We are having a disagreement at my bank as to when force placed flood premiums need to be refunded to the borrower. We are an FDIC insurance institution and I am basing my understanding of the regulations from 339.7(b).

I am reading it to state that within 30 days of notice of the borrower having flood insurance we shall: 1. Cancel the force place insurance AND 2. refund overlapping premiums.

I am also basing this from the FDIC exam manual, on page 14 shows they will exam for the AND.

The line of business is pushing back and telling me that is not correct. That to meet that section of the regulation all we have to do is terminate the policy and wait until our 3rd party vendor provides us the refund with may be after the 30 days and that this is industry practice. They are also citing the FDIC exam policy page 8 last paragraph to support there stance.

I want to know from you out there that are more knowledgeable with the flood rules which is correct. Cancel AND refund within 30 days or just cancel in 30 days then refund when we get it from our 3rd party provider.

I have already cited the regulation and the FDIC exam manual so if you have any additional sources I can use to support either stance I would appreciate it.

The Biggert-Waters Act also provides that an institution must terminate force placed insurance within 30 days of receipt of
confirmation of a borrower’s existing flood insurance coverage. Additionally, an institution must refund to the borrower all premiums and fees for force-placed insurance paid by the borrower during any period of overlap between the borrower’s policy and the force placed policy. Because an insurer is the entity that actually cancels the policy, an institution need only notify the insurer to terminate the force-placed policy in order to comply with the termination requirement.

There are two steps here - first the bank must terminate the policy - which means based on the last sentence they have to notify the insurance company. The second is that the institution must refund the premiums - it says nothing about waiting on the insurance company for that step.

Just for clarification sake are you saying both should happen within the 30 days?

And I agree the last sentence is only speaking to the termination aspect not the refund aspect but that is what my line of business is pointing to to uphold their stance on not having to refund within the 30 days.

I did find in the July 2015 Federal Register in the section by section analysis "Another commenter suggested the Agencies clarify that the lender's refund obligation is subject to the insurer's refund of the premium. The Agencies note that Biggert-Waters does not impose such a condition precedent upon the lender's refund."

I interpret this to say that the refund we give as an institution is not dependent on the insurance companies refund having been received. I have sent this back to the line of business. We shall see what they say.

This may be something I just have to let happen as the line of business wants and just document my efforts to show what the regulation says.

Researching flood rules was not how I wanted to spend my Christmas Eve

I totally agree with you. You can always drop the question to your EIC through an e-mail and ask them for their opinion. Come exam time, that will be the only opinion that really matters and it sure beats paying a $2,000 fine for every late refund.