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FDIC Enforcement Decisions and Orders

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{{2-28-94 p.C-2282}}    [10,536] In the Matter of Polk City Savings Bank, Polk City, Iowa, Docket No. FDIC-92-129b (5-15-92).

   Bank to cease and desist from unsafe or unsound practices; violating applicable consumer laws; and failing to provide adequate supervision to prevent violations. (This order was terminated by order of the FDIC dated 12-15-93; see ¶ 15,770.)
   [.1] Consumer Laws—Compliance Officer Required
   [.2] Violations of Law—Eliminate/Correct
   [.3] Consumer Laws—Compliance Program—Minimum Requirements
   [.4] Advertising—Compliance with Consumer Laws
   [.5] Shareholders—Disclosure—Cease and Desist Order
   [.6] Compliance Reports—Frequency

In the Matter of

POLK CITY SAVINGS BANK
POLK CITY, IOWA (Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-92-129b

   Polk City Savings Bank, Polk City, Iowa ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violations of law and/or regulations alleged to have been committed by the Bank and of its right to a hearing on such alleged charges under section 8(b) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated May 7, 1992, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices or violations of law and/or regulations, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
   The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had violated laws and/or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

DEFINITIONS

   1. "Compliance program" means the same as the definition contained in the FDIC Manual for Compliance Examinations, including a consciously planned and organized effort to meet the Bank's compliance with consumer laws in a comprehensive manner on an ongoing basis.
   2. "Consumer laws" means those laws and regulations referenced in the FDIC Manual for Compliance Examinations, including the laws and regulations referred to in {{7-31-92 p.C-2283}}the FDIC's Compliance Report of the Bank as of January 15, 1992 ("Report").

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as that term is defined in Section 3(u) of the Act, 12 U.S.C. § 1813(u), and its successors and assigns cease and desist from the following unsafe and unsound banking practices and violations of law and/or regulations:
   A. engaging in violations of applicable consumer laws; and
   B. failing to provide adequate supervision and direction over the Bank's compliance program to prevent violations of consumer laws.
   IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

   [.1] 1. (a) (i) No more than 60 days from the effective date of this ORDER, the Bank shall have and thereafter retain a qualified compliance officer who shall be given stated written authority by the Bank's board of directors to implement and supervise the Bank's compliance program, including but not limited to, providing training for the Bank's employees in all consumer laws, establishing internal controls and procedures reasonably designed to prevent violations of consumer laws, and performing or supervising periodic internal audits to ascertain compliance with consumer laws and/or the Bank's compliance program. The compliance officer shall report directly to the board of directors.

       (ii) The Bank shall promptly notify the Regional Director of the FDIC's Kansas City Regional Office ("Regional Director") of the identify of said compliance officer. If the compliance officer is to be added as a director or a senior executive officer of the Bank, the Bank shall comply with the requirements of section 32 of the Act, 12 U.S.C. § 1831i, and section 303.14 of the FDIC Rules and Regulations, 12 C.F.R. § 303.14, prior to the addition of the compliance officer to such position.
   (b) The assessment of whether the Bank has a qualified compliance officer shall be based upon the officer's conduct with respect to the Bank in: (A) complying with the requirements of this ORDER; and (B) complying with applicable consumer laws.

   [.2] 2. (a) Except for the violation of 12 C.F.R. § 226.23(b) listed on page 3 of the Report, no more than 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of consumer laws committed by the Bank as described on pages 2 through 2-a-4 and 3 of the Report.
   (b) For purpose of this ORDER, the violations of the following sections of Federal Reserve Regulation Z—Truth in Lending, described on pages 2 through 2-a-4 and 3 of the Report, shall be considered corrected if the Bank provides the identified borrowers with an accurate Truth in Lending disclosure in conformity with the time provided in paragraph 2(a):

       (i) 12 C.F.R. § 226.18(c);
       (ii) 12 C.F.R. § 226.18(e);
       (iii) 12 C.F.R. § 226.18(g);
       (iv) 12 C.F.R. § 226.18(i);
       (v) 12 C.F.R. § 226.18(k)(l);
       (vi) 12 C.F.R. § 226.18(q);
       (vii) 12 C.F.R. § 226.19(b)(2); and
       (viii) 12 C.F.R. § 226.20(c).
   (c) For purposes of this ORDER, the violation of 12 C.F.R. § 226.18(d), described on page 2 of the Report, shall be considered corrected if:
       (i) the Bank provides each borrower with a written disclosure of the cost of the insurance and of the fact that the insurance is not required by the Bank in order to retain the extension of credit; and
       (ii) after receiving the disclosure described in paragraph 2(c)(i), (A) the borrower provides a written affirmative request that the insurance be continued, in which case the insurance will be continued, or (B) the borrower does not request in writing that the insurance be continued within the time set by this paragraph 2(a) for correction of violations, in which case the Bank shall cancel said insurance and refund the amount of any unearned premiums, or portions thereof, paid by the borrower.

   [.3] 3. (a) No more than 60 days from the effective date of this ORDER, the Bank shall develop and implement a written {{7-31-92 p.C-2284}}compliance program which, in a minimum, shall expressly provide for:
       (i) adequate training in consumer laws conducted at least once every 12 calendar months for all Bank employees involved in lending, and for any others whose duties and responsibilities include the need to comply with consumer laws. Such training shall include instruction in new consumer laws, including without limitation the Truth in Savings Act, Pub. L. No. 102-242, 105 Stat. 2236, 2334-43 (1991), and changes in existing consumer laws;
       (ii) adequate procedures for monitoring the Bank's compliance with consumer laws, including an internal audit of the Bank's compliance program to be performed or supervised by the compliance officer each calendar quarter. The compliance officer shall report the results of said audit to the Bank's board of directors, and the Bank's board of directors shall record the results of said audit and any recommendation by the compliance officer and/or the board in the board's minutes;
       (iii) procedures to ensure that the Bank provides to credit applicants the Truth in Lending disclosures required by 12 C.F.R. §§ 226.18, 226.19, 226.20, and 226.23;
       (iv) procedures to ensure that the Bank provides to credit applicants the notification required by 12 C.F.R. § 202.9(a)(2) when adverse action is taken;
       (v) procedures to ensure that, for all extensions of credit secured by improved real estate or a mobile home, the Bank maintains sufficient records to indicate the method used by the Bank to determine whether the extensions of credit fall within the provisions of 12 C.F.R. §§ 339.3 or 339.4, and 12 C.F.R. § 339.5, including, at a minimum, the date and complete panel number of the Federal Emergency Management Agency map used and the date flood maps were reviewed; and
       (vi) procedures to ensure that the Bank collects, records and retains the data required by 12 C.F.R. § 338, which incorporates 12 C.F.R. § 203.
   (b) The board of directors shall approve the written compliance program and/or any subsequent modification thereto, which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank and its institution-affiliated parties shall follow the written compliance program and/or any subsequent modification thereto.

   [.4] 4. All Bank advertising shall comply with all consumer laws, including but not limited to, the FDIC's "Interest on Deposits" regulation, 12 C.F.R. Part 329, and "Fair Housing" regulation, 12 C.F.R. Part 338. All Bank advertising shall be reviewed by the Bank's compliance officer prior to publication or issuance.

   [.5] 5. Following the effective date of this ORDER, the Bank shall send to its shareholders a description of this ORDER, (A) in conjunction with the Bank's next shareholder communication, and also (B) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, statement, or notice shall be sent to the FDIC, Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429-9990, for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice or statement.

   [.6] 6. The Bank shall furnish written progress reports to the Regional Director and the Iowa Superintendent of Banking ("Superintendent") detailing the form and manner of any action taken to secure compliance with this ORDER and the results thereof every 90 days, beginning 90 days from the effective date of this ORDER. In addition, the Bank shall furnish such reports on request of either the Regional Director or the Superintendent. All progress reports and other written responses to this ORDER shall be reviewed by the board of directors of the Bank and made a part of the minutes of the board meeting.
   This ORDER shall become effective 10 days from the date of its issuance.
   The provisions of this ORDER shall be binding upon the Bank and its institution-affiliated parties, successors and assigns.
   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been mod- {{3-31-94p.C-2285}}ified, terminated, suspended, or set aside by the FDIC.
   Dated this 15th day of May, 1992.
   Pursuant to delegated authority.

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