Agencies adopt final rules giving FIs more flexibility in flood insurance acceptance

Final rules requiring financial institutions to accept flood insurance policies that meet the statutory definition of “private flood insurance” – and to allow financial institutions to exercise their own discretion in accepting other plans, including those by mutual aid societies – were made final Tuesday by federal banking regulators, with approvals by the Federal Reserve and the National Credit Union Administration (NCUA) still pending.

The rules represent amendments to current regulations of the agencies which implement the private flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012. The rules were released jointly by the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC). The Farm Credit Administration (FCA) also issued the final rule. The Fed and NCUA must still give final approval.

“Specifically, the final rule requires regulated lending institutions to accept policies that meet the statutory definition of ‘private flood insurance’ in the Biggert- Waters Act,” the summary of the final rule states. It also notes that the final rule “permits regulated lending institutions to exercise their discretion to accept flood insurance policies issued by private insurers and plans providing flood coverage issued by mutual aid societies that do not meet the statutory definition of ‘private flood insurance,’ subject to certain restrictions.”

The final rule takes effect July 1; it affects loans in areas having special flood hazards.

In October 2016, the five agencies issued a joint notice of proposed rulemaking to implement provisions of the Biggert-Waters Act that required regulated lending institutions to accept certain private flood insurance policies in addition to policies made available by the Federal Emergency Management Agency (FEMA).

According to a release issued by OCC then, the proposal included provisions to assist lending institutions in identifying private flood insurance policies they would be required to accept. The proposal also would have clarified that lenders retain their discretion to accept private flood insurance policies that do not meet the criteria for mandatory acceptance, provided certain conditions are met.

“Furthermore, the proposed rule would establish criteria to apply in determining that coverage offered by a mutual aid society provides the type of policy or coverage that qualifies as ‘flood insurance’ for purposes of the federal flood insurance laws,” the release stated.

The five agencies had previously issued a proposal addressing private flood insurance (78 FR 65107). “Based on comments received in response to that proposal, the agencies have decided to issue this second proposal for additional public comment,” they said in October 2016.

(For more details on the final rule, see the listing in our Regulatory Lookup feature; click here)

Loans in Areas Having Special Flood Hazards