Citibank settles flood-insurance action for $18 million

Jan 22, 2020
OCC alleges bank violated Flood Disaster Protection Act

Citibank has agreed to pay almost $18 million to settle allegations that its Sioux Falls, South Dakota business violated the Flood Disaster Protection Act of 1973 (Flood Act).

According to the Federal Reserve, the Flood Act requires federal financial regulatory agencies to adopt regulations prohibiting their regulated lending institutions from providing loans secured by improved real estate or mobile homes located in areas at risk from flooding in a community participating in the national flood insurance program unless the property securing the loan is covered by flood insurance. That insurance may be provided either through the program or a private insurance carrier.

The Office of the Comptroller of the Currency (OCC) states in a related consent order filing that Citibank makes, increases, extends and renews loans secured by buildings or mobile homes located in a special flood hazard area in which flood insurance is available under the Flood Act.

According to the OCC, Citibank has a compliance program related to the legislation that monitors its designated loans with the intention of making sure the buildings or mobile homes securing those loans are appropriately covered by flood insurance.

As part of its Flood Act compliance program, the bank used a third party to service designated loans within its residential lending units to notify borrowers and force flood insurance coverage when the flood insurance failed to appropriately cover the buildings or mobile homes, according to the regulator. But the OCC says in a statement that the bank failed to purchase required flood insurance on behalf of the borrowers at issue in a timely manner.

The bank has since at least 2014 failed to force relevant insurance in a timely manner on residential designated loans, the OCC alleges. The regulator in 2017 launched an examination of the bank’s Flood Act compliance program and found that Citibank’s policies and procedures allowed its third-party servicer to extend the period after notifying the borrower, resulting in the untimely forced placement of flood insurance on designated loans.

‘The failure to purchase the required flood insurance in a timely manner resulted from Citibank’s deficient [Flood Act] policies and procedures, which allowed the bank’s third-party service provider to extend the 45-day notification period after the initial borrower notification,’ officials write in a statement.

According to the OCC, Citibank was required to pay a $17,998,510 civil penalty to the Federal Emergency Management Agency’s national flood insurance program.

Citibank settled without admitting or denying wrongdoing. According to the OCC notice, this was ‘in the interest of co-operation and to avoid additional costs associated with administrative and judicial proceedings.’ A request for comment from the bank was not returned immediately.

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