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FDIC Enforcement Decisions and Orders



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[12,395] In the Matter of American State Bank, Lawrenceburg, Indiana, Docket No. 04-287b (4-28-05).

A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that Respondent was engaged in unsafe and unsound practices. (This order was terminated by order of the FDIC dated 6-29-05; see ¶16,425.)

[.1] Compliance Committee—Establishment Required

[.2] Bank Operations—Monitoring System and Review Procedures Required

[.3] Consultants—Retention Required

[.4] Consumer Laws and Regulations—Training Required

[.5] Compliance Policy—Implementation Required

[.6] Consumer Laws and Regulations—Audit Required

[.7] Consumer Laws and Regulations—Anti-discrimination Policy

[.8] Audit—Policy Required

[.9] Violations of Law—Corrections of Violations Required

[.10] Regulation Z—Compliance Required

[.11] Regulation C—Compliance Required

[.12] Insurance—Flood Insurance—Compliance with FDIC Regulations Required

[.13] Regulation B—Compliance Required

[.14] Compliance Officer—Addition of Senior Executive Officer

[.15] Board of Directors—Committee to Review Compliance with Cease and Desist Order Required

[.16] Shareholders—Disclosure of Cease and Desist Order Required

In the Matter of
AMERICAN STATE BANK
LAWRENCEBURG, INDIANA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-04-287b

American State Bank, Lawrenceburg, Indiana ("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 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
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("FDIC"), dated April 21st, 2005, 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), successors, and assigns, cease and desist from the following unsafe or unsound banking practices and violations of law or regulations:

    A. Failing to develop and administer an effective compliance management system that ensures compliance with federal consumer protection laws, regulations, and policies ("Consumer Laws").

    B. Violating Consumer Laws as set forth in the FDIC's Compliance Report of Examination of the Bank as of July 27, 2004 ("Compliance Report").

IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, successors, and assigns, take affirmative action as follows:

COMPLIANCE MANAGEMENT SYSTEM and COMPLIANCE COMMITTEE

[.1] 1. (a) Within 30 days from the effective date of this ORDER, the Bank's board of directors shall designate a committee comprised of at least 2 directors who are not active officers of the Bank and at least 1 member of senior management, including the Compliance Officer retained pursuant to this ORDER ("Compliance Committee"). The Compliance Committee shall establish and implement an effective Compliance Management System, as described in Financial Institution Letter 52-2003, "Compliance Examination Procedures," and the attachment thereto, "Overview of the Compliance Examination" (June 20, 2003) ("Compliance Management System Guidance").

(b) The Bank's board of directors, in conjunction with the Compliance Committee, shall allocate resources to the compliance area that are:

    (i) Commensurate with the level of complexity of the Bank's operations to ensure the establishment and implementation of an adequate Compliance Management System, including procedures ensuring the Bank's compliance with Consumer Laws; and

    (ii) Sufficient to ensure the Bank's timely compliance with the provisions of this ORDER.

(c) The Compliance Committee shall meet at least monthly to discuss the Bank's Compliance Management System, and shall maintain minutes of its meetings, which minutes shall be reviewed and approved by the Bank's board of directors at its monthly meetings. The minutes of the meetings of the board of directors shall document the review and approval of the minutes of the Compliance Committee meetings, with any dissenting directors noted.

(d) Establishment of the Compliance Committee in no way diminishes the responsibility of the entire board of directors for ensuring compliance with the provisions of this ORDER.

COMPLIANCE MONITORING PROGRAM

[.2] 2. Within 90 days from the effective date of this ORDER, the Bank shall ensure that effective compliance monitoring procedures are developed and incorporated into the normal activities of every department. At a minimum, monitoring procedures should include ongoing reviews of:

    (a) Applicable departments and branches;

    (b) Disclosures and calculations for various loan and deposit products;

    (c) Document filing and retention procedures;

    (d) Marketing literature and advertising; and

    (e) Internal compliance communication system that provides to Bank personnel appropriate updates resulting from revisions to Consumer Laws.


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QUALIFIED CONSULTANT AND COMPLIANCE OFFICER

[.3] 3. (a) Within 30 days from the effective date of this ORDER, the Bank shall have and retain a qualified consultant with the requisite knowledge and experience to establish and administer an effective Compliance Management System.

(b) Within 90 days from the effective date of this ORDER or by July 15, 2005, whichever is later, the Bank shall have and retain a full-time Compliance Officer who possesses the requisite knowledge and experience to administer an effective Compliance Management System.

(c) The Bank's board of directors shall ensure that the Compliance Officer receives ongoing training, sufficient time, and adequate resources to effectively oversee, coordinate, and implement the Bank's Compliance Management System.

(d) The Bank's board of directors, in conjunction with the Compliance Committee, shall:

    (i) Ensure that the duties and responsibilities of the Compliance Officer are clearly defined and provide for accessibility to both the board and senior management;

    (ii) Require the Compliance Officer to provide monthly reports to the board or Compliance Committee;

    (iii) Require the Compliance Officer to review and respond promptly to audit reports relating to all areas of the Bank's Compliance Management System; and

    (iv) Require the Compliance Officer to prepare a schedule of requirements for Consumer Laws (such as the type and timing of disclosures), so that Bank employees will be informed of the requirements relating to their duties.

(e) The responsibilities of the Compliance Officer shall include:

    (i) Developing compliance policies and procedures, and conducting regular reviews to ensure that updates are accomplished as necessary;

    (ii) Training both Bank management and employees in Consumer Laws; and

    (iii) Coordinating responses to consumer complaints.

(f) The Bank's board of directors shall ensure that the Compliance Officer has and retains sufficient authority and independence to implement policies related to Consumer Laws and to institute corrective action as needed. This authority shall include the ability to cross departmental lines, have access to all areas of the Bank's operations, and effectuate corrective action upon discovering deficiencies.

(g) The ongoing determination of whether the Bank is retaining a qualified Compliance Officer within the meaning of this ORDER shall be based upon the continued effectiveness of the Bank in achieving compliance with the requirements of this ORDER and with the Consumer Laws.

COMPLIANCE TRAINING

[.4] 4. Within 90 days from the effective date of this ORDER, the Bank shall develop a training program related to Consumer Laws for all Bank personnel, including senior management and the directorate, commensurate with their individual job functions and duties. The Compliance Officer shall be responsible for the administration of this program, and shall provide training to officers and employees on a continuing basis.

COMPLIANCE POLICY

[.5] 5. Within 60 days from the effective date of this ORDER, the Bank shall develop and implement a Compliance Policy. At a minimum, this Policy shall:

    (a) Require the adoption of a comprehensive compliance program, which will be reviewed and approved annually by the board; and

    (b) Require the development of internal monitoring procedures to ensure that:

      (i) The Bank's Compliance Policy reflects actual Bank practices;

      (ii) All Consumer Laws are being followed; and

      (iii) Reviews are conducted at the transactional level during the normal daily activities of employees in all operating units of the Bank.

COMPLIANCE AUDITS

[.6] 6. (a) Within 90 days from the effective date of this ORDER, and quarterly thereafter, the Bank shall conduct or shall cause an internal audit to be conducted to ensure compliance with Consumer Laws. Further, the audit will assess the Bank's Compliance Management Program in conjunction with the Compliance Management Program Guidelines, and at a minimum, shall:

    (i) Define a comprehensive scope;


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    (ii) Identify the number of transactions sampled by category or product type;

    (iii) Identify deficiencies;

    (iv) Provide descriptions of or suggestions for corrective actions and time frames for correction; and

    (v) Establish follow-up procedures to verify that corrective actions were implemented and effective.

(b) Audit findings, deficiencies, and recommendations must be documented in a written report and provided to the board of directors or Audit Committee. Review of the audit reports shall be documented in the minutes of the meeting of the board of directors following completion of the audit. Detailed written responses that specifically address the audit findings, deficiencies or recommendations must also be provided in a timely manner. The board shall ensure proper follow-up and resolution to audit findings.

ANTI-DISCRIMINATION LAWS

[.7] 7. (a) Within 90 days from the effective date of this ORDER, the Bank shall develop a written policy that reflects and communicates a clear understanding of anti-discrimination laws and regulations as they relate to lending and Consumer Laws.

(b) Within 90 days from the effective date of this ORDER, the Bank shall develop lending criteria and implementing procedures aimed at compliance with anti-discrimination laws as they relate to lending. These criteria and procedures shall be reviewed and approved by the Compliance Committee and the board of directors, and incorporated in the Bank's lending policy.

(c) Within 90 days from the date the Bank is required to develop lending criteria and implementing procedures consistent with anti-discrimination laws, all loan officers and other Bank personnel who regularly interact with loan applicants shall be trained as to these criteria and procedures. The Compliance Policy developed pursuant to this ORDER shall establish a procedure to monitor exceptions to the lending policy as they relate to anti-discrimination lending procedures. Any exceptions shall be reported to the board of directors on a quarterly basis, and shall be incorporated in the minutes of the applicable Board meeting.

BOARD RESPONSE TO AUDIT FINDINGS

[.8] 8. Within 90 days from the effective date of this ORDER, the Bank shall formulate, adopt, and implement procedures to ensure that Bank responses to audit findings, as well as Bank corrective actions in response to audit findings, are documented and reported to the board of directors.

CORRECTION OF VIOLATIONS

[.9] 9. Within 30 days from the effective date of this ORDER, the Bank shall eliminate or correct all violations of Consumer Laws identified in the Compliance Report and more specifically addressed in this ORDER. In addition, the Bank shall establish and implement procedures as part of its Compliance Policy to ensure future compliance with all Consumer Laws.

TRUTH IN LENDING ACT AND REGULATION Z

[.10] 10. (a) Within 30 days from the effective date of this ORDER, the Bank shall adopt and implement systems and controls to ensure compliance 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, with specific provisions to properly include prepaid finance charges in the annual percentage rate calculation on consumer loans as required by section 226.18(d) of Regulation Z, 12 C.F.R. §226.18(d).

(b) Within 60 days from 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 include prepaid finance charges in the annual percentage rate calculation on construction loans, pursuant to section 108(e) of the Truth in Lending Act, 15 U.S.C. §1607(e), as follows:

    (i) The Bank shall search its files to identify all affected customers, including all outstanding and all terminated short-term construction loans originated since January 26, 2004;

    (ii) The Bank shall draft a letter to identified consumers to inform them of the monetary adjustments due, the text of which letter shall be submitted for the prior approval of the Regional Director of the


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    FDIC's Chicago Regional Office ("Regional Director");

    (iii) The Bank shall calculate monetary reimbursements to consumers using Compliance Report examples as a guide;

    (iv) The Bank shall transmit monetary reimbursement to the affected customers with the letter approved by the Regional Director pursuant to this ORDER; and

    (v) The Bank shall notify the Regional Director within ten days after the completion of the reimbursement, and shall maintain a complete record of the reimbursements made for review at the FDIC's next compliance examination or visitation.

HOME MORTGAGE DISCLOSURE ACT AND REGULATION C

[.11] 11. (a) Within 30 days from the effective date of this ORDER, the Bank shall adopt and implement systems and controls to ensure compliance with the Home Mortgage Disclosure Act, 12 U.S.C. §§ 2801–2810, and Regulation C of the Board of Governors of the Federal Reserve System ("Regulation C"), 12 C.F.R. Part 203, with specific provisions to accurately collect and record required data on applications for, and originations, purchases and refinancings of, home purchase and home improvement loans on a register in the format prescribed within 30 calendar days after the end of the quarter in which the final action is taken, as required by section 203.4(a) of Regulation C, 12 C.F.R. §203.4(a).

(b) Within 90 days from the effective date of this ORDER, the Bank shall review and correct all entries on the Bank's 2003 Loan Application Register. After corrections have been made, the Bank shall contact the Federal Reserve Board through the HMDA Assistance Line for re-filing instructions and refile its 2003 Loan Application Register.

FLOOD INSURANCE

[.12] 12. Within 30 days from the effective date of this ORDER, the Bank shall adopt and implement systems and controls to ensure compliance with the Flood Disaster Protection Act of 1973, 42 U.S.C. §§ 4002–4128, and Part 339 of the FDIC Rules and Regulations, 12 C.F.R. Part 339, with specific provisions requiring the Bank to:

    (a) Have and retain adequate flood insurance when making, increasing, extending or renewing a designated loan secured by a building, mobile home, or personal property located in a Special Flood Hazard Area, as required by section 339.3(a) of the FDIC Rules and Regulations, 12 C.F.R. §339.3(a);

    (b) Furnish a written notice to the borrower and to the servicer when making, increasing, extending, or renewing a loan secured by a building or mobile home located or to be located in a Special Flood Hazard Area whether or not flood insurance is available, as required by section 339.9(a) of the FDIC Rules and Regulations, 12 C.F.R. §339.9(a); and

    (c) Utilize the standard flood hazard determination form developed by the Director of the Federal Emergency Management System when determining whether the building or mobile home offered as collateral for a loan is or will be located in a special flood hazard area in which flood insurance is available, as required by section 339.6(a) of the FDIC Rules and Regulations, 12 C.F.R. §339.6.

EQUAL CREDIT OPPORTUNITY ACT AND REGULATION B

[.13] 13. (a) Within 90 days from the effective date of this ORDER, the Bank shall adopt and implement systems and controls to ensure compliance with the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691–1691f, and Regulation B of the Board of Governors of the Federal Reserve System (Regulation B), 12 C.F.R. Part 202, with provisions requiring the Bank to develop internal standards and criteria for the denial of credit, including implementing procedures that require the Bank, where appropriate, to provide an applicant with an adverse action notice that is specific and indicates the principal reason(s) for the action, and to notify an applicant of action taken on a credit application within prescribed time limits, as required by section 202.9 of Regulation B, 12 C.F.R. §202.9.

(b) Within 45 days from the effective date of this ORDER, the Bank shall review all credit applications denied since January 27, 2004, and to the extent that the credit denial did not fully comply with the requirements of section 202.9 of Regulation B, 12 C.F.R. §202.9(b), send or re-send all adverse action notices, as appropriate.

(c) The Bank shall maintain a complete record of the adverse action notices that were sent or re-sent, including documentation reflecting
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any instances where it was determined that no further action was needed, for review at the FDIC's next compliance examination or visitation.

ADDITION OF SENIOR EXECUTIVE OFFICER OR DIRECTOR

[.14] 14. If the Compliance Officer retained pursuant to this ORDER 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 Subpart F of Part 303 of the FDIC Rules and Regulations, 12 C.F.R. §§ 303.100–303.104, before the addition of the Compliance Officer to such position(s).

MONITORING OF AND REPORTING ON COMPLIANCE WITH ORDER

[.15] 15. (a) Within 30 days from the effective date of this ORDER, the Bank's board of directors shall have in place a procedure that will provide for monitoring of the Bank's compliance with this ORDER.

(b) Within 30 days from 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 thereafter, 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.

(c) 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 applicable meeting of the board of directors. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director has released, in writing, the Bank from making additional reports.

SHAREHOLDER DISCLOSURE

[.16] 16. 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 (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 Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429 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.

CLOSING PARAGRAPHS

The effective date of this ORDER shall be ten calendar 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, 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 this 28th day of April, 2005.



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Last Updated 10/24/2005 legal@fdic.gov