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Top Story Compliance Related


Fed posts flood insurance Q&As

The Federal Reserve Board has issued Consumer Affairs Letter 20-7, "Flood Insurance Compliance in Response to the Coronavirus," with two frequently asked questions regarding flood insurance compliance requirements during the national emergency caused by the COVID-19 pandemic.

Q1. If a bank works with its borrowers by extending maturities/payments or balloon payments due to the COVID-19 emergency, would the bank be required to make a new flood zone determination and provide new notices of special flood hazards for the extended loan?

A1. Under the federal flood statutes and the Federal Reserve’s implementing regulation, flood insurance requirements are generally triggered upon the making, increasing, renewing, or extending of any designated loan. If a lender modifies a loan by extending the loan term, then this change is a triggering event, and flood insurance requirements would apply, provided no other existing exception to the requirements under the Federal Reserve’s regulation is applicable. Such requirements may include establishing escrow for flood insurance payments and fees, making a flood zone determination on the property securing the loan, or providing the notice of special flood hazards to the borrower. The federal flood statutes and the Federal Reserve’s implementing regulation do not provide for a waiver of these requirements in emergency situations.

However, consistent with the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)" dated April 7, 2020, when exercising supervisory and enforcement responsibilities, the Federal Reserve will take into account the unique circumstances impacting borrowers and institutions resulting from the COVID-19 emergency. The Federal Reserve will take into account an institution’s good-faith efforts demonstrably designed to support consumers and comply with the flood insurance requirements. The Federal Reserve expects that supervisory feedback for institutions will be focused on identifying issues, correcting deficiencies, and ensuring appropriate remediation to consumers. The Federal Reserve does not expect to take a public enforcement action against an institution, provided that the circumstances were related to the COVID-19 emergency and that the institution made good faith efforts to support borrowers and comply with the flood insurance requirements, as well as responded to any needed corrective action.

Q2: How does FEMA Bulletin W-20002 affect the force placement requirement under the Flood Disaster Protection Act and the implementing regulation?

A2: On March 29, 2020, the Federal Emergency Management Agency (FEMA) announced in Bulletin W-20002 that the grace period to renew National Flood Insurance Program (NFIP) policies that expire between February 13, 2020 and June 15, 2020 (FEMA emergency period) has been extended from 30 days to 120 days due to the COVID-19 emergency. Based on Bulletin W-20002, a borrower will be covered by the NFIP policy if the flood insurance premium is paid before the 120-day grace period expires.

In accordance with the flood insurance force placement regulations, when a lender makes a determination that a designated loan is not covered by a sufficient amount of flood insurance, it must notify the borrower. If the borrower does not provide evidence of sufficient coverage within 45 days after notification, the lender must force place flood insurance in an amount that will satisfy the regulatory requirements. However, in light of Bulletin W-20002, for NFIP policies expiring during the FEMA emergency period:

  • A lender may provide the required notice to the borrower after determining the policy has expired with an indication that the NFIP grace period has been extended for 120 days. Lenders may inform borrowers that, in light of Bulletin W-20002, force placement will not occur until after the end of the 120-day period.
  • Alternatively, a lender may provide the required notice to the borrower at least 45 days before the end of the 120-day grace period.
  • For either alternative, the lender must force place flood insurance on the borrower’s behalf if the borrower does not pay the premium by the end of the 120-day grace period.
  • Consistent with the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)” dated April 7, the Federal Reserve does not expect to take supervisory or enforcement action against the lender for violating the flood insurance force placement requirements, provided that the circumstances were related to the COVID-19 national emergency, and that the lender has made good faith efforts to support borrowers and comply with the flood insurance requirements, as well as responded to any needed corrective action.
  • Lenders should be aware that if they force place flood insurance for NFIP policies that expire during the FEMA emergency period prior to the expiration of the 120-day grace period and the borrower pays the premium by the end of the 120-day grace period, consistent with the flood insurance regulatory requirements, the lender would be required to refund the borrower for any overlapping flood insurance coverage.


IRS posts FAQs on CARES Act relief for IRAs and retirement plans

The IRS has added a webpage on "Coronavirus-related relief for retirement plans and IRAs questions and answers". addressing the provisions of section 2202 of the CARES Act, which provides for special distribution options and rollover rules for retirement plans and IRAs and expands permissible loans from certain retirement plans.

The FAQs address how these distributions should be reported by retirement plan and IRA custodians and trustees. They also indicate that the IRS will be issuing more detailed guidance soon, and that it will follow the same principles as related guidance issued following Hurricane Katrina.


Agencies modify Liquidity Coverage Ratio

The Federal Reserve, FDIC, and the OCC have issued a joint press release announcing their publication [85 FR 26835] today of an interim final rule that modifies the agencies' Liquidity Coverage Ratio (LCR) rule to support banking organizations' participation in the Federal Reserve's Money Market Mutual Fund Liquidity Facility and the Paycheck Protection Program Liquidity Facility. In particular, the interim final rule facilitates participation in these facilities by neutralizing the LCR impact associated with the non-recourse funding provided by these facilities.. The rule, which is effective today, does not otherwise alter the LCR or its calibration. Comments are due by June 5, 2020.


FDIC posts CRA compliance exam ratings

The FDIC has issued a list of 67 state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list covers evaluation ratings that the FDIC assigned to institutions in February 2020. Sixty-one were rated Satisfactory and two rated Needs to Improve.. Congratulations to the four banks that were rated Outstanding (links are to their evaluations):


OCC CRA evaluations released

The OCC has released a list of Community Reinvestment Act performance evaluations that were made public in April 2020. Of the 20 evaluations made public, 16 were rated satisfactory and the following four were rated outstanding (links are to the evaluation reports):


OFAC designates Iranian/Iraqi individual and company

Treasury has announced OFAC's designation of dual Iranian and Iraqi national Amir Dianat, a longtime associate of senior officials of Iran’s Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF). Dianat, who is also known as Ameer Abdulazeez Jaafar Almthaje, is involved in IRGC-QF efforts to generate revenue and smuggle weapons abroad. OFAC is also designating Taif Mining Services LLC, a company owned, controlled, or directed by Dianat. For identity information, see BankersOnline's OFAC Update.


UAE strengthens AML system

The Financial Action Task Force (FATF) has issued its 2020 mutual evaluation report for the United Arab Emirates (UAE) which indicates the recent strengthening of its legal framework to fight money laundering and terrorist financing but, as a major global financial center and trading hub, it must take urgent action to effectively stop the criminal financial flows that it attracts.


FTC Marketing and Consumer Protection Conference

The Federal Trade Commission has announced that the Commission and the INFORMS Society for Marketing Science’s journal Marketing Science will co-organize the second FTC-Marketing Science Conference on Marketing and Consumer Protection on October 2, 2020, in Washington, D.C. The conference will bring together scholars interested in issues related to marketing and consumer protection policy and regulation.


NCUA seeks CECL exemption

The NCUA reports that NCUA Chairman Hood has written a letter urging the Financial Accounting Standards Board to exempt credit unions from complying with the current expected credit losses methodology, or CECL. Hood noted that the NCUA uses the incurred loss model when it supervises and examines the 5,236 credit unions under its purview for safety and soundness — nearly 70 percent of which are less than $100 million in assets. Hood said that attempting to recognize all expected credit losses is fraught with data collection challenges for the smallest credit unions that the agency supervises.


OFAC issues violation finding to American Express

OFAC has issued a Finding of Violation to American Express Travel Related Services Company (“Amex”) for violations of the Weapons of Mass Destruction Proliferators Sanctions Regulations. OFAC found that Amex issued a prepaid card to, and processed 41 transactions totaling $35,246.82 on behalf of, Gerhard Wisser, a Specially Designated National (SDN). These violations were the result of human error and screening system defects. Amex remediated and disclosed the violations to OFAC.

OFAC said that this case highlights the importance of taking the steps necessary to ensure that automated sanctions compliance controls measures cannot be overridden without appropriate review There is no monetary penalty associated with a Finding of Violation.


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