InfoBytes Blog

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.”

Federal Issues OCC Federal Reserve Enforcement National Flood Insurance Program Flood Insurance Flood Disaster Protection Act National Flood Insurance Act

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.

Federal Issues Flood Insurance National Flood Insurance Program Senate Banking Committee

Reps. Cassidy and Gillibrand Introduce Bipartisan Flood Reauthorization Bill

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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