Dodd-Frank and Force Placed Insurance

Recent regulations, in conjunction with a spike in natural disasters, have placed a renewed emphasis on banks’ force placed insurance procedures. This is prompting most banks to perform a thorough evaluation of their current force placed insurance program. The primary purpose of the review is to ensure compliance with the new regulatory changes underway. An overview follows.

Dodd-Frank Act and Consumer Financial Protection Bureau (CFPB)

Significant changes were made to force placed insurance practices included under Dodd-Frank and the CFPB. Standard procedures historically utilized by most banks will need to be changed in order to comply with the mandatory requirements. The CFPB will have enforcement authority with the ability to impose civil money penalties ranging from $5,000 per day for minor infractions to $25,000 per day for more careless violations and $1 million per day for knowing violations.

Attorneys Generals' Settlement of Mortgage Servicing Practices

Restrictions in the proposed attorneys generals' settlement of mortgage servicing practices stipulates several common force placed insurance practices currently utilized by many banks are prohibited. Furthermore, it would require the bank to take specific additional and cumbersome steps prior to force placing any borrower.

National Association of Insurance Commissioners (NAIC Model Act)

The National Association of Insurance Commissioners Model Act is very specific in many areas related to how force placed insurance is handled. Some practices required by the Act are frequently overlooked by banks and there are also some practices the Act prohibits that are often utilized.

Flood Insurance

With recent flooding, and the past temporary suspension of the NFIP, examiners and regulators from all agencies have been "targeting" the flood insurance area during compliance exams. Flood zone determinations, ongoing monitoring of flood zone properties, and force placed flood insurance procedures have come under increased scrutiny. In many cases, penalties have been imposed. The concern is not directed so much at proof of insurance at loan closing, but rather making sure the bank has a system in place to identify exposure at any point after loan closing.

Force Placed Insurance Litigation

Recently, lawsuits against banks have been filed on behalf of force placed insurance borrowers. Typically, banks may avoid such litigation by utilizing a well-planned, disciplined, and professionally monitored program.

Most force placed insurance programs currently utilized by community banks that have been considered compliant and disciplined in the past will not pass scrutiny in today’s environment.

With so much at stake, banks can no longer rely solely on an in-house insurance clerk and local general insurance agent for their force placed insurance protection. It has become vital to partner with a trusted specialty provider who will provide guidance through uncertainty and deliver a turn-key system that allows the bank to concentrate on their core business.

In addition to insulation from regulatory violations and uninsured losses, there are other significant enhancements available as a result of utilizing the most current technology to reduce administration and improve customer service.

To evaluate the different solutions available and to acquire an analysis of your current force placed insurance program, please contact Jamey Lawrence at jlawrence3@lawrencevictoria.com.

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