By: Jeremy Clifton, CRCM, CAMS

If your institution offers online account opening, the Making Online Banking Initiation Legal and Easy (MOBILE) Act will possibly affect how your institution retains documentation for CIP purposes. The MOBILE Act officially became law on May 24, 2018 and clarifies that institutions can obtain scanned copies or images of identification cards (e.g. driver’s license or other ID cards) as part of a request to open an account in an online environment. However, the institution is required to delete the image or copy of the ID card after the institution has obtained the required information from the ID card. This will be a change to some institution’s CIP procedures where copies of ID cards were retained for CIP record keeping but remember these rules only apply to accounts initiated via online channels.  As applicable, institutions should consider updating their CIP program to comply with this act.  

The Biggert-Waters Flood Insurance Reform Act of 2012 (the Biggert-Waters Act) amended Federal flood insurance legislation to require the federal regulatory agencies to issue a final rule that directs insured depository institutions to accept private flood insurance.  On February 13, 2019 federal regulatory agencies announced the issuance of a joint final rule to amend their respective regulations regarding loans in special flood hazard areas to incorporate and implement certain provisions regarding private flood insurance.

In general, the final rule requires institutions to accept flood insurance policies that meet the statutory definition of private flood insurance in the Biggert-Waters Act and permits institutions to exercise their discretion to accept flood insurance policies issued by private insurers and flood plans provided by mutual aid societies, even if such policies or coverage do not meet the statutory definition of private flood insurance, as long as certain criteria are met.
The final rule covers three key provisions:

• Mandatory Acceptance of Private Flood Insurance and Compliance Aid
• Discretionary Acceptance of Private Flood Insurance
• Coverage by Mutual Aid Societies

Mandatory Acceptance of Private Flood Insurance and Compliance Aid

The Biggert-Waters Act requires institutions to accept private flood insurance that meets both the statutory definition of private flood insurance and meets the existing mandatory purchase requirement.  The final rule includes a streamlined compliance aid provision to assist institutions with evaluating policies by relying on written assurances from the insurer that a policy satisfies the criteria set out in the Biggert-Waters Act.  This provision allows an institution to conclude that a private flood insurance policy meets the definition of private flood insurance, without further review of the policy, if the following statement is included within the policy or as an endorsement to the policy by the insurer:

“This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”

An institution may also choose not to rely on an assurance statement and conduct its own due diligence to ensure the private policy meets the definition of private flood insurance which is provided in the final rule.

Discretionary Acceptance of Private Flood Insurance 

The final rule provides that institutions may accept private flood insurance policies that do not meet the Biggert-Waters Act's criteria for mandatory acceptance, provided that certain conditions are met. 

Specifically, the final rule permits institutions to accept flood insurance policies issued by private insurers that do not meet the statutory and regulatory definition of private flood insurance if the policy:

1. Provides coverage in the amount required by the flood insurance purchase requirement;
2. Is issued by an authorized insurer that is licensed, admitted, or not disapproved by a state insurance regulator;
3. Covers both the mortgagor(s) and the mortgagee(s) as loss payees, except in the case of a policy that is provided, and for which the premium is paid by a condominium association, cooperative, homeowners association, or other applicable group; and 
4. Provides sufficient protection of the designated loan, consistent with general safety and soundness principles

When using its discretion to accept a non-conforming private insurance policy the financial institution must document its conclusion regarding sufficiency of the protection of the loan in writing.

Coverage by Mutual Aid Societies 
 
The final rule allows institutions to accept certain flood plans provided by mutual aid societies, such as an Amish Aid Plan, when certain conditions are met.  As defined in the final rules, a mutual aid society means an organization whose members share a common religious, charitable, educational, or fraternal bond that covers losses caused by damage to members’ property pursuant to an agreement, including damage caused by flooding if the common bond has a demonstrated history of fulfilling the terms of agreements to cover losses to members’ property caused by flooding. 
 
Pursuant to the final rule, an institution, in satisfaction of the mandatory flood insurance requirement, may accept a plan provided by a mutual aid society, if the institution’s primary Federal supervisory agency has determined that such plans qualify as flood insurance for purposes of the Biggert-Waters Act and the plan:

1. Provides coverage in the amount required by the flood insurance purchase requirement;
2. Covers both the mortgagor(s) and the mortgagee(s) as loss payees; and
3. Provides sufficient protection of the designated loan, consistent with general safety and soundness principles 

When accepting a flood insurance policy issued by a mutual aid society the lending institution must document its conclusion regarding sufficiency of the protection of the loan in writing.
 
Effective Date

The final rule becomes effective on July 1, 2019. As such financial institutions should work diligently to make necessary changes to their policies, procedures and operating systems to ensure compliance by the effective date. 
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Click on the link below to access the joint final rule in its entirety, for additional information, including the statutory definition of private flood insurance:

https://www.fdic.gov/news/news/press/2019/pr19006a.pdf