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OCC Recent Enforcement Actions Target BSA/AML Compliance Programs and National Flood Insurance Act Violations
On December 14, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such parties. The new enforcement actions include cease and desist orders, civil money penalty orders, removal/prohibition orders, and restitution orders. The list also includes recently terminated enforcement actions.
Cease and Desist Order. On November 9, the OCC issued a consent order (2017 Order) two days after converting a Japanese bank’s two New York branches under the supervision of the New York Department of Financial Services (NYDFS) to federally licensed branches under the supervision of the OCC. As part of the OCC’s approval process, the bank’s federal branches and New York branches agreed to the issuance of the 2017 Order, which requires adherence to “remedial provisions . . . substantively the same as those” in consent orders entered into in 2013 and 2014 with NYDFS. The previously issued consent orders addressed deficiencies related to the bank’s Bank Secrecy Act/Anti-Money Laundering (BSA/AML) sanctions compliance programs, specifically concerning the removal of key warnings to regulators on transactions with sanctioned countries.
The 2017 Order, among other things, requires the bank to: (i) submit an action plan on enhancing internal controls and updating policies and procedures to correct BSA/AML deficiencies, address provisions applicable under the Office of Foreign Assets Control’s requirements, and implement requirements outlined in the 2013 and 2014 consent orders; (ii) ensure adherence to the action plan and 2017 Order under the direction of the bank’s general manager; (iii) submit a management oversight plan designed to improve and enhance the bank’s sanctions compliance programs; and (iv) prevent the retention or future engagement of any individual identified and “barred by the 2014 Consent Order from engaging, directly or indirectly, in any duties, responsibilities, or activities at or on behalf of the [b]ank or the [b]ank’s affiliates that involve their banking business in the [U.S.].” The 2017 Order does not require the bank to pay a civil monetary penalty.
Civil Monetary Penalty. On October 10, the OCC assessed a $452,000 civil monetary penalty against a national bank lender for alleged violations of the National Flood Insurance Act and/or the Flood Disaster Protection Act. The bank agreed to pay the penalty without admitting or denying any wrongdoing.
House Passes Flood Insurance Bill Reforming and Reauthorizing National Flood Insurance Program
On November 14, the House voted 237-189 to pass legislation reforming and reauthorizing the National Flood Insurance Program (NFIP) for five years before it expires next month. As previously covered in InfoBytes, President Trump signed a three-month extension to the NFIP at the beginning of September in order to provide Congress additional time to establish a long-term financial solution for the program. The 21st Century Flood Reform Act (H.R. 2874) is designed to better facilitate compliance and clarify guidance for lenders and borrowers, and will, among other things, (i) change annual limits on premium increases for insurance obtained through the NFIP; (ii) require FEMA to consider the differences in flood risk between coastal and inland flood hazards when establishing premium rates; (iii) require FEMA to clearly communicate to policyholders the full flood risk to, and flood claims history of their property, and the effect of filing any additional claims; (iv) allow private insurers to continue selling policies on behalf of the NFIP, while also being allowed to sell their own private flood coverage; (v) revise federal flood mapping requirements, establish premium rates based on applicable flood insurance rate maps, and revise and clarify aspects of the appeals process; (vi) amend the Biggert-Waters Flood Insurance Reform Act of 2012 to clarify the time periods within which communities may consult with FEMA regarding mapping changes and submit data for consideration by the agency; (vii) revise the Flood Mitigation Assistance program to provide assistance for additional multiple loss properties; and (viii) amend the Flood Disaster Protection Act of 1973 to increase penalties against lenders and GSEs for violations of the mandatory purchase requirement from $2,000 to a maximum of $5,000 per violation.
H.R. 2874 now heads to the Senate.
FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in September 2017
On October 27, the FDIC released a list of 23 orders of administrative enforcement actions that it has taken against banks and individuals in September, as well as one consent order termination issued in August. Civil money penalties were assessed against two banks, including one citing violations of the Flood Disaster Protection Act and the National Flood Insurance Act for (i) failing to obtain flood insurance during loan origination or to obtain “adequate” flood insurance, and (ii) failing to provide written notice in a timely fashion—or at all—to borrowers that the property securing the loan was in a special flood hazard area.
Consent orders were issued against eight institution-affiliated parties related to unsafe or unsound banking practices and breaches of fiduciary duty concerning their actions when supervising a Pennsylvania bank’s mortgage division. Also on the list are five Section 19 orders, which allow applicants to participate in the affairs of an insured depository institution after having demonstrated “satisfactory evidence of rehabilitation,” and three terminations of consent orders, among others.
There are no administrative hearings scheduled for November 2017. The FDIC database containing all 24 enforcement decisions and orders may be accessed here.
Federal Agencies Offer Regulatory Relief for Hurricane Victims
Federal agencies continue to announce regulatory relief for financial institutions aiding consumers affected by recent hurricane disasters. InfoBytes coverage on previous disaster relief measures can be accessed here, here, and here.
Freddie Mac. On September 25, Freddie Mac issued Bulletin 2017-21 (Bulletin) to extend certain temporary selling and servicing requirements meant to provide flexibility and relief for mortgages and borrowers in areas impacted by all hurricanes occurring on or after August 25 through the 2017 hurricane season. In particular, Freddie Mac will reimburse sellers for property inspections completed prior to the sale or securitization of mortgages secured by properties in disaster areas caused by a 2017 hurricane. Freddie Mac is also requiring servicers to suspend foreclosure sales and eviction activities on property located in eligible disaster areas affected by Hurricane Maria. However, the Bulletin provides that a servicer can proceed with a foreclosure sale if it can confirm that (i) inspection was completed on a mortgaged property “identified as vacant or abandoned prior to Hurricane Maria,” and (ii) the property sustained no “insurable damage.” The Bulletin also reminds servicers to report all mortgages affected by an eligible disaster that are 31 or more days delinquent to Freddie Mac.
Veterans Affairs (VA). On September 27, the VA issued Circular 26-17-28 to outline measures that it encourages mortgagees to utilize to provide relief to veterans affected by Hurricane Maria. Specific recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.
FDIC. On September 27, the FDIC released a financial institution letter to provide additional guidance for depository institutions assisting affected consumers. As previously covered in Infobytes, the FDIC released guidance for Hurricane Harvey disaster relief, and issued a joint press release in conjunction with the Federal Reserve Board, Conference of State Bank Supervisors, and the OCC as a response to those affected by Hurricane Irma. The newest release, FIL-46-2017, announced regulatory relief for financial institutions affected by Hurricane Maria, and steps to facilitate recovery in affected areas, which include: (i) “extending repayment terms, restructuring existing loans, or easing terms for new loans,” and (i) “encourage[ing] depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents.” Further, banks that support disaster recovery efforts, the FDIC noted, may receive favorable Community Reinvestment Act consideration.
SEC. On September 28, the SEC issued an order providing regulatory relief to companies and individuals with federal securities law obligations who have been affected by recent natural disasters. The order provides conditional exemptions to certain securities laws requirements for specified periods of time. The Commission additionally adopted “interim final temporary rules” applicable to Regulation Crowdfunding and Regulation A filing deadline extensions.
Financial Crimes Enforcement Network (FinCEN). On October 3, FinCEN issued a notice to financial institutions that file Bank Secrecy Act reports to encourage communication with FinCEN and their functional regulator regarding any expected filing delays caused by recent hurricanes.
FDIC Releases August 2017 Enforcement Actions
On September 29, the FDIC released its list of 27 orders of administrative enforcement actions taken against banks and individuals in August. The FDIC assessed civil money penalties against three banks, including one citing violations of the National Flood Insurance Act (NFIA) and the Flood Disaster Protection Act for (i) failing to obtain flood insurance before loan origination; (ii) failing to provide flood insurance coverage for the full term of the loan; (iii) failing to ensure the amount of flood insurance coverage was “at least equal to the outstanding principal balance of the loan or the maximum limit of coverage” under the NFIA, including numerous instances where coverage options were not provided to borrowers; and (iv) failing to provide written notice in a timely fashion—or at all—to borrowers that the property securing the loan was in a special flood hazard area.
Also on the list are six removal and prohibition orders against institution-affiliated parties related to unsafe or unsound banking practices and breaches of fiduciary duty leading to financial loss. One of these orders fines an individual $200,000 for expense account-related misconduct, concealing the ownership of certain stock from the FDIC, and causing dividends on this stock to be placed into his personal account. The list also contains seven Section 19 orders allowing applicants to participate in the affairs of an insured depository institution after having demonstrated “satisfactory evidence of rehabilitation,” and eight terminations of consent orders.
There are no administrative hearings scheduled for October 2017. The FDIC database containing all 27 of its enforcement decisions and orders may be accessed here.
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.
OCC Updates Comptroller’s Licensing Manual to Provide Revised Guidance on Flood Insurance Requirements
On September 7, the OCC released OCC Bulletin 2017-35 announcing a replacement of its handbook titled “Flood Disaster Protection Act” (FDPA)—last issued in 1999—to reflect recent amendments to the FDPA and implement regulations that resulted from the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) and the Homeowner Flood Insurance Affordability Act of 2014. The booklet, which is part of the Comptroller’s Licensing Manual, clarifies the following changes, among other things:
- flood insurance requirement exemptions for certain detached nonresidential structures;
- a requirement that banks—or servicers acting on behalf of a bank—escrow flood insurance premiums and fees for “any loan secured by a residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016,” and also lists exemptions to the requirement;
- a requirement that banks and servicers “subject to the escrow requirement” must provide borrowers the option to escrow flood insurance premiums and fees and are required to implement the escrow “as soon as reasonably practicable” after the request has been received;
- FDPA provisions on force-placed insurance, including termination and refund requirements; and
- “examination procedures for determining compliance with the detached structure, escrow, and force placement provisions.”
Notably, the OCC stated that the Biggert-Waters Act provision, which requires the acceptance of private flood insurance policies that meets specified criteria to satisfy the mandatory purchase requirement, has not yet been adopted and will be addressed separately.
Senate Committee on Banking, Housing & Urban Affairs Releases Flood Insurance Bill
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.”
The bill is one of many introduced this year in both the Senate and the House as the NFIP is set to expire at the end of September. (See previous InfoBytes coverage here and here.)
FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in May 2017
On June 30, the FDIC released its list of 36 orders in administrative enforcement actions taken against banks and individuals in May. Several of the orders on the list assess civil money penalties for violations of the Flood Disaster Protection Acts of 1973 and 1968 and their flood insurance requirements including: (i) failing to obtain flood insurance before loan origination; (ii) failure to maintain adequate insurance coverage on loans; (iii) failure to provide the required notification and failure to provide timely notification on loans; (iv) failing to maintain adequate flood insurance during the term of the loan; (v) allowing flood insurance to lapse during the term of the loan; and (vi) failing to provide written notice to the borrower concerning flood insurance before renewing a loan.
Also on the list are 14 assessments of civil money penalties, three of which are coupled with orders of restitution. Additionally, there are six orders for removal and prohibition for bank employees breaching fiduciary duties and using positions of control to “facilitate and conceal schemes perpetrated by Bank customers” that caused the bank to violate the Bank Secrecy Act.
There are no administrative hearings scheduled for July 2017.
House Committee Okays Five Additional Flood Insurance Bills
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.