The Flood Insurance Act – Flood Disaster Protection Act of 1973
– FDPA –
The Flood Insurance Act is a collective title of sorts for various Acts that have created what financial institutions know today as the Flood Insurance requirements. The flood insurance requirements have had a long and complicated history. It all started with the National Flood Insurance Act of 1968 which created federally subsidized flood insurance available for improved real estate located in a Special Flood Hazard Area (SFHA) and it has grown and changed over time. Like it or not, this Act “deputized” financial institutions in a sense and made them solely responsible for ensuring that borrowers obtain and maintain flood insurance, when it’s required. In doing so, financial institutions are protecting the Federal government. Failure to comply with the flood insurance requirements can result in civil money penalties, reputational risk, safety and soundness concerns and/or legal action.
The flood insurance requirements are not easy. There are a lot of rules, timing requirements, and tripwires during the loan process that can catch any financial institution/lender off-guard. Add in the fact that most insurance agents aren’t necessarily “experts” when it comes to what a financial institution must do to comply. Given the substantial risk associated with non-compliance, financial institutions must ensure they are doing everything they can to ensure the rules are followed.
Flood Insurance Today
As mentioned above, the National Flood Insurance Act of 1968 made federally subsidized flood insurance available for improved real estate located in a Special Flood Hazard Area (SFHA). The Flood Disaster Protection Act of 1973 mandated financial institutions to require flood insurance on loans secured by improved real estate located in a SFHA. Out of these, the National Flood Insurance Program (NFIP) was born. There was also the National Flood Insurance Reform Act of 1994, which sought to increase compliance by financial institutions and participation in the NFIP. This effectively increased the income to the National Flood Insurance Fund and decreased the financial burden of flooding for the government, taxpayers and flood victims. In 2007, the Federal Emergency Management Agency (FEMA) issued the Mandatory Purchase of Flood Insurance Guidelines (MPFIG); which sought to clarify the rules even further (but have since been rescinded). Not to be outdone, the joint regulatory agencies issued the Interagency Questions and Answers Regarding Flood Insurance (Interagency FAQ) in 2009. The Biggert-Waters Reform Act was passed in July 2012 and brought even more significant reforms to the flood insurance requirements. The Homeowner Flood Insurance Affordability Act (HFIAA) was passed in 2014 in an attempt to keep flood insurance costs low for homeowners. Most recently, in 2019 the Interagency Private Flood Insurance rules went into effect.
Even with all this legislation, the flood insurance requirements are still the least understood and most violated. Civil money penalties have increased substantially in the last decade and will most likely continue to rise.
Flood Insurance Training Resources:
We are in the business of educating bankers and quality training is our top priority. Our goal is to see you and your financial institution succeed! You can be assured that everything we do, from in-person training and webinars to our magazine and blog, it’s done in our signature, plain-English style.
If you prefer a little more flexibility as to when and where you receive training, webinars are a great solution. We have webinars devoted to specific flood insurance topics or the requirements as a whole that you can choose from. The shortened format of a webinar (1-2 hours) really allows us to go in-depth with a laser-like focus on certain areas of the flood insurance requirements. For example, if your lenders are struggling with private flood insurance, we have a webinar devoted only to that topic. If you want to look at the requirements as a whole, we have a two-part webinar series (four hours of training) that will get you on the right track.
Banker’s Compliance Consulting offers many options for risk-based compliance reviews. We offer full compliance reviews, including deposits, loans, and an independent BSA Audit. Several retainer packages are available to fit your institution’s size and needs. We can thoroughly review your institution’s lending and deposit operations on a quarterly, semi-annual, or annual basis. If you’d like a customized solution, we can review any combination of these regulations, such as a targeted HMDA review, TRID review, or website compliance review. We also offer exam preparation, comprehensive compliance risk assessments, compliance assistance on mergers, internal monitoring guidelines, and policy review and development. We provide off-site and/or on-site reviews based on your preference. Whether it’s providing documents electronically through a secure portal or providing paper or electronic files in your institution for review, we can customize a review solution that works for you!
Our blog is a great way to stay up to date with regulatory developments and topics. If the regulators issue a Final Rule affecting flood insurance, our blog is the first place you will hear from us. The blog acts as a great supplement to more formal methods of training and better yet, it’s FREE!
Our Banking on BCC Magazine is a must for any compliance professional. This monthly, subscription-based, electronic magazine is chock-full of valuable compliance information. We cover a variety of lending, deposit and BSA compliance topics from recent developments to highlighting areas that have maybe fallen off your radar. Each month, in addition to great articles, we also feature a Q & A Corner which highlights a few compliance questions we’ve recently received. There are also regular features such as BSA Bits & Pieces, Management Minute and a Training Spotlight.
Our Monthly Connection is yet another way to stay updated on flood insurance issues and interact with your peers in the compliance industry. While we talk about a wide variety of topics each month, there is ample time to ask questions of our experts and your peers. We have always said, “Compliance is not competitive,” and our Monthly Connection is a way for compliance people to help other compliance people.
There is no “one-size-fits-all” approach when it comes to a financial institution’s training wants and needs. That said, we do recommend some variety in the methods you choose. Variety will not only help your budget but will give you different viewpoints. Maybe you attend an in-person conference every couple of years and then fill in the gaps with webinars. Maybe you follow the blog to monitor major regulatory developments and look to our magazine for more in-depth analysis. The point is, you can tailor training to your wants and needs.
External Section FDPA Resources:
- Frequently Asked Questions & Answers - These Interagency FAQs provide answers so some of the most pressing questions related to flood insurance compliance.
- NFIP Flood Insurance Agent’s Manual While this manual is only applicable to insurance agents, it is a helpful resource for financial institutions trying to understand the insurance side of NFIP Flood Insurance.
- FEMA Map Service Center According to FEMA’s website, the FEMA Flood Map Service Center (MSC) is the official public source for flood hazard information produced in support of the National Flood Insurance Program (NFIP). Use the MSC to find your official flood map, access a range of other flood hazard products, and take advantage of tools for better understanding flood risk.
- Your Federal Regulator’s website: FDIC / OCC / Federal Reserve / NCUA