Compliance Blog

Happy Saint Patrick’s Day! Today is also the 3^rd birthday of my executive assistant and sous chef Nalu! His favorite activities are chasing shadows, watching squirrels outside the window, and napping. As you can tell, he is usually asleep on the job.

In honor of Nalu’s birthday, I thought it would be appropriate to blog about something related to water (Nalu in Hawaiian means wave), and what’s more fun than private flood insurance?

On March 11, five regulatory agencies including the National Credit Union Administration (NCUA) released proposed New Interagency Questions and Answers Regarding Private Flood Insurance, containing 24 questions the agencies are requesting public comment on. These private flood Q&As are meant to be a supplement to the proposed July 2020 revised Interagency Questions and Answers Regarding Flood Insurance.

In February 2019, the agencies finalized the regulations to implement the private flood insurance requirements of the Biggert-Waters Act. The regulation requires credit unions to accept private flood insurance, if specific criteria are met, and allows the credit union the discretion to accept private flood insurance when those criteria are not met. The private flood Q&As are divided into sections to address both mandatory and discretionary acceptance of private flood insurance policies and a section for general compliance.

Mandatory Acceptance

The proposed Q&As address nine questions specifically related to mandatory acceptance of private flood insurance policies. The Q&A clarifies that the credit union may choose to only accept policies that meet the definition of “private flood insurance,” and credit unions are not required to accept policies that do not meet the definition. The proposed answers explain that a credit union must review a private flood policy not only at a MIREs (making, increasing, renewing, or extending a loan) event, but also when the policy is up for renewal or when a member obtains a new private flood insurance policy.  The guidance also discusses that the credit union is not required to conduct further review of policies with the compliance aid language (which the regulation states the credit union may rely on for a policy to meet the definition of “private flood insurance), but the credit union may choose to have a policy to conduct its own review in determining if the policy meets the definition of private flood insurance instead of relying on the compliance aid language.

Discretionary Acceptance

The proposed Q&As also have four questions that discuss discretionary acceptance of private flood insurance policies. The Q&As explain that the discretionary acceptance criteria are the minimum acceptable criteria that a flood insurance policy must have for the credit union to accept the policy, and clarifies that credit unions are not required to accept private flood insurance policies that meet the discretionary criteria but not the mandatory acceptance criteria. The guidance also states that if a credit union chooses to accept a private flood insurance policy under discretionary acceptance, the credit union must document in writing the credit unions conclusion that the policy provides sufficient protection in line with the credit union’s safety and soundness principals. The Q&A provides some factors the credit union may consider in determining if the policy is sufficient, including how to evaluate an insurer’s solvency, determining if a policy’s deductibles are reasonable, and if the terms and conditions are adequate to protect the credit union’s interest in the collateral.

General Compliance

This section of the Q&A contains 11 questions that are not specific to mandatory or discretionary acceptance of private flood insurance policies but address other topics related to private flood insurance. The topics addressed include the maximum deductible amount, third party fees for policy reviews, private policies not available prior to closing, multiple-peril policies, and identifying if an insurer is licensed in a state.

The NAFCU team is working on a Regulatory Alert to solicit comments from credit unions regarding the proposed Q&As.

President Biden signed the American Rescue Plan Act on March 11, 2021. To help credit unions understand which provisions of the bill may impact their members and operations, our NAFCU team created this chart summarizing the new stimulus bill.