$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!

If you need help with flood insurance compliance, we have several webinars coming up in the next several months.  Stay tuned to our store as registration information will be posted soon. See store.bankerscompliance.com.


Want free flood tools? See – https://store.bankerscompliance.com/link/LendingFD

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