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FDIC Enforcement Decisions and Orders

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{{11-30-97 p.C-4307}}
   [11,383] In the Matter of First State Bank, Mesquite, Texas, Docket No. 96-188b (1-22-97)

   Bank ordered to cease and desist from violating applicable consumer laws and/or regulations and failing to provide adequate supervision and direction over the bank's compliance program to prevent violations of consumer laws and/or regulations. (This order was terminated by order of the FDIC dated 9-15-97. See ¶16,182.)

   [.1] Violations of Laws—Eliminate/Correct
   [.2] Compliance Officer—Retain/Give Written Authority
   [.3] Compliance Program—Minimum Requirements
   [.4] Truth in Lending Act—Compliance Required
   [.5] Real Estate Settlement Procedures Act—Compliance Required
   [.6] Fair Housing Act—Home Purchase Loan Applicants—Recordkeeping Requirements
   [.7] National Flood Insurance Act—Compliance Required
   [.8] Home Mortgage Disclosure Act—Compliance Required
   [.9] Expedited Funds Availability Act—Compliance Required
   [.10] Interest Rates—Demand Deposits—Limits on Interest Rates Paid
   [.11] Federal Trade Commission Act—Compliance Required
   [.12] Truth in Savings Act—Compliance Required
   [.13] Electronic Funds Transfers Act—Compliance Required
   [.14] Shareholders—Disclosure of Cease-and-Desist Order Required

{{11-30-97 p.C-4308}}
In the Matter of

FIRST STATE BANK
MESQUITE, TEXAS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-96-188b

   First State Bank, Mesquite, 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 December 10, 1996 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 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 directors, officers, employees, successors and assigns shall 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 eliminate and/or correct all violations of laws and regulations existing in the Bank as set forth on pages 2.1 through 2.18 of the August 6, 1996 Report of Examination—Compliance. In addition, the Bank shall ensure its future compliance with all applicable laws and regulations.

   [.2] 2. (a) (i) Within 60 days after 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 and regulations, 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 regulations 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, Division of Compliance and Consumer Affairs, of the FDIC's Dallas Regional Office ("Regional Director") of the identity of said compliance officer. If the compliance officer is to be added as a director or employed as 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 Bank's compliance officer shall be evaluated on his ability to comply with the requirements of this ORDER and to comply with applicable consumer laws and regulations.
   (c) As used herein, "compliance program" means a consciously planned and organized effort to meet the Bank's compliance responsibilities in a comprehensive manner on an ongoing basis.

   [.3] 3. (a) Within 60 days after the effective date of this ORDER, the bank shall develop and implement a written compliance program. The compliance program shall be in a form and manner acceptable to the Regional Director, as determined at subsequent examinations, and shall, at a minimum, expressly provide for:

       (i) Comprehensive training in consumer laws conducted at least once a year {{3-31-97 p.C-4309}}for all Bank employees whose duties and responsibilities include the need to comply with consumer laws and regulations; and,
       (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 and/or the board of directors in the board of director's minutes of the meeting;
   (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 is successors and assigns shall follow the written compliance program and/or any subsequent modification thereto.

   [.4] 4. 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., as implemented by 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 borrowers with a copy of the required Truth in Lending disclosure statement before consummation of the transaction as required by section 226.17(b) of Regulation Z, 12 C.F.R. § 226.17(b);
   (b) Disclosing to borrowers the annual percentage rate charged as required by section 226.18(e) of Regulation Z, 12 C.F.R. 226.18(e);
   (c) Including any loan fee in the finance charge as described in section 226.4 of Regulation Z, 12 C.F.R. § 226.4, and as required by section 226.18(d) of Regulation Z, 12 C.F.R. § 226.18(d);
   (d) Disclosing the finance charge to borrowers including any prepaid finance charges as that term is defined in section 226.2(a)(23) of Regulation Z, 12 C.F.R. § 226.2(a)(23);
   (e) Disclosing the amount financed to borrowers as that term is defined in section 226.18(b) of Regulation Z, 12 C.F.R. § 226.18(b);
   (f) Providing applicants, in a residential mortgage transaction, with good faith estimates of the disclosures as required by section 226.19(a)(1), 12 C.F.R. § 226.19(a)(1);
   (g) Disclosing to borrowers whether they are entitled to a rebate of the "finance charge" if prepaid in full as required by section 226.18(k)(2) of Regulation Z, 12 C.F.R. § 226.18(k)(2).

   [.5] 5. (a) 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 Transfer 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 ("Regulation X"), 24 C.F.R. Part 3500.
   (b) Within 60 days after the effective date of this ORDER, the Bank shall develop and implement procedures to ensure that pursuant to section 8 of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2607, and section 3500.14 of Regulation X, 24 C.F.R. § 3500.14, neither the Bank nor any provider has charged any customer a fee for a business incident to or a part of a settlement service involving a federally-related mortgage loan in excess of the cost actually incurred or for services actually performed.

   [.6] 6. (a) Within 60 days after the effective date of this ORDER, the Bank shall develop and implement procedures for requesting and retaining information 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 after the effective date of this ORDER, the Bank shall develop and implement procedures to ensure that data collected regarding 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 after the effective date of this ORDER, the Bank shall develop a policy and implement procedures to ensure that it complies with the requirements of the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of {{3-31-97 p.C-4310}}1973, as amended, 42 U.S.C. §§ 4001–4129, as implemented by Part 339 of the FDIC Rules and Regulations, 12 C.F.R. Part 339. The policy and procedures are to include, but are not limited to:
   (a) Insuring that flood hazard insurance coverage is obtained when required, pursuant to section 339.3 of the FDIC Rules and Regulations, 12 C.F.R. § 339.3;
   (b) The Bank's maintaining for all extensions of credit secured by improved real estate or a mobile home sufficient records to indicate the method used by the Bank to determine whether the building or mobile home offered as collateral security for a loan (as defined in section 339.2(b) of the FDIC Rules and Regulations, 12 C.F.R. § 339.2(b)) is or will be located in a special flood hazard area in which flood insurance is available, as required in section 339.6 of the FDIC Rules and Regulations, 12 C.F.R. § 339.6;
   (c) The Bank's use of the standard flood hazard determination form developed by the Director of Federal Emergency Management Agency, as set forth in Appendix A of 44 C.F.R. Part 65, when determining whether improved real estate or a mobile home offered as collateral security for a loan is or will be located in a special flood hazards area in which flood insurance coverage is available, as set forth in section 339.6 of the FDIC Rules and Regulations, 12 C.F.R. § 339.6;
   (d) As required in section 339.9 of the FDIC Rules and Regulations, 12 C.F.R. § 339.9, the Bank's preparing and delivering, to the borrower and to the servicer, of a written notice of special flood hazard determination and whether flood hazard insurance will be available for the property if the property is damaged by a flood in a federally declared disaster, and
   (e) Insuring that flood hazard insurance coverage is obtained when required, pursuant to section 339.3 of the FDIC Rules and Regulations, 12 C.F.R. § 339.3.

   [.8] 8. Within 60 days after the effective date of this ORDER, the Bank shall develop and implement procedures to ensure compliance with the Home Mortgage Disclosure Act ("HMDA"), 12 U.S.C. § 2801 et seq., as implemented by Regulation C of the Board of Governors of the Federal Reserve System (Regulation "C"), 12 C.F.R. Part 203, which requires a lending institution to report data to its supervisory agency about home purchase and home improvement loans it originates or purchases, or for which it receives applications; and to disclose certain data to the public. These procedures shall include but are not limited to:
   (a) Procedures to ensure that the Bank complies with section 203.4(a) of Regulation C, 12 C.F.R. § 203.4(a), concerning collecting and recording data on applications for, and originations and purchases of, home purchase loans and home improvement loans (including refinancings of both) for each calendar year, on a register in the format prescribed in Appendix A of Regulation C, 12 C.F.R. Part 203, App. A.
   (b) Procedures to ensure that the Bank complies with section 203.4(b) of Regulation C, 12 C.F.R. § 203.4(b), which provides that the Bank shall collect data about the race or national origin and sex of the applicant or borrower as prescribed in Appendix B of Regulation C, 12 C.F.R. Part 203, App. B.

   [.9] 9. Within 60 days after the effective date of this ORDER, the Bank shall develop and implement procedures to ensure compliance with the Expedited Funds Availability Act, 12 U.S.C. §§ 4001 et seq., as implemented by Regulation CC of the Board of Governors of the Federal Reserve System ("Regulation CC"), 12 C.F.R. Part 229, and that:
   (a) Funds are made available to customers as required by Subpart B of Regulation CC, 12 C.F.R. Part 229, Subpart B;
   (b) The Bank's funds availability policies are disclosed to all applicable customers clearly and conspicuously in writing as required by Subpart B of Regulation CC, 12 C.F.R. Part 229, Subpart B; and
   (c) Each employee who performs duties subject to the requirements of Subpart B of Regulation CC, 12 C.F.R. Part 229, Subpart B, is provided with a statement of the procedures applicable to that employee as required by section 229.19(f) of Regulation CC, 12 C.F.R. § 229.19(f).

   [.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 compliance with section 18(f) of the Federal Trade {{3-31-97 p.C-4311}}
   Commission Act, 15 U.S.C. 57a(f), as implemented by Subpart B of Regulation AA of the Board of Governors of the Federal Reserve System ("Regulation AA"), 12 C.F.R. Part 227, Subpart B, which prohibits unfair and deceptive acts or practices in or affecting commerce (including acts or practices which are unfair or deceptive to consumers). These procedures shall include but are not limited to:
   (a) Procedures to ensure that the Bank informs cosigners prior to becoming obligated of the nature of the cosigners' liability as required by section 227.14(a) of Regulation AA, 12 C.F.R. § 227.14(a); and
   (b) Procedures to ensure that the Bank provides written disclosures to cosigners prior to becoming obligated, as required by section 227.14(b) of Regulation AA, 12 C.F.R. 227.14(b).

   [.12] 12. Within 60 days after the effective date of this ORDER, the Bank shall develop and implement procedures to ensure compliance with the Truth in Savings Act, 12 U.S.C. §§ 4301 et seq., as implemented by Regulation DD of the Board of Governors of the Federal Reserve System ("Regulation DD"), 12 C.F.R. Part 230, including, but not limited to:
   (a) Procedures to ensure that the Bank makes written disclosures as required by sections 230.4 through 230.6 of Regulation DD, 12 C.F.R. §§ 230.4 through 230.6, in the form and manner prescribed in section 230.3 of Regulation DD, 12 C.F.R. § 230.3; and
   (b) Procedures to ensure that the Bank discloses its methods for the payment of interest as required by section 230.7 of Regulation DD, 12 C.F.R. 230.7.

   [.13] 13. Within 60 days after the effective date of this ORDER, the Bank shall develop and implement procedures to ensure compliance with the Electronic Fund Transfers Act, 15 U.S.C. §§ 1693 et seq., as implemented by Regulation E of the Board of Governors of the Federal Reserve System ("Regulation E"), 12 C.F.R. Part 205, concerning the rights and liabilities of users of the Bank's electronic fund transfer services; including, but not limited to procedures to ensure that the Bank maintains evidence of compliance with the requirements imposed by section 205.13(c) of Regulation E (record retention), 12 C.F.R. § 205.13(c).

   [.14] 14. (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 Director 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 Director 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 directors, officers, employees, agents, successors, and assigns.
   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.
   Pursuant to delegated authority.
   Dated at Dallas, Texas, this 22nd day of January, 1997.

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