LEGAL/POLICY

The FDIC Updates Its Enforcement Actions Manual …For Flood Insurance Civil Money Penalties

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By Emmanuel Oluebube, Correspondent UK

The FDIC has updated its Formal and Informal Enforcement Actions Manual (Manual) regarding the assessment of mandatory civil money penalties (CMPs) for certain pattern and practice violations of the National Flood Insurance Act of 1968, as amended by the Flood Disaster Protection Act of 1973, as revised, 42 U.S.C. § 4012a (Flood Act) and Part 339 of the FDIC Regulations.

The manual provides direction for professional staff related to the work necessary to pursue formal and informal enforcement actions. It is also intended to support the work of field office, regional office, and Washington office staff involved in processing and monitoring enforcement actions.

Statement of Applicability to Institutions Under US$1 Billion in Total Assets: This Financial Institution Letter (FIL) applies to all FDIC-supervised financial institutions. No action on the part of any insured depository institution is necessary.

Highlights:

The Flood Act requires the FDIC to assess a penalty of up to US$2,000, adjusted annually for inflation, per violation per loan against an insured depository institution (IDI) for certain pattern and practice violations of the Flood Act.

When calculating the appropriate amount of mandatory Flood Act CMPs, the FDIC will generally use a two-step process by determining a base CMP and adjusting the base CMP for smaller institutions with reduced ability to pay such penalties.

The base CMP takes into account the type and repeat nature of the violations.

The Institution Asset Size Factor takes into account the institution’s asset size based on the last Call Report prior to the date of the examination.

This CMP framework is consistent with statutory authority under the Flood Act.

While the steps and charts are tools to establish an appropriate CMP when pattern and practice violations of the Flood Act are identified, the FDIC maintains its discretion to consider the facts and circumstances of each case when determining the amount of the CMP.

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