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FDIC Enforcement Decisions and Orders

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   [11,134] In the Matter of Elsa State Bank and Trust Company, Elsa, Texas, Docket No. FDIC-94-165b (2-28-95).

   Bank to cease and desist from such unsafe or unsound practices as operating in violation of applicable consumer laws or regulations, and failing to provide adequate supervision over the Bank's affairs. (This order was terminated by order of the FDIC dated 1-5-96. See ¶16,064.)

   [.1] Violations of Law—Eliminate/Correct
   [.2] Consumer Laws—Compliance Program—Minimum Requirements
   [.3] Truth in Lending Act—Compliance—Minimum Requirements
   [.4] Loan Applicants—Notification of Adverse Action
   [.5] Real Estate Settlement Procedures Act—Compliance Required

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   [.6] Loans—Residential Real Estate—Data Collection
   [.7] Loans—Residential Real Estate—Flood Plains
   [.8] Regulation C—Data Collection Requirements
   [.9] Regulation CC—Funds Availability Requirements
   [.10] Interest—Demand Deposits—Compliance with Regulations
   [.11] Loans—Delinquent—Notice to Borrowers
   [.12] Bank Secrecy Act—Procedures for Compliance
   [.13] Shareholders—Disclosure—Cease and Desist Order

In the Matter of

ELSA STATE BANK AND TRUST
COMPANY

ELSA,TEXAS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-94-165b

   Elsa State Bank and Trust Company, Elsa, Texas ("Bank"), through its board of directors, having been advised of its right to the issuance and service of 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 the 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 January 26, 1995, whereby, solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and 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 violations of laws and/or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED, that the Bank and its institution-affiliated parties cease and desist from the following unsafe or unsound banking practices and violations of laws and/or regulations:
   (a) Engaging in violations of applicable consumer laws and/or regulations; and
   (b) Failing to provide adequate supervision and direction over the Bank's compliance program to prevent violations of consumer laws and/or regulations.
   IT IS FURTHER ORDERED, that the Bank take affirmative action as follows:

   [.1] 1. After the effective date of this ORDER, the Bank, consistent with sound banking practices, shall, to the extent possible, eliminate and/or correct all violations of laws and regulations existing in the Bank as more fully set forth on pages 2 through 2-a-21 and page 4 of the July 1, 1994 Compliance Report. In addition, the Bank shall ensure its future compliance with all applicable laws and regulations.

   [.2] 2. (a) Within no more than 60 days from the effective date of this ORDER, the Bank shall develop and implement a written compliance program which, at a minimum, shall expressly provide for:

         (i) Comprehensive training in consumer laws conducted at least once a year for all Bank employees whose duties and responsibilities include the need to comply with consumer laws and regulations;
         (ii) 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 recommendations by the compliance officer
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      and/or the board of directors in the board of directors's minutes of the meeting;
         (b) The board of directors shall approve the revisions to 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 successors and assigns shall follow the written compliance program and/or any subsequent modification thereto.

   [.3] 3. Within 30 days after the effective date of this ORDER, the Bank shall comply with the Truth in Lending Act, 15 U.S.C. §¶ 1601 et seq., and Regulation Z of the Board of Governors of the Federal Reserve System ("Regulation Z"), 12 C.F.R. Part 226, including, but not limited to:
       (a) Providing applicants with the required initial Truth in Lending disclosure statement as required by section 226.19(a)(1) of Regulation Z, 12 C.F.R. § 226.19(a)(1);
       (b) Disclosing to borrowers the correct "annual percentage rate" charged;
       (c) Disclosing to borrowers the correct "amount financed" as that term is defined in section 226.18(b) of Regulation Z, 12 C.F.R. § 226.18(b); and
       (e) Disclosing to borrowers the correct "finance charge" including any prepaid finance charges as that term is defined in section 226.4 of Regulation Z, 12 C.F.R. § 226.4.

   [.4] 4. Within 60 days after the effective date of this ORDER, the Bank shall develop and implement procedures to ensure compliance with regulations governing loan applicants and notifications to customers against whom adverse action is taken. These procedures shall include:
       (a) Procedures to ensure that the Bank informs loan applicants when credit is denied and/or costs increased based, either wholly or in part, upon information obtained from a consumer reporting agency or a third party, and supply the loan applicant the name and address of the reporting agency as required by section 615 (a) and (b) of the Fair Credit Reporting Act, 15 U.S.C. § 1681m (a) and (b).
       (b) Procedures to ensure that the Bank notifies a loan applicant against whom adverse action has been taken of the action taken and specific reason(s) for that action as required by section 202.9(a)(2) of Regulation B of the Board of Governors of the Federal Reserve System, 12 C.F.R. § 202.9(a)(2).

   [.5] 5. Within 60 days from the effective date of this ORDER, the Bank shall develop and implement procedures to ensure that the Bank provides to applicable credit applicants the Special Information Booklet, Good Faith Estimate of Closing Costs, Mortgage Servicing Disclosures, and to require the use of the Uniform Settlement Statement (Form HUD-1) in all transactions covered by the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq., and Regulation X of the Department of Housing and Urban Development, 24 C.F.R. Part 3500.

    [.6] 6. (a) Within 60 days from the effective date of this ORDER, the Bank shall develop and implement procedures for requesting and retaining data on home purchase loan applicants as required by section 338.7 of the FDIC Rules and Regulations, 12 C.F.R. § 338.7.
       (b) Within 60 days from the effective date of this ORDER, the Bank shall develop and implement procedures to ensure that information on applicants for residential real estate loans is properly recorded as required by section 338.8 of the FDIC Rules and Regulations, 12 C.F.R. § 338.8.

   [.7] 7. Within 60 days from the effective date of this ORDER, the Bank shall develop and implement 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 section 339.3 or section 339.4 of the FDIC Rules and Regulations, 12 C.F.R. § 339.3 or § 339.4, including, but not limited to:
       (a) The date and complete panel number of the Federal Emergency Management Agency map used;
       (b) The date flood maps were reviewed; and
       (c) Insuring that flood insurance coverage is obtained when required.

   [.8] 8. Within 60 days after the effective date of this ORDER, the Bank shall develop and implement procedures for collecting and recording data on applications for, and originations and purchases of, home purchase {{4-30-95 p.C-3943}}loans (including refinancings) and home improvement loans as required by section 203.4 of Regulation C of the Board of Governors of the Federal Reserve System, 12 C.F.R. § 203.4.

   [.9] 9. Within 60 days after the effective date of this ORDER, the Bank shall develop and implement procedures to ensure that funds are made available to customers as required by sections 229.10 and 229.12 of Regulation CC of the Board of Governors of the Federal Reserve System, 12 C.F.R. §¶ 229.10 and 229.12.

   [.10] 10. Within 60 days after the effective date of this ORDER, the Bank shall develop and implement procedures to ensure that the Bank does not pay interest on any demand deposit in violation of Part 329 of the FDIC Rules and Regulations, 12 C.F.R. Part 329.

   [.11] 11. Within 60 days after the effective date of this ORDER, the Bank shall develop and implement procedures to ensure that the Bank provides disclosure to delinquent borrowers as required by section 106 (c)(5) of the Housing and Urban Development Act of 1968, 12 U.S.C. § 1701x (c)(5).

    [.12] 12. (a) Within 60 days after the effective date of this ORDER, the Bank shall ensure its Bank Secrecy Act program is properly implemented as required by section 326.8 of the FDIC Rules and Regulations, 12 C.F.R. § 326.8.
       (b) Within 60 days after the effective date of this ORDER, the Bank shall develop and implement procedures to comply with sections 103.22 and 103.29 of the Department of the Treasury Regulations, 31 C.F.R. §¶ 103.22 and 103.29, including, but not limited to, ensuring all required Currency Transaction Reports (Form 4789) are filed; all required information is maintained on the chronological logs of transactions, and customers are properly exempted with the exemptions being periodically reviewed to ensure the exempted amounts are appropriate.

       [.13] 13. (a) 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 Unit, 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.
       (b) Within 30 days after the end of the first calendar quarter following the effective date of this ORDER and within 30 days after the end of each successive calendar quarter, the Bank shall furnish written progress reports to the Regional Manager detailing the form and manner of any action taken to secure compliance with this ORDER and the results thereof. 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. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Manager has released the Bank in writing from making additional reports.
   The effective date of this ORDER shall be 10 days after the date of its issuance.
   The provisions of this ORDER shall be binding upon the Bank and its institution-affiliated parties.
   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provision of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Dated at Dallas, Texas, this 28th day of February, 1995.
   Pursuant to delegated authority.

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