnesses:
- Mr. Steve Ellis, Vice President of Taxpayers for Common Sense (TCS), on behalf of the Smarter Safer coalition (testimony). Ellis stated that TCS supports the flood insurance reforms released by Smarter Safer, which include the following: (i) “[r]isk analysis and mapping must be up to date and must provide property level elevation data”; (ii) “[r]ates must be tied to risk, with support for mitigation and premium support for low-income homeowners”; (iii) “[i]ncreased federal investments and efforts on mitigation both at a property level and community wide, so that we are reducing rates by reducing risk”; and (iv) “[e]nsuring consumer choice and private sector competition to reduce taxpayer exposure.” TCS also argued for a five-year reauthorization schedule as opposed to a longer one that would “delay adjustments and reforms to the program.”
- Mr. Michael Hecht, President and CEO of Greater New Orleans, Inc., on behalf of the Coalition for Sustainable Flood Insurance (CSFI) (testimony). Hecht stressed that CSFI is focused on “advocating for a stronger policy framework for the National Flood Insurance Program that recognizes the economic, cultural, defense, and other national contributions made by communities exposed to flood risk,” and introduced four primary policy areas that will foster this stronger framework: Mitigation, Mapping, Affordability, and Program Participation.
- Mr. Larry Larson, Director Emeritus of the Association for State Floodplain Managers (ASFPM) (testimony). Larson testified that ASFPM recommends, among many other things, that Congress: (i) consider a “shorter multi-year reauthorization of 2-3 years so FEMA can more fully develop affordability recommendations”; (ii) “develop a threshold above which the federal government will backstop claims resulting from catastrophic events for the NFIP based on an evaluation of the program’s current financial capacity”; (iii) “forgive the current NFIP debt”; and (iv) “give FEMA the flexibility to offer additional flood insurance policy options and make changes to existing options without the need for extensive rulemaking.”
As previously covered in InfoBytes, draft bipartisan legislation to reauthorize the NFIP for 10 years was introduced on April 26. The current version of the NFIP expires at the end of September.
On April 26, Sens. Bill Cassidy (R-La.) and Kristen Gillibrand (D-N.Y.) introduced draft legislation to reauthorize the National Flood Insurance Program (NFIP). The bill, which would reauthorize the program for 10 years, proposes several changes to the program’s operations, including encouraging the Federal Emergency Management Agency to transfer more risk to capital markets and remove certain hurdles for more competition by private insurers. The bill comes as Congress prepares to begin discussions in earnest on reauthorizing the NFIP before it expires at the end of September. Last week, Dr. Cassidy sent a letter to Senate Majority Leader Mitch McConnell (R-Ky.) and Minority Leader Chuck Schumer (D-N.Y.) advocating for the reauthorization of the NFIP. US Senators Marco Rubio (R-Fla.), John Kennedy (R-La.), Thad Cochran (R-Miss.) and Bill Nelson (D-Fla.) coauthored the letter.
A full summary of the bill is available here.
A copy of the proposed Draft legislation may be accessed here.
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