Taking a Closer Look at the Interagency Statement on Flood Insurance: Civil Money Penalties and Force Placement of Insurance
Written by Bernadette Clair, Regulatory Compliance Counsel
In our April 1st blog, we mentioned the release of an Interagency Statement on the Impact of the Biggert-Waters Act (Statement) by several agencies including the NCUA. (As of this posting, NCUA has not issued its own announcement, but in the meantime the Statement is available on the Office of the Comptroller of the CurrencyÃ¢ÂÂs website here.) For more information about the Act itself, see our blogÂ from July 25th of last year.
The StatementÂ was issued to provide guidance on the Ã¢ÂÂeffective dates of certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (the Act), enacted July 6, 2012, and the impact of the Act on the AgenciesÃ¢ÂÂ proposed Interagency Questions and Answers.Ã¢ÂÂ Agency rulemaking will be required to implement some of the ActÃ¢ÂÂs provisions; however, today we want to point out several provisions that became effective upon enactment on July 6, 2012, dealing with civil money penalties and force placement of insurance.
Civil Money Penalties. The Act amended the Flood Disaster Protection Act of 1973 (the FDPA) to increase the civil money penalties that can be assessed against lenders for failure to comply with flood insurance requirements. The maximum civil money penalty for a FDPA violation has been increased to $2,000.Â The Act also removed the penalty cap per year.
Force Placement of Insurance. The Act also amended the FDPA to require lenders to release a force-placed policy within 30 days of receipt of confirmation of a borrowerÃ¢ÂÂs flood insurance coverage and refund premiums for the period during which the force-placed policy and the borrowerÃ¢ÂÂs policy were both in effect. From the Statement:
Â Ã¢ÂÂThe FDPA provides that a lender or its servicer must notify a borrower if it determines that the flood insurance coverage on the improved real estate or mobile home serving as collateral for the borrowerÃ¢ÂÂs loan has expired or is less than the amount required for that particular property (42 USC 4012a(e)). The notice must inform the borrower of the need to purchase flood insurance. If the borrower fails to purchaseÂ flood insurance within 45 days after notification, the lender or servicer must purchase flood insurance on behalf of the borrower and may charge the borrower for the cost of premiums and fees incurred by the lender or servicer. The Act amends the FDPA to:
- Provide that the premiums and fees that a lender or servicer may charge the borrower include premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide sufficient coverage amount;
- Require the lender or servicer, within 30 days of receiving a confirmation of a borrowerÃ¢ÂÂs existing flood insurance coverage, to terminate any force-placed insurance and refund to the borrower all force-placed insurance premiums and any related fees paid for by the borrower during any period of overlap between the borrowerÃ¢ÂÂs policy and the force-placed policy; and
- Require a lender or servicer to accept as confirmation of a borrowerÃ¢ÂÂs existing flood insurance policy a declarations page that includes the existing flood insurance policy number and the identity and contact information for the insurance company or agent.Ã¢ÂÂ
Â Note in particular the first bullet above, which points out that the FDPA has been amended to specifically provide that a lender can charge the borrower for premiums and fees incurred for coverage beginning on the date flood insurance coverage lapsed.
The ability to charge a borrower for insurance coverage within the 45 day notification period has been the topic of discussion for years and was the subject of multiple versions (available hereÂ and here) ofÂ proposed Interagency flood insurance Q&A #62.Â The amendment to the FDPA clarifies that it is permissible to charge for policy coverage that begins on the date that flood insurance lapsed, which would include charges incurred for coverage within the 45 day notice period.Â Accordingly, the Agencies have indicated that Q&A #62 is no longer necessary and will not be finalized.