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FDIC Enforcement Decisions and Orders

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   [11,086] In The Matter of Bank of Pullman, Pullman, Washington, Docket No. FDIC-94-146b (11-7-94).

   Bank to cease and desist from such unsafe or unsound practices as operating in violation of bank secrecy and consumer protection laws and regulations. (This order was terminated by order of the FDIC dated 8-5-96. See ¶16,111.)

   [.1] Bank Secrecy Act—Senior Officer Designated
   [.2] Bank Secrecy Act—Compliance—Independent Testing
   [.3] Bank Secrecy Act—Compliance Program—Minimum Requirements
   [.4] Violations of Law—Eliminate/Correct
   [.5] Loan Applications—Employee Training Required
   [.6] Consumer Laws—Compliance Audit Required
   [.7] Community Reinvestment Act—Written Policy Required
   [.8] Community Reinvestment Act—CRA Officer
   [.9] Community Reinvestment Act—Geographic Loan Analysis Required
   [.10] Truth in Lending Act—Review of Loans for Compliance
   [.11] Regulation B—Compliance Required
   [.12] Shareholders—Disclosure—Cease and Desist Order

In The Matter of

BANK OF PULLMAN
PULLMAN, WASHINGTON
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-94-146b

   Bank of Pullman, Pullman, Washington ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices violations of law and/or regulations alleged to have been committed by the Bank and of its right to a hearing on the alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b)(1), 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 September 28, 1994, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices 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 committed violations of law and/or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:
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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 operating in violation of the following laws, rules, and/or regulations:
   (a) Regulation Z of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 226, as more fully described on pages 2 through 2-a-3 of the FDIC's Compliance Examination of the Bank as of January 31, 1994;
   (b) Part 615 of the Consumer Credit Protection Act, 15 U.S.C. 1681m, as more fully described on page 2-a-3 of the FDIC's Compliance Examination of the Bank as of January 31, 1994;
   (c) Regulation X of the Department of Housing and Urban Development, 24 C.F.R. Part 3500, as more fully described on page 2-a-4 of the FDIC's Compliance Examination of the Bank as of January 31, 1994;
   (d) Section 339 of the Rules and Regulations of the Federal Deposit Insurance Corporation, 12 C.F.R. § 339, as more fully described on page 2-a-4 of the FDIC's Compliance Report of Examination as of January 31, 1994;
   (e) Regulation DD of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 230, as more fully described on page 2-a-5 though 2-a-6 of the FDIC's Compliance Examination of the Bank as of January 31, 1994;
   (f) Section 329 of the Rules and Regulations of the Federal Deposit Insurance Corporation, 12 C.F.R. § 329, as more fully described on page 2-a-6 of the FDIC's Compliance Report of Examination as of January 31, 1994;
   (g) Regulation E of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 205, as more fully described on page 2-a-7 of the FDIC's Compliance Examination of the Bank as of January 31, 1994;
   (h) Regulation B of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 202, as more fully described on pages 2-a-8 of the FDIC's Compliance Report of Examination as of January 31, 1994;
   (i) Section 338 of the Rules and Regulations of the Federal Deposit Insurance Corporation, 12 C.F.R. § 338, as more fully described on pages 2-a-8 through 2-a-9 of the FDIC's Compliance Report of Examination as of January 31, 1994;
   (j) Section 345 of the Rules and Regulations of the Federal Deposit Insurance Corporation, 12 C.F.R. § 345, as more fully described on page 2-a-9 of the FDIC's Compliance Report of Examination as of January 31, 1994;
   (k) Section 326.8 of the Rules and Regulations of the Federal Deposit Insurance Corporation, 12 C.F.R. § 326.8, as more fully described on page 2-a-10 of the FDIC's Compliance Report of Examination as of January 31, 1994;
   (l) Section 103 of the Rules and Regulations of the Department of Treasury, 31 C.F.R. Part 103, as more fully described on page 2-a-10 of the FDIC's Compliance Examination of the Bank as of January 31, 1994; and
   (m) Section 328 of the Rules and Regulations of the Federal Deposit Insurance Corporation, 12 C.F.R. § 328, as more fully described on page 2-a-11 of the FDIC's Compliance Report of Examination as of January 31, 1994.
   IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

   [.1] 1. Within 30 days from the effective date of this ORDER, the Bank shall designate a qualified full-time senior officer as a Bank Secrecy Act Officer, and shall advise the Regional Manager of the FDIC's San Francisco Regional Office ("Regional Manager") in writing of the same.
   2. The Bank shall ensure that the designated compliance officers are provided with the necessary training, authority, and responsibility to effectively administer the Bank's compliance program and to train and supervise personnel in compliance matters.

   [.2] 3. Within 90 days from the effective date of this ORDER, the Bank shall provide a system for independently testing its policies, procedures, and practices for compliance with the Bank Secrecy Act and the Financial Recordkeeping regulations 31 C.F.R. Part 103. The independent testing is to be conducted on an annual basis in compliance with the procedures described in the FDIC Statement of Policy entitled "Guidelines for Monitoring Bank Secrecy Act Compliance." The independent testing should be con- {{1-31-95 p.C-3838}}ducted by qualified, trained and experienced third parties, such as independent public accountants or specialists in this subject matter, who are not, in any manner, affiliated with the Bank or any of the Bank's subsidiaries or affiliates. Written reports documenting the testing results and providing recommendations for improvement shall be presented to the Bank's audit committee.

   [.3] 4. Within 90 days from the effective date of this ORDER, the Bank shall establish and implement a written internal compliance program which at a minimum shall:

       (1) assign specific responsibilities to bank personnel;
       (2) outline an on-going training program for appropriate bank personnel;
       (3) set forth specific review procedures for monitoring compliance with applicable regulations;
       (4) ensure compliance with the recordkeeping and reporting requirements for currency transactions over $10,000 (31 C.F.R. 103.22);
       (5) ensure compliance with the recordkeeping requirements for the purchase of bank checks and drafts, cashier's checks, money orders and traveler's checks (31 C.F.R. 103.29); and
       (6) ensure the identification and timely, accurate and complete reporting, to law enforcement and supervisory authorities, of known or suspected criminal activity perpetrated against or involving the Bank's branches, consistent with all applicable federal and state laws, rules, regulations and guidelines.

   [.4] 5. Within 30 days from the effective date of this ORDER, the Bank shall correct all violations of law described on pages 2 through 2-a-11 of the FDIC's Compliance Report of Examination as of January 31, 1994, and implement procedures to prevent their recurrence. The Bank's actions as required by this paragraph shall be satisfactory to the Regional Manager as determined at subsequent examinations and/or visitations.

   [.5] 6. Within 60 days from the effective date of this ORDER, the Bank shall provide to its employees a systematic method of ongoing training in the entire loan application process. This training shall address at a minimum the following topics: (1) when a loan inquiry becomes an application; (2) applications that require a written application; and (3) the applicability and requirements of all lending regulations, including the Fair Lending Laws, and financial recordkeeping regulations. The Bank shall document the training activities for its recordkeeping purposes. The training should be updated to ensure that appropriate personnel are provided with the most current and up-to-date information. The Bank's actions as required by this paragraph shall be satisfactory to the Regional Manager as determined at subsequent examinations and/or visitations.

   [.6] 7. Within 60 days from the effective date of this ORDER, the Bank shall develop and implement a compliance audit and review program that provides for, at minimum, an annual audit or review to ensure on-going compliance with applicable consumer laws and regulations. Results of any audits or reviews and the steps taken to correct any identified deficiencies shall be documented, presented to the board of directors and noted in official board minutes.

   [.7] 8. Within 90 days from the effective date of this ORDER, the Bank shall develop and implement a written Community Reinvestment Act ("CRA") policy. The policy shall include goals and objectives consistent with CRA and a methodology for an annual selfassessment by the board. The policy shall provide for the on-going CRA training of all bank personnel, including the board and shall also provide procedures whereby all significant CRA related activity is documented. Such policy and its implementation shall be in a form and manner acceptable to the Regional Manager as determined at subsequent examinations.

   [.8] 9. The Bank shall ensure that the designated CRA officer and CRA training co-ordinator are provided with the proper training, authority, and time necessary to carry out their responsibilities. The CRA officer shall report directly to the Board.

   [.9] 10. Within 60 days from the effective date of this ORDER, the Bank shall complete a full geographic analysis of its loan extensions, denials, and applications based on its official delineations. Thereafter, the Bank shall devise methods to provide for an analysis, to be performed at least annually, of the geographic distribution of the bank's major loan products, including credit applications and credit denials, in accordance with the FDIC Statement of Policy entitled "Federal Financial Institutions Examination Council Community Reinvestment Act Policy Statement on Analyses of Geo- {{1-31-95 p.C-3839}}graphic Distribution of Lending" dated December 6, 1991.

   [.10] 11. Within 90 days from the effective date of this ORDER, the Bank shall perform a file search of all of the Bank's outstanding fixed rate personal loans, variable rate consumer loans, and consumer construction loans, originated since October 31, 1991 and those types of loans terminated since January 31, 1992, for understatement of Annual Percental Rate caused by the Bank's failure to provide required Truth in Lending Disclosures. The Bank shall provide to the Regional Manager evidence that it completed reimbursements to customers pursuant to Section 108(e) of the Truth in Lending Act.

   [.11] 12. Effective the date of this ORDER, the Bank shall cease any and all prescreening activities with respect to loan applications and comply fully with all provisions of Regulation B of the Board of Governors of the Federal Reserve System. Such compliance shall incorporate appropriate training of loan personnel of the Bank as set forth in Paragraph 7 of this ORDER. The Bank's actions as required by paragraph 14 shall be satisfactory to the Regional Manager as determined at subsequent examinations and/or visitations.
   13. On or before the tenth day after the end of the first calendar quarter following the effective date of this ORDER, and on or before the tenth day after the end of every calendar quarter thereafter, the Bank shall furnish written progress reports to the Regional Manager and to the Honorable John Bley, Director of Financial Institutions for the State of Washington ("Director") which detail the form and manner of any actions taken to secure compliance with this ORDER and the results thereof. The Bank may discontinue submitting such reports when the corrections required by this ORDER have been accomplished and the Regional Manager and the Director have expressly released the Bank in writing from making any further reports.

   [.12] 14. The Bank shall send to its shareholders a copy of this ORDER or a description of this ORDER in conjunction both with the Bank's next shareholder communication and with its notice and/or proxy statement preceding the Bank's next shareholder meeting. If the Bank sends its shareholders a description of this ORDER rather than a copy of it, the description shall fully describe this ORDER in all respects.
   This ORDER shall become effective ten (10) days from the date of its issuance.
   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 modified, terminated, suspended, or set aside by the FDIC.
   Dated at San Francisco, California, this 7th day of November, 1994.
   Pursuant to delegated authority.

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