Federal Deposit
Insurance Corporation

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   [¶5008] FDIC Docket No. ____, (6-2-81).

   FDIC issued a cease and desist order to a bank that included a charge designated as a closing cost as a component of the amount financed in real estate and residential loans; did not itemize the closing cost; disclosed and included the cost of credit life insurance as a component of the amount financed instead of the finance charge; did not clearly and conspicuously disclose in writing to its customer that credit life insurance was not required; extended closed-end credit without specifically disclosing the actual number of payments and due dates; did not clearly disclose to its closed-end customers the terms and conditions of its prepayment penalty policy; failed to give borrowers notice of their right to rescind; denied loan applications without giving written notification to the denied applicants of the reasons; made federally related mortgage loans without using the uniform settlement statement; and failed to collect and retain documentation for loans. The FDIC also ordered the bank to reimburse affected customers.

   [.1] Cease and Desist Order—FDIC Authority
   The FDIC has the authority to issue cease and desist orders to correct conditions created by noncompliance with and violations of law, rules, and regulations, including state banking laws.

   [.2] Cease and Desist Order—Affirmative Action—Reimbursement
   The FDIC has the authority to issue cease and desist orders requiring affirmative action, including reimbursement.

   [.3] Cease and Desist Order—Defenses—Cessation of Violation
   Cessation of violations of law or regulations is not a defense to a cease and desist order.

In the Matter of* * * (INSURED
STATE NONMEMBER BANK)




DECISION and ORDER
   Pursuant to its authority under Section 8(b) of the Federal Deposit Insurance Act (12 U.S.C. § 1818(b)), the Federal Deposit Insurance Corporation (the "FDIC"), on April 23, 1979, issued a Notice of Charges against Bank of * * * (the "Bank") and its directors, alleging, inter alia, that the Bank had violated (a) Title I of the Consumer Credit Protection Act (the Truth-in Lending Act); (b) Regulation Z promulgated thereunder; (c) Title VII of the Consumer Credit Protection Act (the Equal Credit Opportunity Act); (d) Regulation B promulgated thereunder; (e) the Real Estate Settlement Procedures Act of 1974; (f) Regulation X promulgated thereunder; (g) Part 338 of the FDIC's Rules and Regulations; and (h) Section 408.052 of the revised statutes of * * *. The Bank, by counsel, filed a timely answer, denying the material allegations.
   An administrative hearing was held in * * * on October 9 and 10, 1979, before Administrative Law Judge Morris H. Kross. On January 26, 1981, the Administrative Law Judge forwarded to the FDIC his Recommended Decision, Findings of Fact, Conclusions of Law and Proposed Order (the "Recommended Decision"). The Bank and the FDIC duly filed exceptions to the Recommended Decision and the case was submitted to the FDIC's Board of Directors (the "Board") for decision on March 16, 1981. The Bank's motion for oral argument was granted and oral argument held on May 19, 1981.

FINDINGS OF FACT

   The Board adopts the Findings of Fact recommended by the Administrative Law Judge. Said Findings of Fact are as follows:

   1. The Bank of * * * is a banking corporation, existing and doing business under the laws of the State of * * * , at * * *, and all times pertinent has been and is an insured state nonmember bank.
   2. On and prior to December 12, 1978, the Bank made real estate residential loans and in its truth in lending disclosure statements made in connection therewith, the Bank included as a component of the amount financed a charge designated as a closing cost.
   3. The closing cost referred to in the preceding finding was not itemized, and

all of it or substantially all of the closing cost in each instance was for fees for legal services in connection with the routine handling of such a loan transaction.
   4. After deduction of the actual legal fees involved in each such closing cost charge, the difference, if included in the finance charge, would have resulted in an annual percentage rate difference of 1/8 percent or less than the actual percentage rate shown on the truth in lending disclosure statement.
   5. On and prior to December 12, 1978, the Bank disclosed and included as a component of the amount financed instead of the finance charge in its truth in lending disclosure statements, the cost of credit life insurance.
   6. In connection with the disclosure of cost of credit life insurance as a component of the amount financed, the Bank did not clearly and conspicuously disclose in writing to its customer that such insurance coverage was not required, and the Bank did not obtain from such customers desiring such insurance coverage, a specifically dated and separately signed affirmative written indication of such desire after the receipt by the customer of a written disclosure of the cost. If the cost of such insurance had been included as a component of the finance charge instead of the amount financed, the annual percentage rate in many such instances, as disclosed on the truth in lending disclosure statement, would have been at a rate in excess of 1/8 of a percent difference over the annual percentage rate actually disclosed.
   7. On and prior to December 12, 1978, the Bank extended closed-end credit without specifically disclosing the actual number of payments and due dates scheduled to repay the indebtedness.
   8. On and prior to December 12, 1978, the Bank did not engage in any policy or practice of any significance which resulted in a failure to make disclosures, in connection with extension of closed-end credit, concerning the security interest held or to be retained or acquired by the Bank.
   9. On and prior to December 12, 1978, it was the practice of the Bank, in connection with closed-end credit, to impose a penalty charge of six months interest if the loan was prepaid within the first six months of the loan, and to impose no penalty for prepayment thereafter.
   10. On and prior to December 12, 1978, the Bank did not completely, specifically, and clearly disclose, to its closed-end loan customers, the terms and conditions of its prepayment penalty policy.
   11. On and prior to December 12, 1978, the Bank extended credit, in which it acquired a security interest for the loan other than a first mortgage, in real estate which was used as the principal residence of the customer.
   12. In connection with the extension of credit referred to in the preceding paragraph, the Bank failed to give such borrowers notice of their right to rescind as specifically prescribed by Section 226.9(b) of Regulation Z.
   13. There is no substantial evidence to support a finding that the Bank had a policy or practice, of any significance, of denying or increasing the cost of credit for loan applicants, basing that decision either wholly or partly on information obtained from a person other than a customer reporting agency without making disclosures of such information to the credit applicants.
   14. On and prior to December 12, 1978, the Bank took adverse action (i.e., denial of loan application), but failed to give written notification to such denied applicants of the adverse action and reasons therefor, and the Bank further failed to keep and maintain records of such adverse action for a period of 25 months from the date of such action.
   15. On and prior to December 12, 1978, the Bank had a policy of inquiring as to credit applicants' marital status, age, and source of income for the purpose of aiding in the determination of credit worthiness.
   16. There is no evidence that the Bank's policy of making such inquiries was for purposes other than or beyond the limits set forth in Section 202.5 of Regulation B.
   17. There is no evidence to support a finding that the Bank had a policy or actual practice of discriminating against any credit applicant on any basis prohibited by Regulation B.

   18. On and prior to December 12, 1978, the Bank made federally related mortgage loans as defined in Section 3500.5(b) of Regulation X without using the uniform settlement statement form required by Section 3500.8(a), or without making the disclosures and maintaining the records required by Section 2550.7(f) when exemption from use of the uniform settlement statement was used.
   19. On and prior to December 12, 1978, the Bank made federally related mortgage loans without itemizing all the charges to be paid by the borrower.
   20. On and prior to December 12, 1978, the Bank failed to collect and retain the information required by Section 338.4 of the FDIC's Rules and Regulations, and failed to maintain a fair housing log sheet with information required by such regulation.
   21. On and prior to December 12, 1978, the Bank charged its residential real estate loan customers closing cost fees in excess of 1% of the loan; and all or substantially all of such fees were bona fide legal expenses paid by the Bank to * * * for services actually performed in connection with such loans; and, at all times pertinent herein, * * * was a stockholder and director of the Bank.

   With one exception, the Board adopts as findings the Conclusions of Law recommended by the Administrative Law Judge. The Board believes that Proposed Conclusion of Law Number 3 (Recommended Decision, page 18) is not correct and it is not adopted. The Board adopts a different Conclusion of Law in lieu of the said Number 3 proposed by the Administrative Law Judge (also designated below as Number 3) and has slightly modified proposed Conclusion of Law Number 2. The said Conclusions of Law which the Board adopts are as follows:

   1. FDIC has jurisdiction over the Bank and the subject matter of this proceeding.

   [.2] 3. FDIC has the authority, under statute, to issue cease and desist orders requiring affirmative action, including reimbursement.

   [.3] 4. Cessation of violations of law or regulations is not a defense to a cease and desist order.

   5. In connection with the Bank including, in truth in lending disclosure statements on real estate loan transactions, an undifferentiated charge denominated as "closing costs" as a component of the amount financed, the Bank did not violate sections 226.4(a), 226.8(d)(3), 226.5(b)(1) and 226.8(b)(2) of Regulation Z.
   6. In connection with its disclosure of the cost of credit life insurance as a component of the amount financed, in its truth in lending disclosure statements made in connection with closed-end credit loans, the Bank was in violation of section 226.4(a), 226.8(d)(3), 226.5(b)(1) and 226.8(b)(2) of Regulation Z.
   7. On and prior to December 12, 1978, the Bank failed to comply with the requirements of Section 226.8(b)(3) of Regulation Z.
   8. On and prior to December 12, 1978, the Bank was not in violation or substantial failure to comply with Section 226.8(b)(5) of Regulation Z.
   9. On and prior to December 12, 1978, the Bank was in violation of and substantial noncompliance with Section 226.8(b)(6) of Regulation Z.
   10. On and prior to December 12, 1978, the Bank was in violation of and substantial noncompliance with Section 226.9(b) of Regulation Z.
   11. There is no evidence to support a finding that the Bank was in violation of Section 615 of the Fair Credit Reporting Act on or prior to December 12, 1978.
   12. On and prior to December 12, 1978, the Bank was in substantial noncompliance with and violation of Section 202.9 of Regulation B.
   13. On and prior to December 12, 1978, the Bank was not in substantial noncompliance with Sections 202.2(z), 202.5(a), and 202.6 of Regulation B.
   14. On and prior to December 12, 1978, the Bank was in substantial non-

compliance with Sections 3500.7(f) and 3500.8(b) of Regulation X.
   15. On and prior to December 12, 1978, the Bank was in substantial noncompliance with Section 338.4 of FDIC's Rules and Regulations.
   16. The meaning and interpretation of Section 408.052 of Revised Statutes of * * * is not sufficiently clear or judicially interpreted to support a finding that, on and prior to December 12, 1978, the Bank was in violation of said Section 408.052.

   The Board believes that the Administrative Law Judge's incorrect interpretation of the law with regard to the type of relief available to the FDIC in this proceeding caused the recommended order to be inappropriate in part. The Board concludes that affirmative action in connection with the admitted violations of Regulation Z in connection with credit life disclosures and Regulation B are appropriate, in addition to the affirmative action recommended by the Administrative Law Judge. Further, the Board believes that it is appropriate that the Bank designate an employee as compliance officer to bring the Bank in full compliance with the laws at issue in this case (the Board notes that the person so designated would normally not be expected to spend full-time on this assignment) and to make appropriate reports to the FDIC's Regional Director. Accordingly,
   IT IS ORDERED, that the Bank of * * * , its directors, officers, employees and agents cease and desist from the violations set forth in the Findings of Fact and Conclusions of Law above, and further, take affirmative action as follows:

   1. Within 60 days from the effective date of the ORDER, the Bank shall review all extensions of closed-end credit which are outstanding and were consummated since January 1, 1977, and prepare a list of all customers who did not separately sign an affirmative written indication that they desired credit life, accident, health or loss of income insurance and where the cost of such insurance was not included in the "finance charge." The Bank shall, unless a claim was made on the insurance policy and paid, send a written notice to the affected customers disclosing the cost of the insurance and notifying them that the insurance is optional and may be cancelled within 45 days to obtain a full refund of all premiums charged. If the Bank receives no response within 45 days, the insurance will remain in effect.
   2. Within 60 days from the effective date of this ORDER, the Bank shall review all extensions of closed-end credit which were consummated since January 1, 1977, and are outstanding where the customers did not receive proper and accurate disclosures, as required by Section 226.8(b)(6) of Regulation Z (12 C.F.R. § 226.8(b)(6)). The Bank shall notify by letter each of those customers whole in fact paid a prepayment penalty and who did not receive a disclosure concerning the prepayment penalty that it had failed to make such disclosure. The Bank shall also make the correct disclosure to such customers. Further, the form of the letter shall be reviewed by the Regional Director prior to any mailing.
   3. Within 60 days from the effective date of this ORDER, the Bank shall review all extensions of consumer credit, as defined in Section 226.2(p) of Regulation Z (12 C.F.R. § 226.2(p)), other than open-end credit, as defined in section 226.6(x) of Regulation Z (12 C.F.R. § 226.6(x)), which were consummated within three years of the final date of this ORDER, wherein a security interest was retained or acquired in real property which was used or expected to be used as the principal residence of the customer and in which the customer has an unexpired right of rescission, as provided by Section 226.9(h) of Regulation Z (12 C.F.R. § 226.9(h)), and prepare a list of those customers who entered into such credit transactions wherein the Bank failed to notify the customer of his right to rescind the transaction. In each such case, the Bank shall furnish the customers with the notice of the right to rescind, as required by Section 226.9(b) of Regulation Z (12 C.F.R. § 226.9(b)), and advise them of their right to rescind within three business days of receipt of the notice. The form of the letter and notice shall be reviewed by the Regional Director prior to any mailing.
   4. Within 60 days from the effective date of this ORDER, the Bank shall review all applications received since June

12, 1978, on which "adverse action," as defined in Section 202.2(c) of Regulation B (12 C.F.R. § 202.2(c)), was taken and prepare a list of those applicants who were not provided the notifications, as required by Section 202.9 of Regulation B (12 C.F.R. § 202.9), and provide each such applicant on the list with the notifications.
   5. From the effective date of this ORDER, the Bank shall, when making a Federally Related Mortgage Loan, as defined in Section 3500.5(b) of Regulation X (24 C.F.R. § 3500.5(b)), either make all disclosures and maintain all records, as required by Section 3500.7(f) of Regulation X (24 C.F.R. § 3500.7(f)), when the exemption from the use of the Uniform Settlement Statement contained in Section 3500.8(d) of Regulation X (24 C.F.R. § 3500.8(d)) is used or use the Uniform Settlement Statement, as required by Section 3500.8(a) of Regulation X (24 C.F.R. § 3500.8(a)) and shall itemize all charges to be paid by the borrower, as required by Section 3500.8(b) of Regulation X (24 C.F.R. § 3500.8(b)).
   6. Within 30 days from the effective date of this ORDER, the Bank shall compile and retain all data from July 3, 1978, as required by section 338.4 of the FDIC's Rules and Regulations (12 C.F.R. § 338.4) except that the Bank will not be required to reconstruct data concerning inquiries, as defined by Section 338.1(q) of the FDIC's Rules and Regulations (12 C.F.R. § 338.1(q)). Furthermore, information concerning applicants, as defined by Section 338.1(a) of the FDIC's Rules and Regulations (12 C.F.R. § 338.1(a)), whose applications have been rejected by the Bank need only be reconstructed to the extent that the Bank has the information in its files.
   7. It is ordered that the Bank cease and desist from charging or collecting, from its real estate loan customers, any fee for services performed in connection with a residential real estate loan, to be paid to any person who is a director or officer of the Bank, until such time as a Court of the State of * * * makes a final determination that the charging of such fees is proper under Section 408.052 of the Revised Statutes of * * * .
   8. Within 30 days of the date of this ORDER, the Bank shall retain, employ, or designate a person employed by the Bank as Compliance Officer for the purpose of bringing the Bank into full compliance with Regulation Z (12 C.F.R. Part 226), Regulation B (12 C.F.R. Part 202), Regulation X (24 C.F.R. Part 3500), Part 338 of the FDIC's Rules and Regulations, and the Fair Credit Reporting Act.
   9. On the 15th day of the second month following the date of the issuance of this ORDER, and on the 15th day of every second month thereafter, unless and until each and every correction required by this ORDER is accomplished, the Bank shall furnish written progress reports to the Regional Director and the Commissioner of Finance of the State of * * * detailing the form and manner of any actions taken to secure compliance with this ORDER and the results thereof. 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 further reports.

BEFORE ADMINISTRATIVE LAW
JUDGE MORRIS H. KROSS
Case No. 29222
RECOMMENDED DECISION,
FINDINGS OF FACT, CONCLUSIONS
OF LAW, AND PROPOSED ORDER

   This case is before the undersigned upon Notice Of Charges and Of Hearing, duly issued by the Federal Deposit Insurance {{4-1-90 p.A-102}}Corporation, (hereinafter referred to as the Corporation), under the provisions of Section 8(b)(1) of the Federal Deposit Insurance Act and pursuant to the Corporation's Rules Of Practice and Procedures.
   The Corporation alleges that the Bank of * * * (hereinafter referred to as the Bank) has violated the Truth-in-Lending Act, 15 U.S.C. 1601 et seq, and Regulation Z promulgated thereunder; the Fair Credit Reporting Act, 15 U.S.C. 1681 et seq; the Equal Credit Opportunity Act, 15 U.S.C. 1691 et seq, and Regulation B promulgated thereunder; the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq and Regulation X promulgated thereunder; Part 338, Fair Housing, of the Corporation's Rules and Regulations, 12 CFR Part 338; and Section 408.052 of the Revised Statutes of * * * .
   Hearing was duly held, briefs filed by the parties, and the same is now before the undersigned for recommended decision, findings of fact, conclusion of law, and proposed order.
   The Bank is an FDIC insured, state nonmember bank, and no issue is raised as to the general jurisdiction and authority of the Corporation to examine the Bank and enforce applicable sections of law and regulations.
   However, in this case, the Corporation's authority to impose requirements of specific affirmative action to correct violations of pertinent law and regulations, including researching records, sending appropriate notices to borrowers and even in some instances making refunds of excess charges to borrowers, is challenged by the Bank. Section 12 U.S.C. Section 1818(b) sets forth the Cease and Desist proceedings which may be instituted by the FDIC in the event it has reasonable cause to believe that a bank is about to engage in an unsafe or unsound practice, or is violating or has violated a law, rule, or regulation. Subsection (b) further provides that in the event of a finding of a violation or unsafe or unsound practice, a Cease and Desist order may be issued by the Corporation which "may, by provisions which may be mandatory or otherwise, require the Bank, directors, officers, employees, and agents to cease and desist from the same, and further, to take affirmative action to correct the conditions resulting from any such violation or practice." The Bank asserts that the affirmative remedies sought by the Corporation in this case constitute an attempt to enforce a remedy on behalf of individual borrowers and to impose punitive action upon the Bank, both of which are beyond the scope, intent and authority of the statute in question.
   The undersigned has reviewed all the cases cited by the parties in their briefs submitted herein. A most careful review and study of the United States Supreme Court cases, dealing with similar and analogous provisions of statutes granting regulatory power to other regulatory agencies, lead the undersigned to the conclusion that, given the broad language of Section 1818(b) with no restriction or limitation, the Act may only be interpreted as granting the Corporation the authority to require the type of affirmative action sought in its notice of charges and proposed order in this case. There being no court determinations or interpretations of Section 1818(b), the rulings of the courts in those analogous cases must be controlling here. Edison Co.v. Labor Board, 305 U.S. 197; Phelps Dodge Corp. v. National Labor Relations Board, 313 U.S. 177; Virginia Electric Power Co. v. National Labor Relations Board, 319 U.S. 533; Siegel Co. v. Trade Commission, 327 U.S. 608; Pan American World Airways v. United States, 371 U.S. 296; Fibreboard Corp. v. Labor Board, 379 U.S. 203.
   Review of the above cited, and other cases, also leads to the conclusion that certain principles must be adhered to in determining the appropriateness of required affirmative action. Unlike many of the proceedings before other regulatory commissions, Congress has provided no remedy for violations of law and regulations, to individual borrowers, by means of a proceeding through or before the FDIC. Separate remedies with appropriate limitations have been prescribed by the Act. Therefore, it is not an appropriate exercise of the power to order affirmative action if such action is intended to serve as a remedy for borrowers. Concomitantly, the mere fact that an affirmative action incidentally affords a remedy to a borrower is not ground for denying the affirmative action, if other good cause exists for its enforcement. The affirmative action required must be to correct a condition arising out of the violation and may not be merely punitive in nature. In view of the overall statutory obligation of the Corporation to ensure the safety, soundness, and solvency of banks over {{4-1-90 p.A-103}}which it has jurisdiction, any affirmative action proposed must be viewed and balanced against any detrimental affects it would have upon the total soundness and operation of the Bank in question, including its reputation and standing, especially in the case of a small town bank, such as the Bank here. Since this is a proceeding brought by the Corporation, rather than an individual aggrieved party, and is for the general purpose of seeking compliance with pertinent laws and regulations, it is in the nature of an injunction proceeding, and general rules and principles of equity must be applied in determining the appropriateness of any affirmative action to be ordered. When violations are found, evidence of cessation of same, is not, in and of itself, ground for or defense against a cease and desist order, although it may be part of the equitable evaluation of appropriate affirmative action.

VIOLATION OF REGULATION Z IN CONNECTION WITH REAL ESTATE LOANS

   The Corporation alleges that the Bank is in violation of Sections 226.1(a), 226.5(b)(1), 226.8(b)(2), and 226.8(d)(3) in connection with its handling of real estate loans, for failure to properly determine and disclose the finance charge and for failure to properly determine and disclose the annual percentage rate.
   It is noted in connection with this alleged violation and all others, that they are based upon evidence obtained both by random sampling techniques and judgmental sampling techniques used by Examiner * * * in April 1978 and Examiner * * * in December 1978. No issue has been raised with regard to their validity, and it is therefore found by the undersigned that the findings and examples of such findings admitted into evidence are, in fact, findings of general practice, procedures and/or omissions of the Bank, and its general handling of consumer credit loans.
   The actions in question result from the fact that, in its real estate loan transactions, as verified by its TRUTH IN LENDING DISCLOSURE STATEMENT on each loan, the Bank included as "closing costs" and part of the amount financed a sum that varied with each loan. Those closing costs, if properly disclosed and properly included in the amount financed, would result in no violation of the four sections of Regulation Z. However, if they were improperly included, and should have been included as part of the finance charge, then there is improper disclosure and determination of both finance charge and annual percentage rate, resulting in violation of all four sections of Regulation Z.
   The facts are that the Bank, with the concurrence and written agreement of the Corporation was charging to its customers the legal fees it was paying to Attorney * * * for his legal services in connection with the handling of each loan. The fee for his services was to be a reasonable fee for the amount of legal services actually rendered to the Bank. There is some confusion and disagreement between the parties as to when and how this was to be done, but the facts do establish that the actual fee paid to Mr. * * * by the Bank, for legal services rendered in each real estate loan transaction, was the same as or less than the amount of closing costs charged to the borrower as part of the amount financed. In an off-the-record discussion between counsel for the parties and the undersigned, verified in part by the testimony by Examiner * * *, who was present during the discussion, the parties stipulated and agreed that the amount of Mr. * * * fee, charged in each loan transaction, was reasonable in so far as it was a reasonable attorney's fee for the services actually rendered. Unfortunately, the actual stipulation does not appear in the record, but is now stated and recognized as such by the undersigned. It is apparently the contention of the Corporation that the charging of any fee to the Bank for legal services rendered in connection with a real estate loan, by * * *, was illegal and improper under Section 408.052 of the Revised Statutes of * * *, and therefore, the charging of any fee was unreasonable and improper and could not properly be included in the amount financed.
   First, it is pointed out that if such a fee was illegal under Section 408.052, then it could not be properly charged as either an amount financed or as part of a finance charge. However, the position that the payment and collection of such fees was improper because Mr. * * * was a director and officer of the Bank, is based entirely upon an opinion of the * * * Attorney {{4-1-90 p.A-104}}General that such charge and payment for fees is illegal under Section 408.052. That statute has never been interpreted by the Courts of * * *. But the Courts of * * * have said, without question, that an opinion by a * * * Attorney General is not a controlling or judicial ruling, may be entitled to great weight, but is no more binding upon the courts or citizenry than the opinion of an individual attorney, even though it may be persuasive. Community Bank v. Moberly, 422 S.W. 2d 295; and Mesker v. Leachman, 529 S.W. 2d 153. In view of the fact that the evidence discloses that neither the Corporation nor the Bank was aware of this attorney general's ruling until well after the examination of December 12, 1978, that the Corporation and the Bank in good faith entered into a written agreement with regard to the charge and collection of attorney's fee by Mr. * * * and in the absence of any court interpretation of the statute in question, the undersigned cannot and does not find that the charging of fees was illegal and therefore not a legitimate closing cost.
   Section 226.4(e) of Regulation Z provides that in connection with real estate loans certain closing costs are automatically excluded from the finance charge provided they are bona fide, reasonable amount, and not for the purpose of invading the regulation. Itemization of these costs is not required, although other sections of 226.4 do require itemization.
   Bank Exhibit Number 7, is a Consumer Protection Handbook issued by the Corporation and distributed to bank examiners in the * * * region, by the Corporation on August 30, 1978, which is described as a valuable compliance tool. In the absence of other evidence, it constitutes a definitive explanation by the Corporation of its application of Regulation Z. Section 226.4(e) of Regulation Z does not require that the excludable charges and real property transactions be itemized and disclosed to qualify for exemption from being included in the finance charge. Section 5.1 of the Consumer Protection Handbook specifically states, in italics with regard to closing costs, that "those charges need not be itemized and disclosed to qualify for the finance charge exemption". The items excluded are listed as fees for title examination, abstract of title, preparation of deeds, settlement statements, and other documents and appraisal fees etc. The undersigned is compelled to find, by reason of the provisions of Section 226.4(e) in the Handbook, that any legal fees charged by * * * and paid by the Bank in connection with a particular real estate loan transaction is an excludable charge, which does not need to be itemized, may be listed as a part of the amount financed and shall not be included in the finance charge with respect to that transaction.
   In this case, however, the evidence is that in those real estate loan transactions where the Bank charged more in closing costs than it paid * * * for actual legal services rendered, the difference was a service, transaction or activity charge as set forth in Section 226.4(a) of Regulation Z, and that part of the closing costs was therefore improperly included in the amount financed and should have been included in the finance charge. This error, in those cases where the closing costs were more than the amount of * * * legal fees, would obviously result in an improper determination and disclosure of the finance charge and an improper determination and disclosure of the annual percentage rate in those loan transactions. However, the testimony of examiner * * * establishes that, in those instances, the amount of the closing costs to be included in the finance charge is so low, that the annual percentage rate variance is one-eighth of a percent or less and well within the variance allowed by the law, regulations, and interpretations thereof by the Corporation, so that no violation will be presumed to have occurred. The above facts, and application of appropriate sections of the law and regulations, therefore, must result in a determination that, in so far as real estate loan transactions are concerned, the Bank was not in violation of Regulation Z up to and through the December 1978 examination.

VIOLATION OF REGULATION Z IN CONNECTION WITH CLOSED END CREDIT LOANS AND INSURANCE PREMIUM CHARGES

   The Corporation alleges that the Bank violated Sections 226.4(a), 226.5(b)(1), 226.8(b)(2), and 226.8(d)(3), of Regulation Z, by failing to properly determine and disclose the amount financed and by failing to properly determine and disclose the annual percentage rate, by reason of the fact that it did not include as part of the finance charge, charges or premiums for insurance, when it was not clearly and conspicuously disclosed in writing to the customer that the
{{4-1-90 p.A-105}}insurance coverage was not required by the Bank, and/or the customer did not give the Bank a specifically dated and separately signed affirmative written indication of his desire to have such insurance coverage after receiving written disclosure to him of the cost of such insurance. The evidence in this case consists of valid, random, and judgmental sampling made by Examiner * * * in his bank examination of December 12, 1978, and by the valid sampling inspection made by Examiner * * * in his bank examination of April 26, 1978. This evidence establishes that the Bank had a practice of including, in the amount financed, premium for credit life insurance, when it had either failed to clearly and conspicuously disclose in writing to its customer that it did not require such insurance coverage, or failed to obtain specifically dated and separately signed affirmative written indication of the customer that he wanted such insurance coverage after receiving written disclosure of the cost of the same. Failure to include the premium for insurance as part of the finance charge, is such a clear and patent violation of Section 226.4(a) of Regulation Z that no further discussion is necessary. Obviously, a cease and desist order is appropriate, particularly when this violation continued through two bank examinations. In its proposed order, the Corporation specifically suggested that the Bank should not be required to make reimbursement or redisclosure of actual annual percentage rate or reimbursement of excess interest if the error in disclosing the annual percentage rate was caused by failure to disclose the cost of insurance or failure to obtain a signed insurance option. The Corporation does request an order giving affected customers the option to cancel and receive full reimbursement of the premiums charged. This would in effect impose a penalty on the Bank. The customer, as well as the Bank has had protection and value for the amount paid. The Bank did have a regular practice of obtaining a customer's written and signed request for such insurance, indicating an attempt to comply and only technical violation. On equitable principles, no such order should be required.

VIOLATION OF SECTION 226.8(b)(3)
OF REGULATION Z

   The Corporation alleges that the Bank violated Section 226.8(b)(3) of Regulation Z, by failing to properly disclose the number of payments and due dates scheduled to repay the indebtedness. Section 226.8(b)(3) requires that, in a closed and credit transaction, the Bank has the obligation to disclose to the borrower the number, amount, and due dates or periods of payments scheduled to repay the indebtedness. The evidence in this regard comes from a random and judgmental sampling of loan transactions. It establishes that, in a substantial number of closed and credit loan transactions, the Bank failed to specifically disclose by setting them out, the actual number of payments and due dates scheduled to repay the loan. This is a violation of the Section, and a Cease and Desist order is therefore appropriate. However, a review of the disclosure statements and loan transaction files admitted into evidence, establishes that in almost every case, although the exact number of payments and due dates were not specifically stated, any individual who can read, write, and do simple arithmetic, could, from the papers which he was given, determine with minimum effort the number of payments and due dates necessary and required to repay the loan. Under the circumstances, while there is a clear technical violation of Section 226.8(b)(3), there is clearly no failure, to disclose the required information to the borrower, to justify affirmative action requiring the bank to search its outstanding loans and make such complete and correct disclosure to the customer at this time.

VIOLATION OF SECTION 226.8(b)(5)
OF REGULATION Z

   The Corporation alleges that the Bank violated section 226.8(b)(5), by failure to make a clear and complete disclosure concerning the security interest held or to be retained by the Bank in connection with loan transactions. Section 226.8(b)(5) requires that a description or identification of the type of security interest to be held by the bank, and a clear identification of the properties to which a security interest relates, be included in disclosure to the borrower. Section 5.1, page 7 of the Consumer Protection Handbook (Bank Exhibit 7) further amplifies that "clear identification" means merely an adequate description, so that the consumer knows which items of property are being given as collateral for the loan. Review of the exhibits offered in evi- {{4-1-90 p.A-106}}dence to support this alleged violation, and the testimony of Examiner * * *, establish that with the exception of one loan transaction (* * *, et al), while the security interest may not have been as specifically and accurately described with words of art and precision as might be desired, the customer was given a clear enough identification so that he knew what items of property were being given as collateral for the loan. In this instance, therefore, no consistent or ongoing pattern of violation of section 226.8(b)(5) is shown and no Cease and Desist order is justified.

VIOLATION OF SECTION 226.8(b)(6)
OF REGULATION Z

   The Corporation alleges that the Bank violated section 226.8(b)(6) of Regulation Z, by failing to disclose to its customers a description of the penalty charge which it imposed for prepayment. This violation refers only to real estate loans. The evidence is established by a valid sampling of the Bank's real estate loans. It was the practice of the Bank to impose a penalty of 6 months interest if the loan was prepaid within the first 6 months, and to impose no penalty thereafter for prepayment. The evidence establishes that the disclosure made to customers consisted of the statement "No penalty after six months." This is clearly not a disclosure of the penalty charges that would be imposed for prepayment with an explanation of the method of computation and the conditions under which it might be imposed. A Cease and Desist order is clearly proper. The Corporation proposes an order requiring the Bank to review all extensions of closed end credit consummated since December 12, 1976, which are outstanding and where the customers did not receive proper and adequate disclosure required by section 226.8(b)(6). The order would then require the Bank to notify by letter, each customer who did not receive a proper disclosure and make the correct disclosure to the customer. The efficacy of such a requirement is not explained or supported by the Corporation. To require the Bank to notify, by letter, every customer who has a current outstanding account and did not receive such a proper and accurate disclosure, is meaningless if more than 6 months have passed since, after the passage of 6 months there is no prepayment penalty on the real estate loan transactions here in question. However, it is clear that the violation was material if in fact a customer who did not receive the explicit and clear disclosure required by section 226.8(b)(6), did prepay his note prior to the expiration of 6 months and paid the prepayment interest penalty without accurate and precise knowledge of such penalty as required by the disclosure provisions, at the time of the loan transaction. Therefore, it would appear appropriate in this case that an order be entered requiring the Bank to review all extensions of closed end credit consummated since December 12, 1976, where the customers did not receive proper and accurate disclosures as required by section 226.8(b)(6). The Bank should further be required to notify, by letter, each of those customers listed who did not receive such disclosure, and who actually paid a prepayment penalty, that it had failed to make such a disclosure and what the correct disclosure should have been.

VIOLATION OF SECTION 226.9(b) OF
REGULATION Z

   The Corporation alleges that the Bank violated section 226.9(b) of Regulation Z, by extending credit and retaining a security interest other than a first mortgage, in real property which was used by the customer as his principal residence, without giving the customer notice of right to rescind as required by section 226.9(b).
   The evidence in this case establishes, again by valid sampling, that the bank did, in fact, exhibit a substantial failure, in such credit transactions, to give the notice to rescind as specifically and absolutely required by section 226.9(b). Therefore, a cease and desist order is appropriate. This is a case where the condition created by the Bank's violation, cannot be corrected without further affirmative action. The giving of the notice of right to rescind is an absolute requirement of the regulation which may not be excused. Section 226.9(b) of Regulation Z provides that in the event a creditor fails to deliver the disclosure of right of rescision, the customer's right to rescind the transaction shall expire 3 years after the date of consummation of the transaction at the latest. The Bank did secure a waiver of the 3-day waiting provision, but the waiver obtained was insufficient to meet the specific requirements of this section.
   Under these circumstances, the Bank should be required to review all extensions of closed end credit which are outstanding, {{4-1-90 p.A-107}}where the customers did not receive proper disclosure as required by section 226.9(b), and which were consummated within 3 years of the final date of the order issued in this case. The Bank should be required to notify, by letter, each of those customers, by furnishing them with notice of the right to rescind as required by section 226.9(b) and advising them of their right to rescind within 3 business days of receipt of the notice.

VIOLATION OF SECTION 615 OF THE
FAIR CREDIT REPORTING ACT

   The Corporation alleges that the Bank violation Section 615 of the Fair Credit Reporting Act by denying credit or increasing the cost of credit to a customer, when that decision was based wholly or partly on information obtained from a person other than a consumer reporting agency, and failing to make the disclosures to the customer required by section 615. Section 615 requires that the nature of the information used shall be clearly disclosed to the customer. The only evidence to support this allegation is testimony of Examiner * * *, which is extremely vague, uncertain, completely undocumented, and based on an oral interview with one Bank officer. In any event, even Mr. * * * vague memory is that if this happened, it happened only once or very few times sometime in the past, and he was unable to affirm the date of such alleged violation. The only other evidence is that this happened once, 10 years ago. Under these circumstances, there is not substantial or material evidence to support a finding that the Bank violated section 615 of the Fair Credit Reporting Act.

VIOLATION OF SECTION 202.9 OF
REGULATION B

   The Corporation alleges that the Bank violated Section 202.9 of Regulation B, by failure to give the required written notice of adverse action to loan applicants. The evidence, including the testimony of the Bank's executive vice president, establishes that such notice was not being given and records of the same were not being kept as required by section 202.12 of Regulation B. An order should, therefore, be entered requiring the Bank to comply with these requirements. The Corporation also requests that the Bank be required to review all applications since June 12, 1978, on which adverse action was taken, and prepare a list of the applicants who were not provided proper written notification and send the notification to each such applicant. No equitable purpose would be served by such required affirmative action nor was any condition shown which should be remedied by the same at this late date. However, the Bank should be required to prepare a written form of ECOA notice which is to be used in all future adverse action notifications and such notice should be approved by the Regional Director.

VIOLATION OF SECTION 202.5(a) AND
202.6 OF REGULATION B

   The Corporation alleges that the Bank was in violation of sections 202.5(a) and 202.6 of Regulation B because it had a policy of inquiring into credit applicants' marital status, age, or source of income for the purpose of determining credit worthiness. The evidence establishes, without dispute, that this was the policy of the Bank as of December 12, 1978, and under its resolution with regard to the Equal Credit Opportunity Act passed at its board meeting of December 3, 1977. The Corporation asserts that the policy of making inquiries applied to any person applying for credit and would discourage reasonable persons from making or pursuing application for credit within the meaning of Regulation B. However, there is no evidence to all to support this contention. The evidence is that the Bank's resolution was a good faith attempt at compliance. The Corporation also requests an order requiring the Bank to prepare a list of applications where such improper inquiries were made or unlawful use of the same made, and in the case of applicants who had been discriminatorily rejected through the use of such information, there be refunded any fees, costs, etc. paid by them in conjunction with their applications, and to solicit new applications from such applicants. This order is more in the nature of effecting a remedy for such applicants rather than simple affirmative action to correct conditions resulting from noncompliance. Also, there is no evidence at all to support a finding that, while the Bank did make such inquiries that it actually engaged in any such discriminatory loan policy practices. The only evidence at all, in this regard, is the Bank's resolution passed on December 3, 1977, which provides that it shall not have any such discriminatory policies. Any {{4-1-90 p.A-108}}requests for or use of such information appears to be within the limits set by sections 202.5 and 202.6. Therefore, this action requested by the Corporation is not in order.

VIOLATION OF SECTION 3500.7(f)
AND 3500.8(a) OF REGULATION X

   The Corporation alleges that the Bank violated section 3500.7(f) and 3500.8(a) of Regulation X, in that it made federally-related mortgage loans without making the disclosure and maintaining the records required by said section. The evidence establishes that this allegation is true, and a cease and desist order should be entered.

VIOLATION OF SECTION 338.4 OF
FDIC RULES AND REGULATIONS

   The Corporation alleges that the Bank violated Section 338.4 because it failed to collect and retain the information required by Section 338.4 on a fair housing log sheet as required by the section. The evidence establishes that the bank was making home loans, had an office located in a Standard Metropolitan Statistical Area, and had assets exceeding $10 million, and therefore, fell within the requirements of section 338.4. The evidence further establishes that the Bank was not maintaining a fair housing log sheet with complete information as required by section 338.4. Therefore, an order is appropriate to require the Bank to comply with the requirements of this section. It would also appear appropriate that the Bank should be required to compile and retain all data from July 3, 1978, as required by section 338.4 except that it will not be required to reconstruct data concerning `inquirers', and need only compile and retain such data as now exists in its files for applicants whose applications have been rejected by the Bank.

VIOLATION OF SECTION 408.052 OF
REVISED STATUTES OF * * *

   The Corporation alleges that the Bank was in violation of section 408.052 because it charged its residential real estate customers fees in excess of the maximum 1% allowed by the statute, and fees not permitted by the statute.
   This section of the statute provides, in pertinent part, that no lender shall charge a fee of any nature whatsoever on any residential real estate loan except of 1% organization fee, except that the lender may charge bona fide expenses paid by the lender to third parties for services actually performed in connection with the loan. In this case, the Bank was charging its residential real estate customers a closing cost fee the total of which would have been in excess of 1% of the real estate loan. However, either all or substantially all of such closing costs was a fee for legal services paid by the Bank to Director * * *, for legal services actually performed in connection with the loan. By opinion letters of June 28, 1976, and October 17, 1978, the * * * Attorney General has stated his opinion that a director of a bank is a third party within the meaning of section 408.052, and that, therefore, that section prohibits a lender from charging borrowers for legal services rendered by a director of the lender. As noted above, an opinion of a * * * Attorney General is not considered a binding or conclusive interpretation of the laws in the State of * * * and has little more status or weight than the opinion of any other respected lawyer. This statute has not been construed by the courts of the State of * * *. It is also noted that neither the Corporation nor the Bank was aware of these opinion letters until well after the close of the bank examination of December 12, 1978. Both the Corporation and the Bank had no question at all about the legal propriety of such legal fees being paid to a director of the bank where service is actually performed. Under these circumstances, it would not appear appropriate to find that the bank was in violation of state law. However, the evidence establishes that the Bank has agreed that it will not and does not any longer charge its real estate customers any fee for services by a director of the Bank. It would, therefore, appear appropriate that an order be entered requiring the Bank not to charge or collect, from its real estate customers, any fee for services performed in connection with a residential real estate loan, to be paid to any person who is a director or officer of the Bank, until such time as a court of the State of * * * makes a final judicial determination that the charging of such expenses and fees is proper under section 408.052.

OTHER ORDERS REQUESTED BY
THE CORPORATION

   The Corporation has also requested that order be issued requiring the Bank to employ or designate a compliance officer to bring it into full compliance with the requirements of all law and regulations. The {{4-1-90 p.A-109}}Corporation further requests an order requiring the Bank to prepare and furnish a written progress report to the Regional Director and the Commissioner of Finance of the State of * * * with regard to the actions taken to secure compliance with the order, and that such reports shall continue until the requirement is released by the Regional Director.
   Consideration must be given to the fact that this is a small bank with a minimum number of officers and employees. The evidence in the case establishes that the Bank has, in fact, adopted and followed procedures and forms to comply with all requirements of the law and regulations in question and pertinent here. The evidence comes not only from the officers of the Bank but also from the testimony of the Corporation's examiner who has continued working with the Bank. There is no evidence of any willful attempt by the Bank to avoid compliance with the regulations. The requirements requested by the Corporation are so general and vague that it is not possible to determine the precise limits of what could and should be required. No evidence or reason is offered to suggest why the Corporation's normal employment of bank examiners to make examinations to ensure compliance and reveal violations, is not sufficient to assure full compliance in this case, as it has been in the past to develop evidence of failure to comply with the regulations. Under these circumstances, these last orders requested by the Corporation do not appear reasonably designed or necessary to effectuate compliance by the Bank at this time, and should, therefore, not be entered.

PROPOSED FINDINGS OF FACT

   After careful consideration of all the evidence the undersigned proposes the following findings of fact:

   1. The Bank of * * * is a banking corporation, existing and doing business under the laws of the State of * * *, at * * * and at all times pertinent has been and is an insured state nonmember bank.
   2. On and prior to December 12, 1978, the Bank made real estate residential loans and in its truth and lending disclosure statements made in connection therewith, the Bank included as a component of the amount financed a charge designated as a closing cost.
   3. The closing cost referred to in the preceding finding was not itemized, and all of it or substantially all of the closing cost in each instance was for fee for legal services in connection with the routine handling of such a loan transaction.
   4. After deduction of the actual legal fees involved in each such closing cost charge, the difference, if included in the finance charge would have resulted in an annual percentage rate difference of 1/8 percent or less than the actual percentage rate shown on the truth and lending disclosure statement.
   5. On and prior to December 12, 1978, the Bank disclosed and included as a component of the amount financed instead of the finance charge in its truth and lending disclosure statements, the cost of credit life insurance.
   6. In connection with the disclosure of cost of credit life insurance as a component of the amount financed, the Bank did not clearly and conspicuously disclose in writing to its customer that such insurance coverage was not required, and the Bank did not obtain from such customers desiring such insurance coverage, a specifically dated and separately signed affirmative written indication of such desire after the receipt by the customer of a written disclosure of the cost. If the cost of such insurance had been included as a component of the finance charge instead of the amount financed, the annual percentage rate in many such instances, as disclosed on the truth and lending disclosure statement, would have been at a rate in excess of 1/8 of a percent difference over the annual percentage rate actually disclosed.
   7. On and prior to December 12, 1978, the Bank extended closed end credit without specifically disclosing the actual number of payments and due dates scheduled to repay the indebtedness.
   8. On and prior to December 12, 1978, the Bank did not engage in any policy or practice of any significance which resulted in a failure to make disclosures, in connection with extension of closed end credit, concerning the security interest {{4-1-90 p.A-110}}held or to be retained or acquired by the Bank.
   9. On and prior to December 12, 1978, it was the practice of the Bank, in connection with closed end credit, to impose a penalty charge of six months interest if the loan was prepaid within the first six months of the loan, and to impose no penalty for prepayment thereafter.
   10. On and prior to December 12, 1978, the Bank did not completely, specifically, and clearly disclosure, to its closed-end loan customers, the terms and conditions of its prepayment penalty policy.
   11. On and prior to December 12, 1978, the Bank extended credit, in which it acquired a security interest for the loan other than a first mortgage, in real estate which was used as the principal residence of the customer.
   12. In connection with the extension of credit referred to in the preceding paragraph, the Bank failed to give such borrowers notice of their right to rescind as specifically prescribed by section 226.9(b) of Regulation Z.
   13. There is no substantial evidence to support a finding that the Bank had a policy or practice, of any significance, of denying or increasing the cost of credit for loan applicants, basing that decision either wholly or partly on information obtained from a person other than a consumer reporting agency without making disclosures of such information to the credit applicants.
   14. On and prior to December 12, 1978, the Bank took adverse action (i.e. denial of loan applications), but failed to give written notification to such denied applicants of the adverse action and reasons therefore, and the Bank further failed to keep and maintain records of such adverse action for a period of 25 months from the date of such action.
   15. On and prior to December 12, 1978, the Bank had a policy of inquiring as to credit applicants' marital status, age, and source of income for the purpose of aiding in the determination of credit worthiness.
   16. There is no evidence that the Bank's policy of making such inquiries was for purpose other than or beyond the limits set forth in section 202.5 of Regulation B.
   17. There is no evidence to support a finding that the Bank had a policy or actual practice of discriminating against any credit applicant on any basis prohibited by Regulation B.
   18. On and prior to December 12, 1978, the Bank made federally-related mortgage loans as defined in section 3500.5(b) of Regulation X without using the uniform settlement statement form required by section 3500.8(a), or without making the disclosures and maintaining the records required by section 2500.7(f) when exemption from use of the uniform settlement statement was used.
   19. On and prior to December 12, 1978, the Bank made federally-related mortgage loans without itemizing all the charges to be paid by the borrower.
   20. On and prior to December 12, 1978, the Bank failed to collect and retain the information required by section 338.4 of the FDIC rules and regulations, and failed to maintain a fair housing log sheet with information required by such regulation.
   21. On and prior to December 12, 1978, the Bank charged its residential real estate loan customers closing cost fees in excess of 1% of the loan; and all or substantially all of such fees were bona fide legal expenses paid by the Bank to * * * for services actually performed in connection with such loans; and, at all times pertinent herein. * * * was a stockholder and director of the Bank.

   The undersigned proposes the following conclusions of law:

   1. The Corporation has jurisdiction over the bank in the subject matter of this proceeding.
   2. The Corporation has the authority, under statute, to issue cease and desist orders which require affirmative corrective action to correct conditions created by noncompliance with and violation of law, rules and regulations, including state banking laws, as well as all federal law, rules and regulations.
   3. The Corporation does not have the authority, under statute, rules or regulations, to issue cease and desist orders requiring affirmative corrective action which are for the purpose of imposing punitive action or penalties upon a bank, {{4-1-90 p.A-111}}or for the purpose of affording remedies to individual loan customers of the Bank.
   4. Cessation of violation of law or regulations is not a defense to a cease and desist order.
   5. In connection with the Bank's including, in truth and lending disclosure statements on real estate loan transactions, an undifferentiated charge denominated as "closing costs" as a component of the amount financed, the Bank did not violate sections 226.4(a), 226.8(d)(3), 226.5(b)(1) and 226.8(b)(2) of Regulation Z.
   6. In connection with its disclosure of the cost of credit life insurance as a component of the amount financed, in its truth and lending disclosure statements made in connection with closed and credit loans, the Bank was in violation of sections 226.4(a), 226.8(d)(3), 226.5(b)(1) and 226.8(b)(2) of Regulation Z.
   7. On and prior to December 12, 1978, the Bank failed to comply with the requirements of section 226.8(b)(3) of Regulation Z.
   8. On and prior to December 12, 1978, the Bank was not in violation or substantial failure to comply with section 226.8(b)(5) of Regulation Z.
   9. On and prior to December 12, 1978, the Bank was in violation of and substantial noncompliance with section 226.8(b)(6) of Regulation Z.
   10. On and prior to December 12, 1978, the Bank was in violation of and substantial noncompliance with section 226.9(b) of Regulation Z.
   11. There is no evidence to support a finding that the Bank was in violation of section 615 of the Fair Credit Reporting Act on or prior to December 12, 1978.
   12. On and prior to December 12, 1978, the Bank was in substantial noncompliance with and violation of section 202.9 of Regulation B.
   13. On and prior to December 12, 1978, the Bank was not in substantial noncompliance with sections 202.2(z), 202.5(a), and 202.6 of Regulation B.
   14. On and prior to December 12, 1978, the Bank was in substantial noncompliance with sections 3500.7(f) and 3500.8(b) of Regulation X.
   15. On and prior to December 12, 1978, the Bank was in substantial noncompliance with section 338.4 of FDIC rules and regulations.
   16. The meaning and interpretation of section 408.052 of Revised Statutes of * * * is not sufficiently clear or judicially interpreted to support a finding that, on and prior to December 12, 1978, the Bank was in violation of said section 408.052.

   In reviewing this case for determination of proposed order, the undersigned has taken into account the principles and rules of law set forth at the beginning of this decision. In addition, it is noted that the evidence establishes that the Bank did make good faith attempts to comply with the regulations and to cease violations found in the April 1978 bank examination, even though such attempts were not completely successful. There is no evidence to show any willful avoidance of the regulations or even gross neglect in failure to comply therewith. The evidence establishes that the general and usual practice, of the * * * Regional Office of the Corporation, is to hold a meeting with the Board of Directors of a bank, after an examination had disclosed violations, for the purpose of helping the bank understand the nature and extent of the violations and to come into compliance with the law and regulations. In the instant case, a brief meeting was held with the Bank directors on December 21, 1978, by a representative of the Regional Office, after the December 12, 1978, bank examination. The evidence establishes that that meeting dealt primarily with Mr. * * * method of billing the Bank for legal services in connection with closing costs on real estate loans. Mr. * * *'s memorandum of December 22, 1978, reveals little if any actual discussion of the Bank's noncompliance with various regulations. Mr. * * * compliance reports of December 12, 1978, were not forwarded to the Board of Directors of the Bank until March 9, 1979. Thereafter, although requested by the Bank, no meeting was held and no opportunity was given for the Bank to demonstrate whether it was or was not making a good {{4-1-90 p.A-112}}faith attempt to come into compliance with the law and regulations and to cease further violations. Without further meeting or consultation with the Bank, and contrary to its usual practice and procedures, the Corporation issued its Notice of Charges and of Hearing on April 23, 1979. Much of the proposed affirmative action orders requested by the Corporation, although within its general jurisdiction and power, constitute more of a punitive action or penalty against the Bank, and/or affording and effecting a remedy for customers (in some instances beyond that which is afforded to them by specific sections of the Acts in question). Testimony of both the Bank officers and Corporation examiner establish that the Bank has made good faith attempts to come into compliance and has virtually ceased and desisted from violations found above. This is a small town bank, that has to exist in competition with much larger banks in the nearby metropolitan community of * * *. The effect of much of the affirmative action sought by the Corporation might well be to cause the Bank embarrassment, loss of faith by its customers, and potential customers, in its integrity at a banking institution, and thereby affect the soundness and financial solvency of the Bank. While this is not a reason for abstaining from a Cease and Desist Order, it is certainly a fact that must be taken into account in determining the total efficacy and reasonableness, applying all equitable principles and all factors above, in determining whether and what kind of affirmative action should be required. Having these principles and facts in mind, the undersigned proposes the following orders:

   1. The Bank is ordered to cease and desist from the violations set forth in the Findings and Conclusions Of Law set forth above.
   2. The Bank is ordered, within 60 days from the date of this order, to review all extensions of closed end credit consummated since December 12, 1976, for those customers who did not receive proper and accurate disclosures of prepayment penalties as required by section 226.8(b)(6) of Regulation Z. The Bank shall further be required to make a list of all such customers and to notify, by letter, each of those customers listed who did not receive such disclosure, and who actually paid a prepayment penalty, that it had failed to make such a disclosure and what the correct disclosure should have been. The form of the letter shall be reviewed and approved by the Corporation's Regional Director in * * * prior to mailing.
   3. The Bank is ordered, within 60 days of the date of this order to review all extensions of closed and credit which are outstanding, where the customer did not receive prior disclosure of right to rescission as required by section 226.9(b) and which were consummated within 3 years of the final date of the order issued in this case. The Bank shall notify, by letter, each of those customers, by furnishing them with Notice of Right to Rescind as required by section 226.9(b) and advising them of their right to rescind within 3 business days of receipt of the notice. The form of the letter shall be reviewed and approved by the Corporation's Regional Director in * * *.
   4. The Bank is ordered, within 60 days of the date of this order, to comply and retain all data on a fair housing log sheet as required by section 338.4 of FDIC rules and regulations, from July 3, 1978, to present and continuing thereafter, except that it will not be required to reconstruct data concerning "inquirers", and need only comply and retain such data as now exists in its files for applicants whose applications have been rejected by the Bank.
   5. It is ordered that the Bank cease and desist from charging or collecting, from its real estate loan customers, any fee for services performed in connection with a residential real estate loan, to be paid to any person who is a director or officer of the Bank, until such time as a Court of the State of * * * makes a final judicial determination that the charging of such fees is proper under section 408.052 of the Revised Statutes of * * *.

ORDER TERMINATING THE ORDER
TO CEASE AND DESIST
FDIC-29222    IT IS HEREBY ORDERED, that the Order to Cease and Desist issued against the * * * (`Bank'), pursuant to Section 8(b) of {{4-1-90 p.A-113}}the Federal Deposit Insurance Act on June 2, 1981, be and hereby is terminated.
   Dated at Washington, D.C. this 16th day of February, 1982. By direction of the Board.
/s/ Hoyle L. Robinson
Executive Secretary