Banking and Finance Law Daily Wrap Up, ENFORCEMENT ACTIONS—FDIC Assesses Civil Money Penalties, (Apr 1, 2013)

By John M. Pachkowski, J.D.

The Federal Deposit Insurance Corp. has announced the enforcement actions it took against state nonmember banks and individuals in February 2013. Of the 46 enforcement order taken by agency, there were a number that imposed civil money penalties for violations of Section 8 of the Federal Deposit Insurance Act (12 USC §1818).

Flood insurance. A number of banks were assessed civil money penalties for violations of the Flood Disaster Protection Act of 1973 (FDPA) and FDIC’s flood insurance regulations codified at 12 CFR Part 339.

Peoples Exchange Bank, Stanton, Ky, was order to pay a civil money penalty of $7,700 for its violations of the FDPA and Part 339. The civil money penalty assessment was based on 20 violations found by the FDIC. These violations were related to the bank’s failure to: obtain flood insurance on a building securing a designated loan at the time of the origination; obtain adequate flood insurance at the time of a loan’s origination; follow force placement flood insurance procedures; and provide required flood hazard and insurance availability notices.

First United Bank & Trust Company, Durant, Okla, was assessed a civil money penalty of $24,640 related to the violations of the FDPA and Part 339. The FDIC based the penalty on a finding that the "Bank failed to obtain flood insurance, maintain flood insurance for the term of the loan, and/or obtain adequate flood insurance coverage on sixty-four (64) loans secured by real estate located in a Special Flood Hazard Area."

Finally, Doral Bank, San Juan, PR agreed to pay a civil money penalty in the amount of $135,000 related to the violations of the Flood Act and Part 339. The FDIC found that Doral Bank failed on 328 occasions to provide required disclosures that a property was located in the flood hazard area and that flood insurance was available. The agency also found that on at least 23 occasions, the bank failed to require that a borrower obtain flood insurance.

It should be noted that had these violations occurred after July 6, 2012, the enactment of the Biggert-Waters Flood Insurance Reform Act of 2012, these banks could have been facing much steeper civil penalties. Under the 2012 Act, the maximum civil money penalty for a FDPA violation was increased from $350 to $2,000. Banks supervised by the FDIC were notified of the FDPA changes in FIL-14-2013, March 29, 2013.

ECOA violations. The FDIC entered into a consent agreement with Citizens State Bank, Somerville, Tex, for the bank’s violations of the Equal Credit Opportunity Act and Regulation B due to the bank charging "Hispanic applicants higher interest rates than similarly situated non-Hispanic borrowers on unsecured consumer loans originated in 2007 and 2008." For its actions, Citizens State Bank, which did not admit or deny the ECOA violations, agreed to pay a civil money penalty of $15,000.

Unfair and deceptive practices. United Citizens Bank of Southern Kentucky, Columbia, Ky, consented to a civil money penalty of $15,000 based on the bank’s practices in providing disclosures under the Electronic Fund Transfer Act. The FDIC found that, although the procedures met the requirements of Regulation E (12 CFR Part 205), the bank then administered different, more burdensome procedures, which did not meet regulatory standards, and therefore violated the Federal Trade Commission Act’s Section 5 prohibition against unfair or deceptive acts or practices.

Finally, in the Matter of William G. Shick, the FDIC assessed a civil money penalty of $25,000 against Shick, who was a senior vice president and loan officer of Casey State Bank, Casey, Ill. The FDIC found that a number of loan transactions that Shick had participated in were done in an unsafe and unsound manner, based on Shick’s failure to disclose to the bank his intent to use certain loan proceeds for his own use and benefit. The FDIC added that Shick’s actions "demonstrate Respondent’s dishonesty" and breached his fiduciary duties to the bank. In addition to the civil money penalty, the FDIC will conduct a hearing to determine whether to prohibit Shick from further participation in the banking industry.

Companies: Peoples Exchange Bank; First United Bank & Trust Company; Doral Bank; Citizens State Bank; United Citizens Bank of Southern Kentucky

LitigationEnforcement: EnforcementActions ConsumerCredit Loans Mortgages