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On May 11, the FDIC, OCC, Federal Reserve Board, NCUA, and the Farm Credit Administration jointly issued revised, reorganized, and expanded interagency questions and answers (Q&As) regarding federal flood insurance laws. The revised Q&As supersede versions published in 2009 and 2011, and consolidate Q&As proposed by the agencies in 2020 and 2021 (covered by InfoBytes here). Reflecting significant changes to flood insurance requirements made by the Biggert-Waters Flood Insurance Reform Act and the Homeowner Flood Insurance Affordability Act, as well as regulations issued by the agencies to implement these laws, the revised Q&As consist of 144 Q&As (including 24 private flood insurance Q&As) covering a range of topics, including the escrow of flood insurance premiums, the detached structure exemption to the mandatory flood insurance purchase requirement, force placement procedures, and the acceptance of flood insurance policies issued by private insurers. The agencies also made non-substantive revisions to certain Q&As to provide more direct responses to questions asked, additional clarity, or make technical corrections. In response to concerns raised by several commenters, the agencies confirmed that they are providing the interagency Q&As “as guidance only,” and clarified that “all the Q&As apply to all policies, whether [National Flood Insurance Program] or a flood insurance policy issued by a private insurance company, unless otherwise noted in the Q&A.” Additionally, the agencies noted “that they are working individually and on an interagency basis to address financial risks associated with climate change consistent with the [a]gencies’ regulatory and supervisory authorities,” and therefore “decline to make changes to any of the Q&As in response to climate risk change.
On March 11, the FDIC, OCC, Federal Reserve Board, NCUA, and the Farm Credit Administration issued a notice and request for public comment on 24 proposed interagency questions and answers regarding the 2019 private flood insurance rule (covered by InfoBytes here). The new Q&As supplement interagency questions and answers proposed last year (covered by InfoBytes here), which were intended to reduce compliance burdens for lenders related to flood insurance laws. The new Q&As are designed to help lenders comply with private flood insurance provisions found in the Biggert-Waters Flood Insurance Reform Act of 2012, and address mandatory and discretionary acceptance of private flood insurance policies by lenders if such insurance is required. Comments on the proposed additions to the interagency Q&As are due 60 days after publication in the Federal Register.
On March 15, five federal agencies—the FDIC, FHFA, Federal Reserve Board, OCC, and Farm Credit Administration (collectively, the “Agencies”)—adopted an interim final rule amending the agencies’ regulations that require swap dealers and security-based swap dealers under the Agencies’ respective jurisdictions to exchange margin with their counterparties for swaps that are not centrally cleared (Swap Margins Rule). The interim final rule seeks to address the situation where the United Kingdom withdraws from the European Union without a negotiated agreement and entities located in the U.K. transfer existing swap portfolios that face counterparties located in the E.U. over to affiliates located in the U.S. or the E.U. Specifically, the interim final rule provides that certain swaps under this situation will not lose their “legacy” status—will not trigger the application of the Swap Margin Rule—if carried out in accordance with the conditions of the rule. The interim final rule is effective immediately and the Agencies are accepting comments for 30 days after publication in the Federal Register.
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.
OCC Bulletin 2012-28. The OCC bulletin rescinds and replaces previously issued natural disaster guidance and encourages banks serving affected customers to consider the following: (i) “waiving or reducing ATM fees”; (ii) “temporarily waiving late payment fees or penalties for early withdrawal of savings”; (iii) assisting borrowers based on individual situations, when appropriate, by restructuring debt obligations or adjusting payment terms—not to generally exceed 90 days; (iv) “expediting lending decisions when possible”; (v) “originating or participating in sound loans to rebuild damaged property”; and (vi) communicating with state and federal agencies to help mitigate the effects. “Examiners will not criticize these types of responses as long as the actions are taken in a manner consistent with sound banking practices,” the OCC announced. The bulletin also provides additional resources on accounting and reporting issues and Qualified Thrift Lender requirements, among other things.
FDIC FIL-38-2017. The FDIC financial institution letter (FIL) provides similar guidance for depository institutions assisting affected customers. FIL guidance includes the following suggestions: (i) “waiving ATM fees for customers and non-customers”; (ii) “increasing ATM daily cash withdrawal limits”; (iii) waiving items such as overdraft fees, time deposit early withdrawal penalties, availability restrictions on insurance checks, and credit card/loan balance late fees; (iv) “easing restrictions on cashing out-of-state and non-customer checks” as well as “easing credit card limits and credit terms for new loans”; (v) allowing borrowers to defer or skip some loan payments; and (vi) “delaying the submission of delinquency notices to the credit bureaus.” “Prudent efforts by depository institutions to meet customers' cash and financial needs generally will not be subject to examiner criticism,” the FIL noted. Also, the FDIC “encourages 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.”
- Buckley Webcast: Fifth Circuit muddles CFPB’s plans to use in-house judges in enforcement proceedings
- Steven vonBerg to discuss “Regulatory plenary” at the Information Management Network’s Non-QM Forum
- Jeffrey P. Naimon to discuss “Understanding the ESG impact on compliance” at the ABA’s Regulatory Compliance Conference