$18 Million Flood Act Penalty!
The OCC recently issued a Consent Order to Citibank, N.A., Sioux Falls, South Dakota, for violations of the Flood Disaster Protection Act and it’s implementing regulations. The bank was ordered to pay a civil money penalty of $17,998,510 to the National Flood Insurance Program.
In its residential lending sector, the Bank utilized a third party to service loans secured by improved property located in a special flood hazard area. The third party notified the borrower(s) and force-placed flood insurance when the flood insurance failed to appropriately cover the collateral. However, the problems arose as a result of the Bank’s policies and procedures which allowed the third-party servicer to extend the 45-day period following notification to the borrower.
12 CFR § 22.7(a) – Force placement of flood insurance states: If the borrower fails to obtain flood insurance within 45 days after notification, then the… institution or its servicer shall (must) purchase insurance on the borrower’s behalf.
Flood Interagency FAQ #61 does potentially allow for a “brief delay” …where there is a brief delay in force placing required insurance, the Agencies will expect the lender to provide a reasonable explanation for the delay…. This does not allow for a pattern or practice of extending the 45-day period!
This resulted in a “pattern or practice” of violations, dating back to at least 2014, for failing to force-place insurance in a timely manner.
Live and Learn! The key word being “learn”. Don’t discount the value that Consent Orders issued to other banks can be to you! It’s a great way to learn what examiners are finding, a good warning to make sure you are not doing similar things in your institution, and are also current, relevant examples to use (of what not to do) when training your Team!
Published
2020/02/24
David Dickinson
David’s banking career began as a field examiner for the FDIC in 1990. He later became a Compliance Officer and Loan Officer for a small bank. In 1993, he established Banker’s Compliance Consulting. Along with his amazingly talented Team, he has written numerous compliance articles for prestigious banking publications and has developed compliance seminars that Banker’s Compliance Consulting produces.
He is an expert in compliance regulations. He is also a motivational speaker and innovative educator. His quick wit and sense of humor transforms the usually tiring topic of compliance into an enjoyable educational experience. David is on the faculty of the American Bankers Association National Compliance Schools and has served on the faculty of the Center for Financial Training for many years. He also is a frequent speaker at the ABA’s Regulatory Compliance Conference. He is also a trainer for hundreds of webinars, is a Certified Regulatory Compliance Manager (CRCM) and has been a BankersOnline Guru for many years. The American Bankers Association honored David with their Distinguished Service Award in 2016.
David and his wife Karen have three adult children, four grandchildren (none of whom live at home!) and two cats (of which Dave is allergic … the cats, not the children!). They recently moved to an acreage outside of Lincoln, Nebraska where he gets to play with his tractor. When possible David can be found fishing, making sawdust in his shop, or playing the guitar and piano. He also enjoys leading worship at his church.