Agencies Clarify Changes to Flood Insurance Rules

The guidance covered the Biggert-Waters Flood Insurance Reform Act of 2012.

June 1, 2013

In April, the federal financial institution agencies released guidance on changes to the Flood Disaster Protection Act (FDPA).

The guidance from NCUA, Federal Reserve Board, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, and the Farm Credit Administration covered the Biggert-Waters Flood Insurance Reform Act of 2012. That act amended the FDPA last July.

The guidance clarifies that the following provisions of Biggert-Waters became effective upon enactment (July 6, 2012):

  • Amendments to the force placement provisions of the FDPA. Biggert- Waters amended the FDPA to:
    • Provide that the premiums and fees a lender or servicer may charge the borrower include those incurred for coverage beginning on the date on which either 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 borrower’s existing flood insurance coverage, to terminate any force-placed insurance. It also must 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 borrower’s policy and the force-placed policy; and
    • Require a lender or servicer to accept a declarations page as confirmation of a borrower’s existing flood insurance policy. The page includes the existing flood insurance policy number and the identity and contact information for the insurance company or agent.
  • The maximum civil money penalty increased for an FDPA violation to $2,000 and the elimination of the annual penalty cap. 

The following provisions of the act are not effective until the issuance of regulations:

  • The requirement that lenders accept private flood insurance policies if the coverage satisfies the standards specified in the act.
  • The requirement that lenders disclose certain information to borrowers regarding the National Flood Insurance Program.
  • The requirement that certain lenders and servicers establish escrow accounts for flood insurance premiums and fees for any loan outstanding or entered into after July 6, 2014, that is secured by residential improved real estate or a mobile home. This provision includes an exemption for certain institutions with less than $1 billion in assets.

After the promulgation of final regulations, the agencies expect to undertake a review of the interagency questions and answers and may propose changes as appropriate.

For more information, visit CUNA's Compliance section.