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FDIC Enforcement Decisions and Orders

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{{10-31-97 p.C-4390}}
   [11,433] In the Matter of Kent Bank, Kent, Illinois, FDIC Docket No. 97-33b (8/8/97).

   A cease-and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent had engaged in unsafe and unsound banking practices.

   [.1] Consumer Laws—Violations—Eliminate or Correct
   [.2] Management—Report Required—Written Plan of Implementation
   [.3] Cease-and-Desist Order—Compliance Reports Required
   [.4] Shareholders—Cease-and-Desist Order—Disclosure

In the Matter of

KENT BANK
KENT, ILLINOIS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-97-33b

   Kent Bank, Kent, Illinois ("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 or regulation alleged to have been committed by the Bank, and of its right to a hearing on the charges under section 8(b) of the Federal Deposit Insur
{{10-31-97 p.C-4391}}ance 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 July 22, 1997, whereby, solely for the purpose of this proceeding and without admitting or denying the charges of unsafe or unsound banking practices and violations of law or regulation, 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 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, 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 or unsound banking practices and violations of law or regulations:

       (a) Violating applicable Consumer Laws; and
       (b) Failing to provide adequate violations of the Consumer Laws. For purposes of this ORDER, "Consumer Laws" means those laws and regulations referenced in the FDIC Compliance Examination Manual, including the laws and regulations referred to in the FDIC's Compliance Report of Examination of the Bank as of August 12, 1996 ("Compliance Report").
   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, and as more specifically set forth in paragraphs 2 through 8 of this ORDER, the Bank shall eliminate or correct all violations of the Consumer Laws set forth on page 1 and on page 2 of the Compliance Report. In addition, the Bank shall ensure its future compliance with all applicable Consumer Laws.
   2. Within 30 days after the effective date of this ORDER, the Bank shall comply with the Truth in Lending Act, 15 U.S.C. §§ 1601–1693, 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 providing accurate disclosures for charges or premiums for credit life, accident, health or loss of income insurance as required by section 226.4(d)(1), 12 C.F.R. § 226.4(d)(1).
   3. Within 60 days after the effective date of this ORDER, the Bank shall identify, notify, and provide monetary adjustments to all consumers affected by the Bank's failure to provide complete and accurate account disclosures on consumer installment loans containing credit life, accident, health or loss of income insurance under Section 108(e) of the Truth In Lending Act, 15 U.S.C. § 1607(e), consistent with the following guidelines:

       (a) Search its files to identify all affected consumers. This search should include all outstanding consumer installment loans with credit life, accident, health or loss of income insurance originated since June 12, 1995, and all terminated loans of these types[s] originated since June 12, 1995.
       (b) The Bank shall draft a letter to identified consumers, to inform them of monetary adjustments. The Bank shall submit that letter or text for the prior approval of the Regional Director of the Chicago Regional Office of the FDIC's Division of Compliance and Consumer Affairs ("Regional Director").
       (c) The Bank shall calculate monetary reimbursements, to consumers using the examples in the report as a guide.
       (d) The Bank shall send the monetary reimbursement to the consumers together with the letter or other text submitted by the Bank and approved by the Regional Director, under paragraph 3(b) of this ORDER.
       (e) The Bank shall notify the Regional Director within 10 days after the completion of the reimbursement program, and the Bank shall maintain a complete record of the reimbursement program for review during the FDIC's next compliance examination or visitation.
   4. Within 30 days after the effective date {{10-31-97 p.C-4392}}of this ORDER, the Bank shall comply with the Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601–2617, and Regulation X of the U.S. Department of Housing and Urban Development ("Regulation X"), 24 C.F.R. Part 3500, including, but not limited to:
       (a) Providing good faith estimates of settlement costs as required by section 3500.7(a) of Regulation X, 24 C.F.R. § 3500.7(a); and
       (b) Providing servicing transfer disclosures required by section 3500.21(b) of Regulation X, 24 C.F.R. § 3500.21(b), implementing section 6 of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2605.
   5. Within 30 days after the effective date of this ORDER, the Bank shall request and retain information for monitoring purposes in connection with housing credit applications, as required by section 338.7(a)(1)(i) of the FDIC Rules and Regulations, 12 C.F.R. § 338.7(a)(1)(i).
   6. Within 30 days after the effective date of this ORDER, the Bank shall comply with the Truth in Lending Act, 15 U.S.C. §§ 1601–1693, 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 periodic statement disclosures to consumers under open-end credit plans as required by section 226.7 of Regulation Z, 12 C.F.R. § 226.7;
       (b) Providing the initial disclosures required by section 226.6 of Regulation Z, and including a billing rights statement in those initial disclosures as required by section 226.6(d), 12 C.F.R. §§ 226.6 and 226.6(d);
       (c) Providing billing rights statements either on periodic statements or annually, as required by section 226.9(a) of Regulation Z, 12 C.F.R. § 226.9(a);
       (d) Providing good faith estimates of certain disclosures within three business days after receipt of the application, as required by section 226.19(a)(1) of Regulation Z, 12 C.F.R. § 226.19(a)(1).
       (e) Providing the booklet titled Consumer Handbook on Adjustable Rate Mortgages or a suitable substitute with the application, as required by section 226.19(b)(1) of Regulation Z, 12 C.F.R. § 226.19(b)(1).
       (f) Providing all disclosures for variable rate transactions secured by the consumer's principal dwelling as required by section 226.19(b)(2) and section 226.20(c) of Regulation Z, 12 C.F.R. § 226.19(b)(2) and 12 C.F.R. § 226.20(c).
       (g) Establish procedures to disburse funds in a rescindable transaction in accordance with section 226.23(c) of Regulation Z, 12 C.F.R. § 226.23(c).
       (h) Providing good faith estimates on all applicable transactions in accordance with section 226.19(a)(1) of Regulation Z, 12 C.F.R. § 226.19(a)(1).
   7. Within 30 days after the effective date of this ORDER, the Bank shall take affirmative action to correct the effects of violations of the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691–1691f, and section 202.6(b)(5) of Regulation B of the Board of Governors of the Federal Reserve System ("Regulation B"), 12 C.F.R. § 202.6(b)(5), identified in the FDIC's Compliance Report as of June 8, 1994, and still outstanding. This action shall include at a minimum:
       (a) Searching the Bank's files or other records to identify all credit applicants affected by the Bank's practice of discounting of income from part-time employment in making credit determinations;
       (b) Offering new credit applications or other additional affirmative relief as may be appropriate to identified individuals; and
       (c) Evaluating new applications under nondiscriminatory credit criteria.
   8. Within 30 days after the effective date of this ORDER, the Bank, under the direction of the Bank's board of directors ("Board")' shall take action(s) to identify all consumer installment loans with credit life and/or disability insurance where documents were altered as identified in the FDIC's Compliance Report as of August 12, 1996. These actions(s) shall include at a minimum:
       (a) Searching the Bank's files or other records including credit files, photocopies, microfilm, microfiche, and/or electronic imaging devices to determine which loan documents are altered. The search shall include all outstanding consumer installment loans with credit life, accident, health or loss of income insurance loans originated since June 12, 1995, and all {{10-31-97 p.C-4393}}terminated loans of these type[s] originated since June 12, 1995.
       (b) The Bank under the direction of the Board shall make a good faith effort to determine the person(s) responsible for document alteration.
       (c) The Bank shall submit a complete report of this investigation to the Regional Director.
       (d) Monetary adjustments to all identified consumers shall be made in accordance with items 3(b), 3(c), 3(d), and 3(e), herein.

   [.2] 9. Within 90 days after the effective date of this ORDER, the Bank shall establish, and the Board shall adopt, a written compliance program that sets forth the policies and procedures designed to meet the Bank's compliance responsibilities. As used in this ORDER, "compliance program" means a planned and organized effort to achieve compliance with Consumer Laws in a comprehensive manner on an ongoing basis.
   The Board shall ensure implementation of, and adherence to, the compliance program. At a minimum, the compliance program shall address the following areas, as more specifically set forth in this paragraph: appointment and retention of a qualified compliance officer; education and training of bank personnel; and review, audit, and complaint resolution procedures.
   (a) The compliance program shall provide for the appointment and retention of a qualified compliance officer, including a clear delineation of that officer's authority and responsibilities.
       (i) The compliance officer shall be given written authority by the Board to implement and supervise the Bank's compliance program, including, but not limited to, overseeing training for the Bank's employees in the Consumer Laws, establishing internal controls and procedures reasonably designed to prevent violations of the Consumer Laws, and performing or supervising periodic audits to ascertain compliance with the Consumer Laws and the Bank's compliance program.
       (ii) The compliance officer shall report directly to the Board in his/her capacity as compliance officer. The compliance officer may also report to the compliance committee, required in paragraph 11 of this ORDER, to provide assistance in the compliance committee's determination of the Bank's compliance with this ORDER.
       (iii) Within 10 days after the date of the Board's adoption of the compliance program, the Bank shall notify the Regional Director of the identity of the compliance officer. If the Board determines that the Bank's current compliance officer shall retain that designation for the purposes of compliance with this ORDER, the Bank shall so notify the Regional Director. If the compliance officer is to be added as a director of the Bank or employed as a senior executive officer, 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.
       (iv) The determination of whether the Bank has a qualified compliance officer within the meaning of this paragraph shall be based upon the officer's record of ensuring that the Bank achieves compliance with the requirements of this ORDER and with the Consumer Laws.
   (b) The compliance program shall provide for the education and training of Bank personnel in the requirements and prohibitions of the Consumer Laws.
       (i) This shall include training at least annually for all Bank employees whose duties and responsibilities include activities through which the Bank intends to comply with the Consumer laws.
       (ii) The compliance officer shall oversee the Bank's training process with respect to the Consumer Laws.
       (iii) A summary of all compliance training conducted or attended by Bank personnel shall be reported to, and such report recorded in the minutes of a meeting of, the Board at least once each calendar quarter.
       (iv) The Bank shall provide the compliance officer with opportunities for continuing education and training in the Consumer Laws.
(c) The compliance program shall pro- {{10-31-97 p.C-4394}}vide for review, audit, and complaint resolution procedures. These shall include:
       (i) Review, at least semiannually, of the Bank's loan underwriting standards and business practices used in implementing them to ensure equal treatment of credit applicants and prospective applicants, without consideration of any factor prohibited by the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691–1691f, or the Fair Housing Act, 42 U.S.C. §§ 3601–3619;
       (ii) Review of loan application and disclosure procedures, for compliance with the Consumer Laws and Bank policy;
       (iii) Review of forms used by the Bank to comply with requirements of the Consumer Laws;
       (iv) Establishment of procedures to investigate, and respond to, consumer complaints; and
       (v) Establishment of an audit program and schedule, which shall include policies and procedures for monitoring the Bank's compliance with the Consumer Laws, as described in paragraph 10 of this ORDER.
   10. Each calendar quarter following the effective date of this ORDER, the Bank or a consultant shall perform an audit of the Bank's compliance program. Any audit of the compliance program performed by Bank personnel shall be performed or supervised by the compliance officer. The results of the audit shall be reported to the Board, and any recommendation by the compliance officer, the consultant, or the Board shall be recorded in the minutes of the meetings at which such reports and recommendations are made.
   11. Within 30 days after the effective date of this ORDER, the Bank shall establish a compliance committee comprised of at least three directors. The committee shall monitor compliance with this ORDER and within 60 days after the effective date of this ORDER, and on a monthly basis thereafter, shall submit to the Board for consideration at each monthly meeting a written report detailing the Bank's compliance with this ORDER. The monthly report by the compliance committee shall be incorporated into the minutes of the corresponding Board meeting. Establishment of this committee does not in any way diminish the responsibility of the entire Board for ensuring compliance with the provisions of this ORDER.

   [.3] 12. 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 and signed by each member of the Board, and such reviews shall be recorded in the minutes of the Board meetings. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director has, in writing, released the Bank from making additional reports.

   [.4] 13. 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, notice, or statement shall be sent to the FDIC, ATTN: Registration and Disclosure Section, 550 17th Street, N.W. (F-640), Washington, D.C. 20429–9990, for review at least twenty 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.
   The effective date of this ORDER shall be ten days after the date of its issuance by the FDIC.
   The provisions of this ORDER shall be binding upon the Bank, its institution-affiliated parties, and any successors and assigns thereof.
   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 this 8th day of August, 1997.

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