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   [5014] FDIC Docket No. FDIC-80-51b (12-19-83).

   Bank ordered to cease and desist from failing to properly disclose the finance charges and annual percentage rates for consumer closed-end credit, and from failing to obtain signatures indicating the customer desired optional credit insurance and failing to include the cost of the credit insurance in the finance charge. (This decision was affirmed in part and vacated and reversed in part by the U.S. Court of Appeals for the Eighth Circuit, 751 F.2d 209 (1984)).

   [.1] Cease and Desist Order—FDIC Authority
   The FDIC has the authority to issue a cease and desist order directed at violations of law, rules, and regulations.

   [.2] Cease and Desist Order—Affirmative Action—Reimbursement
   The FDIC has the authority to issue cease and desist orders requiring affirmative corrective action, including reimbursement. Congress specifically granted FDIC the authority to take affirmative action to correct the conditions resulting from violations.

   [.3] Cease and Desist Order—Affirmative Action—Purpose
   The power to command affirmative action is remedial, not punitive, and is to be exercised to restrain violations and as a means of removing or avoiding the consequences of violations.

   [.4] Cease and Desist Order—Defenses—Cessation of Violation
   Corrective action subsequent to a violation and promises "to sin no more" are not controlling on the issue of the propriety of a cease and desist order. Cessation of violations of law is not a defense to a proceeding for a cease and desist order.

In the Matter of * * * and * * *, as the
Board of Directors of * * * (INSURED
STATE NONMEMBER BANK)



AMENDED DECISION AND ORDER
TO CEASE AND DESIST

FDIC 80-51b

   Pursuant to its authority under Section 8(b) of the Federal Deposit Insurance Act (12 U.S.C. § 1818(b)), the Board of Directors of the Federal Deposit Insurance Corporation (the "Board") on September 2, 1980, issued a Notice of Charges against the above-named parties ("Respondents") alleging violations of the Truth in Lending Act, Title I of the Consumer Credit Protection Act (15 U.S.C. § 1601 et seq.), and Regulation Z of the Board of Governors of {{4-1-90 p.A-154}}the Federal Reserve System (12 C.F.R. Part 2261 promulgated thereunder, the Equal Credit Opportunity Act, Title VII of the Consumer Credit Protection Act (15 U.S.C. § 1691 et seq.), and Regulation B of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 202) promulgated thereunder, the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. § 2601 et seq.) and Regulation X of the Department of Housing and Urban Development (24 C.F.R. Part 3500) promulgated thereunder, the Federal Deposit Insurance Corporation ("FDIC") Rules and Regulations Part 326 (Minimum Security Devices and Procedures for Insured Nonmember Banks), Part 328 (Advertisement of Membership), Part 329 (Interest on Deposits), Part 338 (Fair Housing), and Part 345 (Community Reinvestment) (12 C.F.R. Parts 326, 328, 329, 338, 345), and the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Regulations of the United States Treasury (31 C.F.R. Part 103).
   On June 2–4, 1981 a formal hearing was held in * * * with Administrative Law Judge Charles C. Moore, Jr. ("ALJ") presiding. The ALJ filed his Recommended Decision ("RD") on February 17, 1982. On June 14, 1982 the Board issued a cease-and-desist order and Respondents appealed to the United States Court of Appeals for the Eighth Circuit.
   On October 13, 1983, the United States Court of Appeals for the Eighth Circuit, while retaining jurisdiction, remanded the case to the Board for further consideration. The court ordered that the Board certify to the court its new decision within 90 days of the court's decision.
   The Board has further considered the Regulation Z issues and has determined that Respondents violated the Truth in Lending Act and Regulation Z. The Board has also determined that the record justifies the issuance of a cease-and-desist order. Thirty transactions were relied upon by FDIC to establish the alleged violations. Of those thirty transactions, sixteen were excluded from consideration by the ALJ.
   Seven transactions were excluded on the basis that they were not subject to the consumer protection laws. RD pp. 2–3. The record supports the conclusion that six of these seven excluded transactions are business loans and are therefore not consumer transactions subject to Regulation Z. A consumer transaction is one primarily for personal, family, or household purposes. 15 U.S.C.§ 1602(h). Consequently, the following loans have been excluded from consideration: * * *
   The ALJ also excluded the transaction involving * * *. The ALJ's discussion of this finding is somewhat confusing and does not clearly state why the loan is being excluded. This loan was extended for the purpose of growing white rabbits for resale. The ALJ states that this may or may not be agricultural but agricultural loans are now exempt from the consumer protection laws and there is no point in ordering a bank to cease a practice which is now perfectly legal. RD p. 2.
   This statement evades the issue. The issue is not whether it is reasonable to order a bank to cease doing something which is now legal but whether the loan may properly be considered for purposes of determining whether the bank violated Regulation Z. The Truth in Lending Simplification and Reform Act amended Section 104 of the Truth in Lending Act (15 U.S.C. § 1603) to exempt agricultural credit transactions. The amendment became effective on April 1, 1982. When the loan was made and when the sample was taken agricultural loans were considered consumer transactions subject to the consumer protection laws. As such, the transaction is relevant to the inquiry of whether Regulation Z was violated and was therefore considered by the Board. In terms of remedial action, however, the transaction is irrelevant.
   Of the sixteen excluded transactions, the remaining nine transactions were excluded by the ALJ on the basis that they occurred prior to the previous compliance examination and were not relevant to this proceeding since no cease-and-desist order had been proposed based upon the examination. RD p. 3. FDIC took exception to the exclusion of these transactions. FDIC argues that the 1979 Uniform Truth in Lending Enforcement Guidelines, which were adopted by the Federal Financial Regulatory Agencies, and the FDIC examiners' instructions implementing those guidelines, required that Respondent bank's outstanding consumer credit transactions be examined back


1 Part 226 was revised effective April 1, 1982, 46 Fed. Reg. 20892. The section citations in the Amended Decision and Order to Cease and Desist do not reflect the changes made. See attached conversion table for current section numbers.
{{4-1-90 p.A-155}}to October 28, 1974 for violations of Regulation Z. The excluded transactions were clearly within the scope of those guidelines.
   Although the Truth in Lending Simplification and Reform Act of 1980 shortened the retroactive scope to January 1, 1977, the transactions in question were still within the guidelines since they had been consummated or renewed on or after that date.
   Upon review of the guidelines, it is clear that the transactions were properly included in the sample and the arguments of FDIC are meritorious. Accordingly, the following transactions were given full evidentiary weight as indicative of the Respondent bank's violations of Regulation Z: * * *.

FINDINGS OF FACT

   Although Respondents challenged FDIC's authority to issue cease-and-desist orders, questioned FDIC's authority to impose affirmative remedies and attached the validity of FDIC's sample, Respondents have done little to rebut the evidence introduced by FDIC. Based on the record the Board finds the following:

       1. Respondent bank extended consumer credit other than open-end credit ("closed-end Credit") and did not disclose, as required by Section 226.8(d)(3) of Regulation Z, the finance charge as required to be determined by the provisions of Section 226.4(a) of Regulation Z (12 C.F.R. §§ 8(d)(3), 226.4(a)). (TR pp. 91–93, 100–101, 115–116, 180–182, 203–205; PRX 4 pp. 128, 184; PRX 8 p. 37; PRX 7 p. 112 and PRX 9 p. 2; PRX 4 pp. 63, 64, 192, and PRX 9 pp. 2, 7, 8).
       2. Respondent bank extended closed-end credit and did not disclose, as required by Section 226.8(b)(2) of Regulation Z, the annual percentage rate, as required to be determined by Section 226.5(b)(1) (12 C.F.R. §§ 2216.8(b)(2), 226.5(b)(1)). CTR pp. 86–87, 91–93, 100–101, 110–111, 115–116, 119–120, 124–125, 144–146, 157–158, 170–171, 181–182, 193–194, 203, 205; PRX 4 pp. 92, 122, 128, 133, 180, 184; PRX 8, p. 37; PRX 4, p. 23 and PRX 9, p. 9; PRX 4, p. 164 and PRX 9, p. 20; and PRX 4, p. 192 and PRX 9, p. 7; PRX 4, p. 64 and PRX 9, p. 8; PRX 7, p. 44 and PRX 9, p. 6).
       3. Respondent bank extended closed-end credit and failed to disclose the cost of credit insurance or failed to obtain a specifically dated and separately signed, affirmative, written indication from the customer that he or she desired optional credit insurance, or both, and it did not include the cost of credit insurance in the finance charge. (TR pp. 159–160, 194–195, 239–243, 247–248, 261–265; PRX 6, pp. 4, 15, 36; PRX 7, pp. 44, 60–72, 87; PRX 8, p. 2).
       4. Respondent bank extended closeend credit and required customers to purchase credit insurance in connection with the extension of credit and failed to include the cost of such insurance in the finance charge. (TR pp. 129–131).
       5. Respondent bank refinanced existing extensions of closed-end credit within the meaning of Section 226.8(j) of Regulation Z without providing the disclosures required by Section 226.8 of Regulation Z (12 C.F.R. § 226.8(j)). (TR pp. 79–80, 162–163).
       6. Respondent bank extended closed-end credit and failed to either itemize and disclose various types of fees or charges, as required by Section 226.8(d)(3) of Regulation Z, or to include them in the finance charge, as required by Section 226.4(b) of Regulation Z (12 C.F.R. §§ 226.4(d)(3), 226.8(b)). (TR pp. 91–93, 115–116, 144–146, 181–182, 203, 205).
       7. Respondent bank extended closeend credit where the last payment was more than twice the amount of an otherwise regularly scheduled payment and did not identify the amount of the last payment as a Balloon Payment, as required by Section 226.8(b)(3) of Regulation Z (12 C.F.R. § 226.8(b)(3)). (TR pp. 180–181).
       8. Respondent bank extended closeend credit secured by an interest in property and did not clearly identify the property to which the security interest related, as required by Section 226.8(b)(5) of Regulation Z (12 C.F.R. § 226.8(b)(5)) (TR pp. 86–87, 91–93, 100–101, 124–125; PRX 4, pp. 122, 180, 184,: PRX 8, p. 37.
       9. Respondent bank extended closed-end credit in which Respondent bank took a security interest in real property used as the principal residence of the customer, but which credit was not extended to finance the acquisition of the {{4-1-90 p.A-156}}residence. In extending this credit, Respondent bank did not give the customer notice of his or her right to rescind the transaction, as required by Section 226.9(b) of Regulation Z (12 C.F.R. § 226.9(b)). (TR pp. 188, 203, 205).
   A number of the above findings vary from the ALJ's findings only in regard to the number of transactions considered. The ALJ found that Respondent bank failed to properly disclose the finance charge and annual percentage rate. RD 2. The Board finds that six consumer transactions evidence Respondent bank's failure to properly disclose the finance charge. In the transactions involving * * * and * * * there was no disclosure of the finance charge. In the transactions involving * * * and * * * the amount disclosed was not calculated in accordance with the requirements of Regulation Z.
   Thirteen transactions evidence Respondent bank's failure to properly disclose the annual percentage rate. In the transactions involving * * * , * * * and * * * , there was no disclosure of the annual percentage rate. In the transactions involving * * * , the annual percentage rate was not properly determined.
   The Board also finds that Respondent bank failed to obtain signatures indicating the customer desired optional credit insurance and did not include the cost of the credit insurance in the finance charge. This finding is evidenced by the transactions involving * * * . With the exception of the * * * loan, this finding parrots the ALJ's finding. See RD pp. 4–5. In addition, the Board finds that Respondent bank required * * * to purchase credit insurance and failed to include the cost of the insurance in the finance charge. The transaction involving * * * was not discussed by the ALJ.
   The Board departs from the ALJ's Recommended Decision as the decision concerns Respondent bank's failure to make all the required disclosures when it refinanced existing extensions of credit. The ALJ found that the new interest rate was clearly disclosed.
   FDIC took exception to this finding, claiming that the ALJ misunderstood the requirements of Section 226.8(j) of Regulation Z. Section 226.8(j) requires that a bank treat such refinancing as a new extension of consumer credit and make all relevant disclosures. 12 C.F.R. § 226.8(j). In the transactions involving * * * and * * * , the required disclosures were not made. Accordingly, FDIC's exception is well founded.
   Although the ALJ discussed FDIC's allegations regarding Respondent's failure to itemize and disclose various fees and charges and Respondents' failure to identify balloon payments, the ALJ did not clearly state whether the evidence supports a finding that the disclosures were not made. The Board finds that the transactions involving * * * , * * * and * * * establish Respondent bank's failure to itemize and disclose various fees and charges.
   Respondent bank's failure to identify balloon payments is established in the transaction involving * * *. This transaction involved a loan on which the monthly payments were $100 and the final payment was $1,329.05. This final payment, which was more than twice the regularly scheduled payment, was not disclosed or identified as a balloon payment.
   The ALJ did not discuss whether Respondent bank took security interests in property without clearly identifying the property. The Board finds that, in the transactions involving * * * , Respondent bank failed to identify the property in which it had taken a security interest.
   In regard to the Board's ninth and final Finding to Fact, the Board again departs from the ALJ's recommended decision. The Board finds that Respondent bank took a security interest in customers' residences and failed to give the customers notice of their right to rescind. The transactions involving * * * establish Respondent bank's failure to give the required notice. Section 226.9 of Regulation Z requires that notice of the right to rescind be given when credit is extended and a security interest is taken in the customer's principal residence but the credit is not extended to finance the acquisition of the residence. 12 C.F.R. § 226.9.
   The ALJ found that the right to rescind provision was not applicable to the * * * transactions because the security interest which Respondent bank took was on the borrowers' "previously owned residence". RD p. 6. The ALJ could not equate a previously owned residence with a present or future principal residence. Id.
   The Phrase "previously owned residence" appears to come from the Examin- {{4-1-90 p.A-157}}er's testimony. When questioned by Mr. * * * , Counsel for FDIC, as to whether the loan was for the purpose of purchasing the dwelling on which the security interest was taken, the Examiner responded in the negative and stated that the security was a previously owned residence.
   The focus of the testimony is that the security interest, the residence, was not purchased with the loan. If read as done by the ALJ, it appears that the bank took a residence no longer owned by the borrower as security. This seems an unlikely occurrence. When this phrase is considered in context, FDIC's exception, claiming that the ALJ misconstrued the record, appears to be correct. Evidence that the security was not the principal residence of the borrower was not introduced by Respondents and Respondents do not contend that notice was given. Accordingly, the Board finds that the security interest in both transactions was the consumers' residence and Respondent bank failed to give notice to the customers of their right to rescind.
   In regard to the non-Regulation Z matters, the Board adopts the ALJ's Findings of Fact numbered 17 through 28.

CONCLUSIONS OF LAW

   Accordingly, the Board adopts the Conclusions of Law numbered 1, 2, 3, 5(j-w) and 7 of the ALJ and the Conclusions of Law numbered 4, 5(a-i) and 6 requested by FDIC. These Conclusions of Law and analysis thereof are as follows:

       1. FDIC has jurisdiction over the Respondents and the subject matter of the proceeding.
       2. Respondents are now and have been at all times pertinent herein, subject to the provisions of:
       (a) the Federal Deposit Insurance Act (12 U.S.C. § 1811, et seq.) and the Rules and Regulations of the Federal Deposit Insurance Corporation (12 C.F.R. Part 303, et seq.). (Notice at paragraph 1, Answer at paragraph 1);
       (b) the Truth in Lending Act, Title I of the Consumer Credit Protection Act (15 U.S.C. § 1601 et seq.), and Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 226) promulgated thereunder, the Equal Credit Opportunity Act, Title VII of the Consumer Credit Protection Act (15 U.S.C. § 1691 et seq.), and Regulation B of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 202) promulgated thereunder, the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. § 2601 et seq.) and Regulation X of the Department of Housing and Urban Development (24 C.F.R. Part 3500) promulgated thereunder, and the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Regulations of the United States Treasury Department (31 C.F.R. Part 103). (Notice first paragraph.)

   [.1] 3. FDIC has authority to issue a cease-and-desist order directed at violations of law, rules and regulations.
   Respondents took exception to the ALJ's recommended decision on the basis that the ALJ erred in refusing to consider the decision in Gulf Federal Savings and Loan Association of Jefferson Parrish v. Federal Home Loan Bank Board, 651 F.2d 259 (5th Cir. 1981), and failing to find that the FDIC's cease-and-desist authority is designed to cover the violations in this proceeding. This case does not hold that the Federal Home Loan Bank Board ("FHLBB") or any regulatory agency may not use its cease-and-desist powers to enforce the laws, rules and regulations the agency is statutorily authorized to enforce. Accordingly, the Board finds Respondents' exception not warranted.
       4. FDIC has authority under Section 8(b) of the Federal Deposit Insurance Act to issue cease-and-desist Orders requiring affirmative corrective action, including reimbursement.
   The ALJ omitted from the above conclusion the phrase "including reimbursement". No reason for this deletion is advanced.
   During the proceedings, Respondents argued that FDIC's cease-and-desist powers do not permit reimbursement, that to order restitution amounts to an adjudication of private rights and that ordering reimbursement in this case constitutes a retroactive application of the Truth in Lending Act amendments. Respondents took exception to the ALJ's decision claiming that the ALJ erred in not finding that reimbursement was an improper remedy.
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   Respondents argue that, prior to the passage of the Depository Institutions Deregulation and Monetary Control Act of 1980, FDIC did not have the authority to order reimbursement. For support, Respondents rely on the decision in Gulf Federal.

   [.2] The court, in Gulf Federal, did not find that the FHLBB did not have the power to order reimbursement. Rather the court found that reimbursement was not appropriate in that particular case since none of the laws suggested by the FHLBB were violated. 651 F.2d at 267. Contrary to Respondents' contention, FDIC does possess the authority to order affirmative actions including, when appropriate, reimbursement. Congress specifically granted FDIC the authority to take affirmative action to correct the conditions resulting from violations. 12 U.S.C. § 1818(b).
   Significantly, when Congress amended the Truth in Lending Act to specifically compel reimbursement, Congress did not deem it necessary to amend the Federal Deposit Insurance Act to add the authority to order reimbursement. That Congress amended the Truth in Lending Act to require such a remedy in certain cases does not defeat FDIC's interpretation of its Act that FDIC had, prior to the amendment, authority to order reimbursement. Rather, the amendments demonstrate that board orders requiring reimbursement are appropriate.
   In ruling on the Federal Trade Commissions' ("FTC") cease-and-desist powers, the Supreme Court held that the FTC was the expert body to determine what remedy was necessary to eliminate the violations which it disclosed. Jacob Siegel Co. v. Federal Trade Commission, 327 U.S. 608, 612-13 (1946). The Eighth Circuit has consistently upheld the FTC's wide discretion in its choice of remedies. See Yamaha Motor Co. v. FTC, 657 F.2d 971 (8th Cir. 1981) and National Trade Publications Service, Inc. v. FTC, 300 F.2d 790 (8th Cir. 1962). There is no reason for according the FDIC less latitude in fashioning its remedies, particularly in a technical area such as the Truth in Lending Act. The generally applicable rule is that "courts will not interfere except where the remedy selected has no reasonable relation to the unlawful practices found to exist." Thiret v. FTC, 512 F.2d 176 (10th Cir. 1975), citing Jacob Siegel. In the Truth in Lending Act context the Supreme Court has recently held that "judges ought to refrain from substituting their own interstitial lawmaking for that of the [agency], so long as the latter's lawmaking is not irrational." Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 568 (1980).

   [.3] FDIC argues that the remedies sought in this proceeding are necessary to ensure compliance with applicable Federal laws and not, as Respondents contend, an adjudication of private rights. According to the Supreme Court in Consolidated Edison Co. v. NLRB, 305 U.S. 197, 236 (1938), the power to command affirmative action is remedial, not punitive, and is to be exercised to restrain violations and as a means of removing or avoiding the consequences of violations. Reimbursement is sought, according to the FDIC, to limit the Respondents' return to the amount it disclosed or should have disclosed pursuant to Regulation Z. The benefit to individual customers is incidental to the corrective action and therefore not relevant. Reimbursement for this purpose is remedial. As such it is in keeping with applicable case law and is appropriate in this case. Accordingly, Respondents' arguments and exception are unfounded.
   Given the fact that the breath of agency discretion is at its zenith when the agency fashions remedies and sanctions, Niagara Mohawk Power Corp. v. Federal Power Commission, 379 F.2d 153, 159 (D.C. Cir. 1967), FDIC's order requiring reimbursement should warrant judicial deference. The court's role in reviewing such decisions is "to decide only whether, under the applicable statute and the facts as found, the agency has made an allowable judgment in its choice of remedy." Steadman v. SEC, 603 F.2d 1126, 1139 (5th Cir. 1979), aff'd 450 U.S. 91 (1981).

       5. As of January 29, 1980, Respondents violated:
       (a) Sections 226.4(a) and 226.8(d)(3) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §§ 226.4(a), 226.8(d)(3) (1980) by failing to determine or disclose the finance charge in connection with closed-end credit transactions.
       (b) Sections 226.5(b)(1) and 226.8(b)(2) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §§ 226.5(b)(1), 226.8(b)(2) (1980)) by failing to determine and disclose the annual percentage {{4-1-90 p.A-159}}rate in connection with closed-end credit transactions.
       (c) Sections 226.4(a) and 226.8(d)(3) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §§ 226.4(a), 226.8(d)(3) (1980)) by failing to either include the cost of optional credit insurance, written in connection with closed-end credit transactions, in the finance charge, or meet the requirements of Section 226.4(a)(5) of Regulation Z (12 C.F.R. § 226.4(a)(5) (1980)) to exempt the cost of such credit insurance from the finance charge.
       (d) Section 226.4 of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. § 226.4 (1980)) by requiring credit insurance in connection with closed-end credit transactions and not including the cost of such credit insurance in the finance charge.
       (e) Section 226.8(j) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. § 226.8(j) (1980)) by failing to give the disclosures required by Section 226.8 of Regulation Z when it refinanced existing extensions of closed-end credit.
       (f) Sections 226.4(b) and 226.8(d)(3) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §§ 226.4(b), 226.8(d)(3) (1980)) by failing to itemize and disclose various fees and charges as types of finance charges or to include them in the finance charge in connection with closed-end credit transactions.
       (g) Section 226.8(b)(3) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. § 226.8(b)(3) (1980)) by failing to identify a payment, which was more than twice the amount of an otherwise regularly scheduled payment as a Balloon Payment, and disclose the amount of such payment in connection with its closed-end credit transactions.
       (h) Section 226.8(b)(5) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. § 226.8(b)(5) (1980)) by taking an interest in property to secure a closed-end credit transaction and failing to clearly identify that property.
       (i) Section 226.9 of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. § 226.9 (1980)) by extending closed-end credit when the consumer had a right to rescind the credit transaction and not giving the consumer his notice of his right to rescind.
       (Although adopted by the Board, the ALJ's Conclusions of Law numbered 5(j-w) are not reproduced here.)
       6. Each violation in paragraphs 5(a) through 5(d) in the Conclusions of Law was part of a clear and consistent pattern or practice.
   Although the ALJ found violations of Regulations Z, the ALJ recommended that a cease-and-desist order not be issued because the violations did not establish a pattern. FDIC's exceptions to the ALJ's recommended decision primarily concern this recommendation. FDIC argues that the pattern or practice standard is applicable solely to the question of whether FDIC is compelled under Section 108(e) of the Truth in Lending Act to order adjustments for violations of the finance charge and annual percentage rate provisions of the Truth in Lending Act. FDIC contends that, in regard to these provisions, a pattern or practice has been established. In regards to the remaining violations, Conclusions of Law 5(e-i), the evidence set forth in the Findings of Fact numbered 5 through 9 demonstrates that violations have been substantially proven. FDIC also argues, that because the evidence was unrebutted and the ALJ did not find FDIC's sample to be invalid a cease-and-desist order requiring affirmative steps should be issued. FDIC's exceptions are well founded.
   The restoration of the improperly excluded transactions to the sample provides a much wider spectrum of violations than than considered by the ALJ. When all these transactions are considered, the record is replete with unrebutted evidence of repeated violations. The violations justify the issuance of a cease-and-desist order. To the extent that a pattern or practice must be established as a prerequisite to ordering reimbursement, a clear and consistent pattern or practice has been established. It is evident from the record that the violations of the finance charge and annual percentage rate provisions were not isolated or acci- {{4-1-90 p.A-160}dental or peculiar departures from otherwise correct practices. See United States v. Pelzer Realty Co., 484 F.2d 438, 445 (5th Cir. 1973) (more than an isolated or accidental or peculiar event is required to establish a pattern or practice under Title VII). The Eighth Circuit has also employed this standard. See Smith v. Office of Economic Opportunity for the State of Arkansas, 538 F.2d 229 (8th Cir. 1976).

       7. Cessation of violations of law is not a defense in this proceeding.
   Respondents took exception to the above conclusion claiming that the ALJ erred in failing to discuss equitable principals. Respondents allege that the application of equitable principles to the non-Regulation Z matters results in a finding that a cease-and-desist order is not necessary in this case. Throughout this proceeding, Respondents made the same argument in regard to all alleged violations.

   [.4] Respondents argue that they have been in compliance with applicable Federal laws or intend to comply with the applicable laws. This argument is not convincing. The above Conclusion of Law, that cessation of violations of law is not a defense, reflects the opinion of the Supreme Court in Hecht Co. v. Bowles, 321 U.S. 321, 327 (1944). Current compliance does not erase prior violations. Courts have consistently recognized that corrective action subsequent to a violation and promises "to sin no more," are not controlling on the issue of the propriety of a cease-and-desist order. See Cotherman v. FTC, 417 F.2d 587 (5th Cir. 1969) and Thiret v. FTC, 512 F.2d 176 (10th Cir. 1975).
   Furthermore, Respondents, prior to the initiation of these proceedings, have not responded effectively to past criticisms by FDIC of their compliance efforts. See PRX 2. Due to the presence of an administrative proceeding and pending judicial scrutiny it is difficult to assess the significance, if any, of Respondents alleged compliance.
   In addition, Respondents argue that injunctive relief is unnecessary because the bank is already enjoined by the law itself. This argument is unconvincing because the law enjoining such conduct was in effect when the violations occurred and accordingly did little to prevent the violations.

Further Exceptions

   Respondents also took exception to the ALJ's Findings of Fact and Conclusions of Law regarding non-Regulation Z matters on the basis that they were not supported by substantial evidence upon the record. For example, in regard to Regulation X, Respondents argue that the ALJ's findings are deficient because the ALJ did not cite a transcript reference. In regard to the Community Reinvestment Act of 1977, Respondents argue that the ALJ referred merely to a transcript reference. Respondents also argue that seven exhibits showing advertisements in which the FDIC logo was not included are not sufficient to justify a cease-and-desist order.
   Contrary to Respondents assertions, the record is replete with proof of Respondents' violations. The ALJ's Findings of Fact cite, in each instance, to the transcript or exhibits or both in support of findings. A review of the record relied upon by the ALJ supports the conclusion that the ALJ did not err in making the Findings of Fact and Conclusions of Law regarding non-Regulation Z matters.
   Respondents' twelfth exception alleges that the ALJ erred in not sustaining the Respondents' Motion to Dismiss this proceeding. The motion alleged a denial of procedural and substantive due process. Respondents' motion was denied by the ALJ on the basis that the ALJ had no authority under the rules to grant such a motion. Although Respondents take exception to this ruling, they do not cite any authority which gives an ALJ the authority to grant a motion to dismiss. A review of the Administrative Procedure Act and FDIC's Rules and Regulations supports the ALJ's ruling. Section 308.7(b) of the FDIC Rules and Regulations provides that "an administrative law judge shall not have power to decide any motion to dismiss the proceedings or other motion which results in final determination of the merits of the proceedings." 12 C.F.R. § 308.7(b).
   Respondents took exception to the ALJ's decision as it pertains to all the non-Regulation Z issues on the basis that the decision is not supported by substantial evidence upon the record, it is contrary to law and it is without authority under the law and entirely overlooks all equitable principles. This general exception is not supported by arguments. In other exceptions, Respon- {{4-1-90 p.A-161}}dents appear to divide this general exception into specific allegations of error. These specific allegations are supported by arguments but, as the above discussion establishes, the arguments are without merit.
   In regard to the non-Regulation Z matters, the FDIC took exception to the ALJ's failure to recommend the issuance of an order requiring affirmative action. FDIC contends that, although the ALJ found violations of laws other than Regulation Z, including Section 202.9(a) of Regulation B and Section 338.4(a) of FDIC's Rules and Regulations, the ALJ failed to order any corrective action or develop effective controls to ensure future compliance with the laws. As these violations were proven and the ALJ's recommended Conclusions of Law support this determination, an order containing remedial corrective actions is appropriate.

ORDER TO CEASE AND DESIST

   NOW, THEREFORE, IT IS ORDERED, that the * * * , (the "Bank"), its directors, officers, employees and agents cease and desist from the violations set forth in the Findings of fact and Conclusions of Law, and further take affirmative action as follows:
   1. 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 226.2(x) of Regulation Z (12 C.F.R. § 226.2(x)), hereinafter referred to as "closed-end-credit" which are outstanding and were consummated since January 1, 1977, and prepare a list for all customers who did not receive proper and accurate disclosures required by Sections 226.8(d)(3) and 226.8(b)(2) of Regulation Z (12 C.F.R. §§ 226.8(d)(3) and 226.8(b)(2)) and the Bank shall take corrective action pursuant to Section 608 of the Depository Institutions Deregulation and Monetary Control Act of 1980, Pub. L. No. 96–221, 94 Stat. 171. The Bank shall also prepare a list of all customers who did not receive the disclosure required by Section 226.8(b)(2) of Regulation Z (12 C.F.R. § 226.8(b)(2)) and shall insure that those customers do not pay an amount greater than the contract rate disclosed; or if no contract rate was disclosed, an amount which is greater than the actual annual percentage rate reduced by one-quarter of one percentage point, in the case of first lien mortgage transactions, and by one percentage point in all other transactions.
   2. Within 60 days from the effective date of this 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: (a) were not notified that the credit insurance was optional; or (b) did not separately sign an affirmative written indication that they desired credit insurance; or (c) did not receive a disclosure of the cost of credit insurance; and (d) where the cost of such insurance was not included in the finance charge. Within 90 days from the effective date of the Order, 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 collected. If the Bank receives no response within 45 days, the insurance will remain in effect. A copy of the written notice shall be sent to the Corporation's Regional Director of the * * * Regional Office ("Regional Director") for review.
   3.(a) Within 60 days from the effective date of this ORDER, the Bank shall review all extensions of closed-end credit which are outstanding and were consummated since October 28, 1977, and prepare a list of all customers who did not receive proper and accurate disclosures required by Sections 226.8(b)(3), 226.8(d)(3) and 226.8(j), or Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §§ 226.8(b)(3), 226.8(d)(3) and 226.8(j)) and the Bank shall redisclose to such customers in accordance with those requirements.
   3.(b) From the effective date of this ORDER, the bank shall establish procedures to ensure that, and shall make, all disclosures required by Section 226.8 and 226.9 of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §§ 226.8 and 226.9) on any consumer credit transaction in the manner prescribed by Sections 226.6 and 226.8 and 226.9 of Regulation Z (12 C.F.R. §§ 226.6, 226.8 and 226.9), particularly with regard to disclosing (1) finance charges and separate types of finance {{4-1-90 p.A-162}}charges, (2) annual percentage rates, (3) balloon payments, and (4) rights to rescind.
   4. Within 60 days from the effective date of this ORDER, the Bank shall compile and retain all data from July 3, 1978, as prescribed 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(g) of the FDIC's Rules and Regulations (12 C.F.R. § 338.1(g)), or "applicant", 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.
   5. Within 30 days from the effective date of this ORDER, the board of directors of the Bank shall adopt a Community Reinvestment Act statement in conformity with the procedures set forth in Section 345.4 of the FDIC's Rules and Regulations (12 C.F.R. § 345.4).
   6. Within 30 days from the effective date of this ORDER, the Bank shall provide the Community Reinvestment Act public notice in the manner prescribed in Section 345.6 of the FDIC's Rules and Regulations (12 C.F.R. § 345.6).
   7. Within 30 days from the effective date of this ORDER, the Bank shall review its loan application forms and make such corrections as are necessary to ensure that persons applying for individual, unsecured credit are not requested, explicitly or implicitly, to disclose their marital status, in violations or Section 202.5(d) of Regulations B (12 C.F.R. § 202.5(d)). A copy of the corrected application form(s) shall be sent to the FDIC's Regional Director for review.
   8. Within 30 days from the effective date of this ORDER, the Bank shall review its loan application forms and make such corrections as are necessary to ensure that applicants are not requested, explicitly or implicitly, to provide information regarding the income of a nonapplicant spouse in a manner prohibited by Section 202.5(c)(1) of Regulation B (12 C.F.R. § 202.5(c)(1)). A copy of the corrected application form(s) shall be sent to the Regional Director for review.
   9. Within 30 days from the effective date of this ORDER, the Bank shall review its loan application forms and make such corrections as are necessary to ensure that they provide disclosures as to alimony, child support and separate maintenance payments in conformity with Section 202.5(d)(2) of Regulation B (12 C.F.R. § 202.5(d)(2)).
   10. Within 60 days from the effective date of this ORDER, the Bank shall review all applications received since July 29, 1979, 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 required by Section 202.9 of Regulation B (12 C.F.R. § 202.9) and provide each applicant on the list with the notifications. The Bank shall send a copy of the list, together with a certification by the president of the Bank that the required notifications were sent, to the Regional Director.
   11. From the effective date of this ORDER, the Bank shall use the HUD-1 "Uniform Settlement Statement" as required by Section 3500.8(a) of Regulation X (24 C.F.R. § 3500.8(a)) in all transactions not exempt under Section 3500.8(d) of Regulation X (24 C.F.R. § 3500.8(d)).
   12. From the effective date of this ORDER, the Bank shall provide the "Special Information Booklet" and "Good Faith Estimate" as required by Sections 3500.6 and 3500.7 of Regulation X (24 C.F.R. §§ 3500.6, 3500.7).
   13. Within 30 days from the effective date of this ORDER, the Bank shall comply with the requirements relative to security devices as required by Sections 326.4(b)(1) of the FDIC's Rules and Regulations (12 C.F.R. § 326.4(b)(1)).
   14. From the effective date of this ORDER, the Bank shall include the official advertising statement in all future advertisements, as required by Section 328.2 of the FDIC's Rules and Regulations (12 C.F.R. § 328.2) in all newspaper advertisement.
   15. From the effective date of this ORDER, the Banks shall include in all advertisements relating to the interest paid on time deposits, a clear and conspicuous statement required by Section 329.8(h) of the FDIC's Rules and Regulations (12 C.F.R. § 329.8(h)).
   16. Within 60 days from the effective date of this ORDER, the Bank shall establish and maintain a list of the names, addresses and account numbers of persons maintaining deposit accounts opened after {{4-1-90 p.A-163}}June 30, 1972 for whom the Bank has not obtained a taxpayer identification number, as required by Section 103.34(a)(1) of the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Regulations of the United States Treasury (31 C.F.R. § 103.34(a)(1)).
   17. Within 60 days from the effective 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 all laws, rules and regulations cited in the Conclusions of Law. The compliance officer shall be allotted enough time during the normal working hours of the Bank and be given sufficient authority to accomplish this. The compliance officer shall report directly to the chief executive officer and the board of directors of the Bank.
   18. Within 90 days from the effective date of this ORDER, the Bank shall adopt and thereafter strictly follow a program acceptable to the Regional Director which is reasonably adopted to assure full compliance with all provisions of the laws, rules and regulations cited herein. Within 60 days from the effective date of this ORDER, the Bank shall submit a program to the Regional Director for prior review. This program shall include a training program designed to educate all appropriate Bank officers and employees with regard to the Bank's responsibilities pursuant to the laws, rules and regulations cited in the Conclusions of Law.
   19. On the 15th day of the second month following the effective date 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, 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.
   The provisions of this ORDER shall be binding upon the Bank, its subsidiaries, affiliates, directors, officers, agents, servants, employees, successors and assigns.
   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as any provisions of this order shall have been modified, terminated, suspended or set aside by the Board.
   This order shall become effective at the expiration of 30 days after the service of such ORDER upon the Bank.
   By order of the Board of Directors, dated December 19, 1983.
/s/ Hoyle L. Robinson
Executive Secretary

Conversion Chart for Regulation Z

   The "New Section" column lists those provisions of the revised Regulation Z that treat the same subject matter as the old regulatory provisions, whether or not the substance of the rule is the same. Reference to a provision as "deleted" does not necessarily mean that the rule has changed; the old provision may be preserved in the commentary to the new regulation, or it may appear in Regulation M (Consumer Leasing, 12 C.F.R. 213), in which case the Regulation M section is listed.

SECTION 226.1—Authority, Scope, Purpose, etc.

Old Section New Section
1(a) 1(a),(b), and (c);213.1(a)
and (b)
1(b) 1(e);213.1(c)
1(c) 1(e);213.1(c)
1(d)(1) appendix C;213.1(d)(2)
(d)(2) deleted
(d)(3) appendix C;213.1(d)(1)
and (3)
(d)(4) deleted

SECTION 226.2—Definitions and Rules of Construction

Old Section New Section
2(a) fn. 21
2(b) 2(a)(1); 213.2(a)(1)
2(c) fn. 23
2(d) 2(a)(2); 213.2(a)(2)
2(e) deleted; 213.2(a)(3)
2(f) 18(b)
2(g) 14(a) and 22(a)
2(h) 2(a)(3); 213.2(a)(4)
2(i) 2(a)(4)

{{4-1-90 p.A-164}}

2(j) 13(a)
2(k) 2(a)(5); 213.2(a)(5)
2(l) 2(a)(7)
2(m) 2(a)(8)
2(n) 2(a)(9)
2(o) deleted
2(p) 2(a)(12)
2(q) 2(a)(14)
2(r) 2(a)(15)
2(s) 2(a)(17)
2(t) 2(a)(16)
2(u) 2(a)(11)
2(v) 2(a)(19)
2(w) 4(a)
2(x) 2(a)(20)
2(y) 2(a)(22); 213.2(a)(9)
2(z) 2(a)(21); 213.2(a)(10)
2(aa) 2(a)(21)
2(bb) 2(a)(22); 213.2(a)(11)
2(cc) 13(b)
2(dd) deleted; 213.2(a)(13)
2(ee) 2(a)(24)
2(ff) deleted
2(gg) 2(a)(25); 213.2(a)(15)
2(hh) 2(a)(26); 213.2(a)(16)
2(ii) fn. 22
2(jj) 2(b)(2); 213.2(b)(1)
2(kk) 2(a)(13); 213.2(b)(2)
2(ll) deleted; 213.2(b)(3)
2(mm) deleted; 213.2(a)(6)
2(nn) deleted; 213.2(a)(7)
2(oo) deleted; 213.2(a)(8)
2(pp) deleted; 213.2(a)(12)
2(qq) deleted; 213.2(a)(14)
2(rr) deleted; 213.2(a)(17)
2(ss) deleted; 213.2(a)(18)
2(tt) deleted
2(uu) deleted
2(vv) deleted

SECTION 226.3—Exempted Transactions

Old Section New Section
3(a) 3(a)
3(b) 3(d)
3(c) 3(b)
3(d) 3(c)
3(e) 3(a)
3(f) deleted; 213.3

SECTION 226.4—Determination of Finance Charge

Old Section New Section
4(a) 4(a) and (b)
4(b) 4(e)
4(c) 4(c)(2)
4(d) 4(c)(3)
4(e) 4(c)(7)
4(f) 4(f)
4(g) 17(c)(5)
4(h) deleted
4(i) 4(c)(8)

SECTION 226.5—Determination of Annual Percentage Rate

Old Section New Section
5(a) 4(a) and (b)
(a)(1) 14(c)(1)
(a)(2) deleted
(a)(3) 14(c)(2) and 14(d)
5(b)(1) 22(a)
(b)(2) 22(b)
(b)(3) 22(c)
(b)(4) 22(d)
(b)(5) 17(c)(4)
5(c) fn. 45a

SECTION 226.6—General Disclosure Requirements

Old Section New Section
6(a) 5(a) and 17(a);
213.4(a)(1) and (4)
6(b) 28 and appendix A;
213.7 and appendix B
6(c) deleted; 213.4(b)
6(d) 5(d) and 17(d); 213.4(c)
6(e) 5(d) and 17(d); 213.4(c)
6(f) 5(c) and 17(c)(1) and
(2); 213.4(d)
6(g) 5(e) and 17(e); 213.4(e)
6(h) deleted
6(i) 25; 213.6
6(j) 17(c)(3); 213.4(f)
6(k) deleted

SECTION 226.7—Open-End Credit Accounts; Specific Disclosures

Old Section New Section
7(a)(intro.) 5(a)(1) and (b)(1)
7(a)(1) 6(a)(intro.) and (a)(1)
(a)(2) 6(a)(3)
(a)(3) 6(a)(4)
(a)(4) 6(a)(2)
(a)(5) deleted
(a)(6) 6(b)
(a)(7) 6(c)
(a)(8) deleted
(a)(9) 6(d) and appendix G
7(b)(1) 5(a)(1) and (b)(2)(i)
(b)(1)(i) 7(a)
(b)(1)(ii) 7(b)
(b)(1)(iii) 7(c)
(b)(1)(iv) 7(f)
(b)(1)(v) 7(d)
(b)(1)(vi) 7(g)

{{4-1-90 p.A-165}}

(b)(1)(vii)deleted
(b)(1)(viii)7(e)
(b)(1)(ix)7(i) and (j)
(b)(1)(x)7(k)
(b)(2)5(b)(2)(ii) and fn. 10
7(c)deleted
7(d)(1)-(4)9(a)(1) and appendix G
(d)(5)9(a)(2) and appendix G
7(e)9(d)
7(f)9(c)
7(g)10
7(h)11
7(i)deleted
7(j)9(b)
7(k)(1)8(a)(1)
(k)(2)(i)8(a)(2)
(k)(2)(ii)8(a)(3)
(k)(3)8(b)
(k)(4) and (5)fn. 16
(k)(6)(i)deleted
(k)(6)(ii)fn.19
(k)(6)(iii)deleted
(k)(7)deleted

   SECTION 226.8—Credit Other Than Open End; Specific Disclosures

Old SectionNew Section
8(a)17(a) and (b)
8(b)(1)deleted
(b)(2)18(e) and fn. 42
(b)(3)18(g) and (h); 17(i)
(b)(4)18(1)
(b)(5)18(m)
(b)(6)18(k)(1)
(b)(7)18(k)(2)
(b)(8)18(f)
8(c)(1)deleted
(c)(2)18(j)
(c)(3)deleted
(c)(4)deleted
(c)(5)deleted
(c)(6)18(c)(1)
(c)(7)18(b)
(c)(8)18(d)
8(d)(1)18(b)
(d)(2)18(c)(1)
(d)(3)18(d) and 17(i)
8(e)(1)18(c)
(e)(2)18(r)
8(f)deleted
8(g)17(g)
8(h)17(h)
8(i)17(c)(6)
8(j)20(a)
8(k)20(b)
8(l)deleted
8(m)deleted
8(n)deleted
8(o)deleted
8(p)deleted
8(q)2(a)(17)
8(r)17(c)(4)
8(s)17(c)(3)

   SECTION 226.9—Right to Rescind Certain Transactions

Old SectionNew Section
9(a)15(a) and 23 (a)
9(b)15(b), 23(b), and appendixes F and G
9(c)15(c) and 23(c)
9(d)15(d) and 23(d)
9(e)15(e) and 23 (e)
9(f)15(a)(4), 23(a)(4), 15(e),and 23(e)
9(g)(1)15(f)(1) and 23(f)(1)
(g)(2)15(f)(1) and 23(f)(1)
(g)(3)deleted
(g)(4)deleted
(g)(5)15(f)(2) and 23(f)(3)
9(h)15(a)(3) and 23(a)(3)

   SECTION 226.10—Advertising Credit and Lease Terms

Old SectionNew Section
10(a)(1)16(a) and 24(a)
(a)(2)deleted; 213.5(a)
10(b)16(c) and 24(d); 213.5(b)
10(c)16(b)
10(d)(1)24(b)
(d)(2)24(c)
10(e)deleted
10(f)deleted
10(g)deleted; 213.5(c)
10(h)deleted; 213.5(d)

   SECTION 226.11—Comparative Index of Credit Cost for Open-End Credit

Old SectionNew Section
all paragraphsdeleted

   SECTION 226.12—Exemption of Certain State-Regulated Transactions

Old SectionNew Section
12(a)29(a); 213.8(a)
12(b)appendix B; 213.8(b) and appendix A
12(c)29(b); 213.8(c)
12(d)deleted

{{4-1-90 p.A-166}}

   SECTION 226.13—Credit Card Transactions; Special Requirements

Old SectionNew Section
13(a)12(a)
13(b)(1)12(b)(2)
(b)(2)12(b)(1)
(b)(3)12(b)
(b)(4)deleted
13(c)12(b)(2)(iii)
13(d)12(b)(2)(ii) and appendix G
13(e)12(b)(3)
13(f)deleted
13(g)12(b)(4)
13(h)12(b)(5)
13(i)12(c)
13(j)12(d)
13(k)12(e)
13(l)12(f)

   SECTION 226.14—Billing Errors; Resolution Procedure

Old SectionNew Section
14(a)(intro.)fn. 28
(a)(1)13(c)(1)
(a)(2) (intro.)13(c)(2)
(a)(2)(i)13(e)
(a)(2)(ii)13(f), (h), and fn. 31
(a)(2)(iii)13(f) and (h)
14(b)(1)fn. 27 and 13(d)(1)
(b)(2)13(e)(1) and (a)
(b)(3)13(g)(1) and (2)
(b)(4) and (5)fn. 30
14(c)13(d)(1)
14(d)fn. 27
14(e)(1)13(d)(2) and (g)(3)
(e)(2)13(g)(4)
(e)(3)deleted
14(f)deleted
14(g)deleted

   SECTION 226.15—Consumer Leasing

Old SectionNew Section
15(a)deleted; 213.4(a)(1),(2), and (3)
15(b)deleted; 213.4(g)
15(c)deleted; 213.4(h)

DECISION AND ORDER TO CEASE
AND DESIST FDIC 80-51b

   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 on September 2, 1980, issued a notice of charges against the above named parties ("Respondents") alleging violations of the Truth in Lending Act, Title I of the Consumer Credit Protection Act (15 U.S.C. §1601 et seq.), and Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 226) promulgated thereunder, the Equal Credit Opportunity Act, Title VII of the Consumer Credit Protection Act (15 U.S.C. §1691 et seq.), and Regulation B of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 202) promulgated thereunder, the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. §2601 et seq.) and Regulation X of the Department of Housing and Urban Development (24 C.F.R. Part 3500) promulgated thereunder, the Federal Deposit Insurance Corporation ("FDIC") Rules and Regulations Part 326 (Minimum Security Devices and Procedures for Insured Nonmember Banks), Part 328 (Advertisement of Membership), Part 329 (Interest on Deposits), Part 338 (Fair Housing), and Part 345 (Community Reinvestment)(12 C.F.R. Parts 326, 328, 329, 338, 345), and the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Regulations of the United States Treasury (31 C.F.R. Part 103). Beginning on June 2, 1981 and concluding on June 4, 1981, a formal hearing was held in * * * before Administrative Law Judge Charles C. Moore, Jr. Thereafter, the parties filed proposed conclusions of law, briefs and reply briefs. The Administrative Law filed his Recommended Decision on February 17, 1982. Thereafter, the parties submitted exceptions to the Recommended Decision.

FINDINGS OF FACT

   1. The Bank, a corporation existing and doing business under the laws of the State of * * *, and having its principal place of business at * * * has been at all times mentioned herein, and is an insured State nonmember bank. The Bank, therefore, has been at all times mentioned herein, and is subject to the Act (12 U.S.C. §1811 et seq.) and the Rules and Regulations of the Corporation (12 C.F.R. Part 301 et seq.) The Corporation has jurisdiction over the Bank and the subject matter of the proceeding.
   2. At all times pertinent, * * * have been members of the Bank's Board of Directors.
   3. The Board finds that the Bank and its management violated and were continuing to violate certain laws, rules and regula- {{4-1-90 p.A-167}}tions. In particular, the Board finds that, as of January 29, 1980, such violations included:

       (a) Sections 226.4(a) and 226.8(d)(3) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §§226.4(a), 226.8(d)(3) (1980)) by failing to determine or disclose the Finance Charge in connection with closed-end credit transactions.
       (b) Sections 226.5(b)(1) and 226.8(b)(2) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §§226.5(b)(1), 226.8(b)(2) (1980)) by failing to determine and disclose the Annual Percentage Rate in connection with closed-end credit transactions.
       (c) Sections 226.4(a) and 226.8(d)(3) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §§226.4, 226.8(d)(3) (1980)) by failing to either include the cost of optional credit insurance, written in connection with closed-end credit transactions, in the Finance Charge, or meet the requirements of Section 226.5(a)(5) of Regulation Z (12 C.F.R. §226.4(a)(5) (1980)) to exempt the cost of such credit insurance from the Finance Charge.
       (d) Section 226.4 of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §226.4 (1980)) by requiring credit insurance in connection with closed-end credit transactions and not including the cost of such credit insurance in the Finance Charge.
       (e) Section 226.8(j) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §226.8(j) (1980)) by failing to give the disclosures required by Section 226.8 of Regulation Z when it refinanced existing extensions of closed-end credit.
       (f) Sections 226.4(b) and 226.8(d)(3) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §§226.4(b), 226.8(d)(3) (1980)) by failing to itemize and disclose various fees and charges as types of Finance Charges or to include them in the Finance Charge in connection with closed-end credit transactions.
       (g) Section 226.8(b)(3) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §226.8(b)(3) (1980)) by failing to identify a payment, which was more than twice the amount of an otherwise regularly scheduled payment, as a Balloon Payment, and disclose the amount of such payment in connection with its closed-end credit transactions.
       (h) Section 226.8(b)(5) of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §226.8(b)(5) (1980)) by taking an interest in property to secure a closed-end credit transaction and failing to clearly identify that property.
       (i) Section 226.9 of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §226.9 (1980)) by extending closed-end credit when the consumer had a right to rescind the credit transaction and not giving the consumer his notice of his right to rescind.
       (j) Section 202.5(d) of Regulation B of the Board of Governors of the Federal Reserve System (12 C.F.R. §202.5(d) (1980)) by using application forms which request the marital status of persons applying for individual unsecured credit.
       (k) Section 202.5(c)(1) of Requisition B of the Board of Governors of the Federal Reserve System (12 C.F.R. §202.5(c)(1) (1980)) by requesting information concerning the income of a nonapplicant spouse.
       (l) Section 202.5(d)(2) of Regulation B of the Board of Governors of the Federal Reserve System (12 C.F.R. §202.5(d)(2) (1980)) by using application forms which make a general inquiry about income without first making the disclosure that income concerning alimony, child support or separate maintenance payments need not be revealed.
       (m) Section 202.9(a)(2) of Regulation B of the Board of Governors of the Federal Reserve System (12 C.F.R. §202.9(a)(2) (1980)) by failing to give written notification of the adverse action to applicants against whom adverse action was taken.
       (n) Section 202.7(d) of Regulation B of the Board of Governors of the Federal Reserve System (12 C.F.R. §202.7(d) (1980)) by following a loan policy which {{4-1-90 p.A-168}}required the signature on credit instruments of the non-applicant spouse of credit applicants.
       (o) Section 3500.8(a) of Regulation X of the Department of Housing and Urban Development (24 C.F.R. §3500.8(a) (1980)) by conducting settlement of federally related mortgage loans and failing to use the HUD-1 "Uniform Settlement Statement" form in transactions not exempt under Section 3500.8(d) of Regulation X (24 C.F.R. §3500.8(d) (1980)).
       (p) Sections 3500.6 and 3500.7 of Regulation X of the Department of Housing and Urban Development (24 C.F.R. §§3500.6, 3500.7 (1980)) by making federally related mortgage loans and failing to provide the applicant with a copy of the "Special Information Booklet" and "Good Faith Estimate."
       (q) Section 345.4 of the FDIC's Rules and Regulations (12 C.F.R. §345.4 (1980)) by failing to adopt a Community Reinvestment Act Statement for each delineated local community of the Respondent bank.
       (r) Section 345.6 of the FDIC's Rules and Regulations (12 C.F.R. §345.6 (1980)) by failing to provide the public notice required by Section 345.6 of the FDIC's Rules and Regulations (12 C.F.R. §345.6 (1980)).
       (s) Section 338.4(a)(1) of the FDIC's Rules and Regulations (12 C.F.R. §338.4(a)(1) (1980)) by making home loans and failing to collect and/or retain prescribed information required by Section 338.4(a)(1) of the FDIC's Rules and Regulations (12 C.F.R. §338.4(a)(1) (1980)).
       (t) Section 326.4(b)(1) of the FDIC's Rules and Regulations (12 C.F.R. §326.4(b)(1) (1980)) by failing to maintain a record of inspection, testing and servicing of the Respondent bank's security devices.
       (u) Section 328.2 of the FDIC's Rules and Regulations (12 C.F.R. §328.2 (1980)) by advertising for deposit accounts and failing to use the official advertisement statement.
       (v) Section 329.8(h) of the FDIC's Rules and Regulations (12 C.F.R. §329(h) (1980)) by advertising interest paid on time deposits and failing to include in the advertisement a clear and conspicuous statement of a substantial penalty for early withdrawal of the time deposit before maturity.
       (w) Section 103.34(a)(1) of the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Regulations of the United States Treasury (31 C.F.R. §103.34(a)(1) (1980)) by failing to secure taxpayer identification numbers of individuals who opened an account after June 30, 1972, within 45 days of the date the account was opened, or by failing to make a reasonable effort to secure the taxpayer identification number of such individuals, or by failing to maintain a list of those individuals from whom the bank failed to obtain a taxpayer identification number.
   4. Each violation cited in subparagraphs 3(a) through 3(d) was part of a clear and consistent pattern or practice of action.
   5. The Bank acquiesced in, and passively approved of, the violations set forth in subparagraphs 3(a) through 3(w) of these FINDINGS, notwithstanding prior warnings of the Corporation to cease such practices and take appropriate corrective measures.
   6. The Bank adopted an inconsistent and haphazard approach toward compliance with the laws, rules and regulations specified in Paragraph 1 of these FINDINGS and failed to provide adequate supervision and direction over the active officers of the Bank in order to prevent the violations of laws, rules and regulations set forth in subparagraphs 3(a) through 3(w) of these FINDINGS.

CONCLUSIONS OF LAW

   Accordingly, the Board of Directors adopts the Conclusions of Law numbered 1, 2, 3, 5, (j-w) and 7 of the Administrative Law Judge. The Board also modifies Conclusion of Law number 4 of the Administrative Law Judge to reflect the authority of the FDIC to order reimbursement as a form of affirmative corrective action pursuant to an Order to Cease and Desist under Section 8(b) of the Federal Deposit Insurance Act. The Board of Directors adopts paragraph number 5 (a-i) of the FDIC counsel's Requested Conclusions of Law to reflect the violations of the Truth in Lending Act, Title I of the Consumer Credit Protection Act (15 U.S.C. §1601 et seq.) and Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 226) pro- {{4-1-90 p.A-169}}mulgated thereunder as continued in the Notice of Charges. The Board of Directors also adopts paragraph number 6 of the FDIC counsel's Requested Conclusions of Law to reflect the finding of a clear and consistent pattern or practice of violations in paragraphs 5(a) through 5(d) in the Requested Conclusions of Law.

ORDER TO CEASE AND DESIST

   NOW, THEREFORE, IT IS ORDERED, that the * * * (the "Bank"), its directors, officers, employees and agent cease and desist from the violations set forth in the Findings of Fact and Conclusions of Law, and further take affirmative action as follows:
   1. 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 226.2(x) of Regulation Z (12 C.F.R. §226.2(x)), hereinafter referred to as "closed-end credit" which are outstanding and were consummated since January 1, 1977, and prepare a list of all customers who did not receive proper and accurate disclosures required by Sections 226.8(d)(3) and 226.8(b)(2) of Regulation Z (12 C.F.R. §§226.8(d)(3), 226.8(b)(2) and the Bank shall take corrective action pursuant to Section 608 of the Depository Institutions Deregulation and Monetary Control Act of 1980, Pub. L. No. 96-221, 94 Stat. 171. The Bank shall also prepare a list of all customers who did not receive the disclosure required by Section 226.8(b)(2) of Regulation Z (12 C.F.R. §226.8(b)(2)) and shall insure that those customers do not pay an amount greater than the contract rate disclosed; or, if no contract rate was disclosed, an amount which is greater than the actual APR reduced by one-quarter of one percentage point, in the case of first lien mortgage transactions, and by one percentage point in all other transactions.
   2. Within 60 days from the effective date of this 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: (a) were not notified that the credit insurance was optional; or (b) did not separately sign an affirmative written indication that they desired credit insurance; or (c) did not receive a disclosure of the cost of credit insurance; and (d) where the cost of such insurance was not included in the Finance Charge. Within 90 days from the effective date of the Order, 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 collected. If the Bank receives no response within 45 days, the insurance will remain in effect. A copy of the written notice shall be sent to the Corporation's Regional Director of the * * * Regional Office ("Regional Director") for review.
   3. (a) Within 60 days from the effective date of this ORDER, the Bank shall review all extensions of closed-end credit which are outstanding and were consummated since October 28, 1977, and prepare a list of all customers who did not receive proper and accurate disclosures required by Section 226.8(b)(3), 226.8(d)(3) and 226.8(j), and the Bank shall redisclose to such customers in accordance with those requirements.
   3. (b) From the effective date of this ORDER, the Bank shall establish procedures to ensure that, and shall make, all disclosures required by Section 226.8 and 226.9 of Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. §226.8 and §226.9) on any consumer credit transaction in the manner prescribed by Sections 226.6 and 226.8 and 226.9 of Regulation Z (12 C.F.R. §§226.6, 226.8 and 226.9), particularly with regard to disclosing (1) Finance Charges and separate types of Finance Charges, (2) Annual Percentage Rates, (3) Balloon Payments and (4) rights to rescind.
   4. Within 60 days from the effective date of this ORDER, the Bank shall compile and retain all data from July 3, 1978, as prescribed by Section 338.4 of the Corporation's Rules and Regulations (12 C.F.R. §338.4), except that the Bank will not be required to reconstruct data concerning "inquirers", as defined by Section 338.1(g) of the Corporation's Rules and Regulations (12 C.F.R. §338.1(g)), or "applicant", as defined by Section 338.1(a) of the Corporation's Rules and Regulations (12 C.F.R. {{4-1-90 p.A-170}}§338.1(a)), whose applications have been rejected by the Bank.
   5. Within 30 days from the effective date of this ORDER, the board of directors of the Bank shall adopt a Community Reinvestment Act statement in conformity with the procedures set forth in Section 345.4 of the Corporation's Rules and Regulations (12 C.F.R. §345.4).
   6. Within 30 days from the effective date of this ORDER, the Bank shall provide the Community Reinvestment Act public notice in the manner prescribed in Section 345.6 of the Corporation's Rules and Regulations (12 C.F.R. §345.6).
   7. Within 30 days from the effective date of this ORDER, the Bank shall review its loan application forms and make such corrections as are necessary to ensure that persons applying for individual, unsecured credit are not requested, explicitly or implicitly, to disclose their marital status, in violation of Section 202.5(d) of Regulation B (12 C.F.R. §202.5(d)). A copy of the corrected application form(s) shall be sent to the Corporation's Regional Director for review.
   8. Within 30 days from the effective date of this ORDER, the Bank shall review its loan application forms and make such corrections as are necessary to ensure that applicants are not requested, explicitly or implicity, to provide information regarding the income of a non-applicant spouse in a manner prohibited by Section 202.5(c)(1) of Regulation B (12 C.F.R. §202.5(c)(1)). A copy of the corrected application form(s) shall be sent to the Regional Director for review.
   9. Within 30 days from the effective date of this ORDER, the Bank shall review its loan application forms and make such corrections as are necessary to ensure that they provide disclosures as to alimony, child support and separate maintenance payments in conformity with Section 202.5(d)(2) of Regulation B (12 C.F.R. §202.5(d)(2)).
   10. Within 60 days from the effective date of this ORDER, the Bank shall review all applications received since July 29, 1979, 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 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. The Bank shall send a copy of the list, together with a certification by the president of the Bank that the required notifications were sent, to the Regional Director.
   11. From the effective date of this ORDER, the Bank shall use the HUD-1 "Uniform Settlement Statement" as required by Section 3500.8(a) of Regulation X (24 C.F.R. §3500.8(a)) in all transactions not exempt under Section 3500.8(d) of Regulation X (24 C.F.R. §3500.8(d)).
   12. From the effective date of this ORDER, the Bank shall provide the "Special Information Booklet" and "Good Faith Estimate" as required by Sections 3500.6 and 3500.7 of Regulation X (24 C.F.R. §§3500.6, 3500.7).
   13. Within 30 days from the effective date of this ORDER, the Bank shall comply with the requirements relative to security devices as required by Section 326.4(b)(1) of the Corporation's Rules and Regulations (12 C.F.R. §326.4(b)(1)).
   14. From the effective date of this ORDER, the Bank shall include the official advertising statement in all future advertisements, as required by Section 328.2 of the Corporation's Rules and Regulations (12 C.F.R. §328.2) in all newspaper advertisements.
   15. From the effective date of this ORDER, the Bank shall include in all advertisements relating to the interest paid on time deposits, a clear and conspicuous statement required by Section 329.8(h) of the Corporation's Rules and Regulations (12 C.F.R. §329.8(h)).
   16. Within 60 days from the effective date of this ORDER, the Bank shall establish and maintain a list of the names, addresses and account numbers of persons maintaining deposit accounts opened after June 30, 1972 for whom the Bank has not obtained a taxpayer identification number, as required by Section 103.34(a)(1) of the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Regulations of the United States Treasury (31 C.F.R. §103.34(a)(1)).
   17. Within 60 days from the effective 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 all laws, rules and regulations {{4-1-90 p.A-171}}cited in the Conclusions of Law. The compliance officer shall be allotted enough time during the normal working hours of the Bank and be given sufficient authority to accomplish this. He/she shall report directly to the chief executive officer and the board of directors of the Bank.
   18. Within 90 days from the effective date of this ORDER, the Bank shall adopt and thereafter strictly follow a program acceptable to the Regional Director which is reasonably adopted to assure full compliance with all provisions of the laws, rules and regulations cited herein. Within 60 days from the effective date of this ORDER, the Bank shall submit a program to the Regional Director for his prior review. This program shall include a training program designed to educate all appropriate Bank officers and employees with regard to the Bank's responsibilities pursuant to the laws, rules and regulations cited in the Conclusions of Law.
   19. On the 15th day of the second month following the effective date 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, 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.
   The provisions of this ORDER shall be binding upon the Bank, its subsidiaries, affiliates, directors, officers, agents, servants, employees, successors and assigns.
   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as any provisions of this ORDER shall have been modified, terminated, suspended or set aside by the Board.
   This ORDER shall become effective at the expiration of 30 days after the service of such ORDER upon the Respondent.
   By order of the Board of Directors, dated June 14, 1982.

/s/ Hoyle L. Robinson
Executive Secretary

RECOMMENDED DECISION FDIC 80-51b
Before: Judge Charles C. Moore, Jr.

   The trial in the above case took place on the 2nd, 3rd and 4th of June, 1981, in * * *. The parties have submitted briefs and reply briefs and the government has submitted proposed findings and conclusions.1The only witnesses that testified during the 3-day hearing were examiner * * *, who prepared the compliance report (PRX 2) and * * *, Executive Vice-President of Respondent Bank.2
As such, he was the general manager of the bank and was a lending officer (Tr. 535).
   The government's case against the bank is based on Inspector * * * compliance report which was received in evidence as Proponent's Exhibit 2. The complaint and the more definite statement filed by FDIC contain further refinement, but, insofar as I can tell, there is nothing being charged against the bank that is not in the compliance report. As an example, page 2 of the complaint (Notice of Charges and of Hearing) charges in subparagraph (b) that the bank has extended closed-end credit without disclosing the annual percentage rate as required by Regulation Z. Page 2-h of the compliance report shows that * * * borrowed $200 on January 18, 1980, and that the annual percentage rate disclosed was 12.8 whereas the actual percentage rate charged was 12.98. Identical information concerning * * * was contained at the last entry on page 1 of the government's response to an order for a more definite statement. The more definite statement and the


1 I think the parties are due an explanation as to the length of time between the final reply brief and the recommended decision. My law clerk Miss * * * had studied the evidence presented at the trial and the legal arguments made both at the trial and in the briefs but before she could complete her analysis and submit a draft decision for my consideration, she became subject to the reduction-in-force and was separated from the Federal Mine Safety and Health Review Commission. This unexpected and extensive reduction-in-force resulted in several months of Miss * * *'s time being virtually wasted. The fact that my Secretary was subject to the same reduction-in-force as were half of the employees of our word processing center, have added to the delay.

2 Because of the confidential nature of these proceedings, the name of Respondent Bank will appear only in the caption and order.
{{4-1-90 p.A-172}}compliance report thus give examples of the general charge made in the complaint. The testimony given by Inspector * * * was of a similar nature, that is, it was in support of and a verification of the transactions contained in the compliance report and in the more definite statement. As far as I can tell, Mr. * * * did not testify concerning Mr. * * *'s transaction of January 8, 1980, although he did testify concerning a prior loan to the same borrower on December 17, 1979.
   Mr. * * *: testified concerning 35 transactions each of which involved 1 or more alleged violations of regulations enforced by the Federal Deposit Insurance Company. With respect to seven of these 35 transaction, Mr. * * * testified that they were business transactions not subject to the consumer protection laws. Mr. * * *'s testimony was not rebutted. With regard to the * * * loan, the commercial sale of white rabbits may or may not be agriculture, but agriculture loans are exempted from the consumer protection laws now even though they were not at the time of the transaction involved herein. I have no doubt that the FDIC has the power to base cease and desist orders on transactions that were illegal when committed even though they are no longer illegal, but what is the point of that? Why order a bank to cease doing something which is perfectly legal when the order is issued? The same goes for the blazer transaction even though that transaction was not a part of Mr. * * * testimony.
   Of the 35 transactions testified to by Mr. * * * the government has chosen to rely on only 30. I will accept the government's election and will consider hereinafter only those transactions listed on page vi of the Government "Requested Findings of Fact, Conclusions of Law, Order and Brief, In Support Thereof" and will delete from that list the following names whose transactions were not subject to the consumer protection laws: * * *.3
   Prior to the examination conducted by examiner * * *, examiner * * * had conducted a compliance examination. Mr. * * * submitted his compliance report as of the close of business on October 28, 1977. SeeRespondent's exhibit 23. During the course of the trial, Respondent's attorney objected to the introduction of evidence concerning any transactions predating the * * * compliance report. I overruled the objection and allowed the introduction of evidence concerning those transactions but granted a continuing objection to Respondent's attorney with respect to similar transactions. The question which arises is whether the FDIC can and should base a cease and desist order on transactions which occurred prior to a previous investigation in which no cease and desist order was recommended.
   This proposition is not directly addressed in the government's brief. The cease cited by the government stand for the proposition that a cease and desist order can be based on practices that have been abandoned. The present case presents a somewhat different situation. Here the FDIC conducted an examination, found some practices which it considered in "apparent" violation, told the bank to mend its ways and was apparently satisfied that the bank would do so. If, as the Government contends, the purpose of these proceedings is to require compliance with the rules and regulations, then the same is true as to the * * * compliance report. To determine if that compliance report and that entire proceeding resulted in the bank's mending its ways, the agency should look to events occurring after that examination, not to events occurring prior thereto. It is not a question of what the FDIC can do and be sustained by the court of appeals. I have to make a recommendation as to the proper course of action and I'm recommending that the transaction occurring prior to October 28, 1977, not be considered in determining whether or not to issue a cease and desist order or require restitution.
   I am therefore deleting from consideration the transactions involving * * * (I have omitted the spouse's names in some of the above transactions). Because I am eliminating from consideration the transactions involving the individuals named above as well as those involving the individuals that Mr. * * * identified as business loans does not mean that I think the sampling was invalid. While it is true that the examinations seem to be of a statistical nature, there were no statisticians qualified as experts during the course of the trial to explain the significance of a sample on what would

3 In its reply brief (p. 2) the bank takes the position that the loan to * * * was also a business loan. It does not cite a transcript reference for that proposition and I cannot find one. So I am not excluding the * * * transaction from consideration.
{{4-1-90 p.A-173}}invalidate such a sample. In the absence of any such expert testimony, I cannot assume that there were other transactions that were similar to the ones which Mr. * * * testified about. As to whether these remaining 14 transactions might involve business loans, I have to assume that whatever knowledge there is regarding that is in the hands of the bank and that the bank would have presented testimony similar to that given by Mr. * * * if any of these loans had been business loans.

Regulation Z

   Most of the evidence concerning alleged violations of Regulation Z involve the banks failure to properly disclose the finance charge and annual percentage rate. The memorandum of the loan on October 14, 1978, to * * * for $1,500 contains spaces for the proper disclosures, but the spaces have been left blank. The reproduction on Proponent's Exhibit 4 at page 128 is cut off in the area where such disclosures should be made, but I'm sure that if the original contained a disclosure that the bank would have presented that evidence at the trial. In all of the other transactions being considered, a finance charge was disclosed but errors were made in computing the finance charge. The loan to * * * (Petitioner's Exh. 7, p. 112) was payable on demand but it had been agreed in the alternative that the balance would be due on March 1, 1980. Ordinarily demand notes are computed on the basis of a 6-month maturity, but when an alternative date is included in a demand note, that alternative date must be used to compute the finance charge. The bank failed to do this and thus did not disclose the correct finance charge. In the transaction involving * * * (Petitioner's Exh. 4, p. 192) the bank charged a loan fee of $25.65 but failed to include that amount in the disclosed finance charge. The same is true of the loan to * * * (Petitioner's Exh. 4, pp. 63 and 64) except that the loan fee was $30.00 in that case.
   As to the allegations that the bank failed to disclose the annual percentage rate, the government relies on the previously mentioned transaction involving * * *, where none of the required disclosures were made as well as transactions involving * * * (Petitioner's Exh. 4, p. 58), * * *, previously mentioned, * * * (Petitioner's Exh. 7, p. 44) and * * *, previously mentioned. In the case of * * * and * * * , and * * *, the transactions have already been described, except that this time it was the annual percentage rate rather than the statement of the finance charge that was erroneous. In the case of * * * Respondent had charged a loan fee and had charged for a credit life premium, and inasmuch as the bank did not have records showing a separate request for credit life insurance, that credit life insurance premium should have been included in the annual percentage rate.
   In the loan transactions involving the following individuals, the bank failed to obtain a separately signed affirmative indication from the customers that he or she desired credit life insurance (as indicated earlier where a separately signed document is not obtained, the cost of the credit life insurance must be included in the disclosed finance charge and in the annual percentage rate and that was not done in the transactions mentioned). * * * and * * *
   In a transaction involving * * *, the original percentage rate was 9.38 percent according to the governments calculations, but on November 13, 1978, in consideration of an extension of the payment time, the borrowers agreed to pay 10 percent interest. (See PRX 4, p. 139). The 10 percent interest rate is clearly disclosed on the document but not to the government's satisfaction.
   In paragraph 13(a) of its brief, the government alleges that the bank failed to "either itemize and disclose various types of fees or charges on its Section 226.8 disclosure form, as required by Section 226.8(d)(3) of Regulation Z, or to include them in the finance charge, as required by Section 226.4(b) of Regulation Z . . . ." In support of this allegation the government relies on the loan transactions of * * * and * * *, which loan transactions have already been described.
   Section 226.8(b)(3) requires that "if any payment is more than twice the amount of an otherwise regularly scheduled equal payment, the creditors shall identify the amount of such payment by the term `balloon payment' and shall state the conditions, if any, under which that payment may be refinanced if not paid when due." In the loan transaction involving * * *, previously discussed, the agreed monthly {{4-1-90 p.A-174}}payments were $100. It was a demand note but an alternative date was given at March 1, 1980. In calculating the payments the examiner found that the last payment would have to be over a $1,000 and was thus a balloon payment as to which no disclosure had been made.
   The previously discussed loan transaction to * * * as well as the loan transaction to * * * (PRX 4, p. 61), as examples of transactions wherein Regulation Z provides a right of recision and a required notice of that right and where the bank failed to give that notice.
   Regulation Z is extremely complex. A misunderstanding of one requirement can often lead to numerous alleged violations. As shown in the analysis examples given above, a failure to have two separate signatures appear on the loan application, one on the application itself and another separate signature which declines or accepts credit life insurance can lead to a charge of failing to obtain the signature, or failing to disclose the correct annual percentage rate and a failure to disclose the correct finance charge. The 13 transactions that I have considered have resulted in over 60 alleged violations, and for the most part, these appear to have resulted from miscalculation rather than any deliberate intent to mislead the borrower and did not result from any gross negligence. Certainly the * * * was not typical or Mr. * * * would have discovered more than one such nonbusiness loan that occurred after the * * * examination. As to the alleged failure of the bank to make a disclosure of the right of recision, in the * * * and * * * transactions, the security interest which the bank took was on the borrower's "previously owned residence." The right to rescind granted by Section 226.9(a) of Regulation Z arises when a security interest is taken on "any real property which is used or is expected to be used as the principal residence of the customer . . . ." I cannot equate a previously owned residence with a present or future principal residence.
   I find that the evidence concerning the transactions discussed above is unconvincing. It does not establish a pattern, and in my opinion does not justify a cease and desist order insofar as the alleged violations of Regulation Z are concerned. I so recommend.

Non Regulation Z Matters

   The non Regulation Z portions of this case do not suffer the same infirmities that I found in the government's evidence regarding Regulation Z. The non-Regulation Z violations were well documented and basically unrebutted. I am therefore adopting the proposed findings of FDIC as my findings regarding these matters. I am leaving the paragraph numbers as they are in the Government Brief. The findings are:

Regulation B Matters (Equal Credit Opportunity)

       17. As of January 29, 1980, Respondent bank used application forms which requested income of non-applicant spouses (TR pp. 283–284; PRX 5, pp. 26, 29, 39, 45), which is prohibited by Section 202.5(c)(1) of Regulation B (PRX 3, p. 21).
       18. As of January 29, 1980, Respondent bank used application forms for extensions of closed-end credit which made a general inquiry about income without first making a disclosure that any income from alimony, child support, or separate maintenance payments did not have to be revealed, as required by Section 202.5(d)(2) of Regulation B (PRX 3, p. 21). (TR pp. 283–284; PRX 5, p. 26, line no. 19; PRX 5, p. 29, last line under heading "Employment"; see also, PRX 5, pp. 39, 41, 44, 45.)
       19. As of January 29, 1980, Respondent bank accepted loan applications and took "adverse action" against the applicants, as that term is defined in Section 202.2(c) of Regulation B (PRX 3, p. 16), and failed to give written notification to the applicants, as required by Section 202.9(a) of Regulation B (PRX 3, p. 25). (TR pp. 280–281; PRX 5, pp. 39–45).
       20. As of January 29, 1980, Respondent bank operated under a loan policy which required the signature of the nonapplicant spouses of married credit applicants on credit instruments (TR pp. 281–283; PRX 5, pp. 34, 35).

Regulation X Matters (Real Estate Settlement Procedures Act)

       21(a). As of January 29, 1980, Respondent bank conducted settlement of "federally related mortgage loans," as that term is defined in Section 3500.5(b) of Regulation X (PRX 3, p. 150), without {{4-1-90 p.A-175}}using the "Uniform Settlement Statement" (HUD-1), as required by Section 3500.8(a) of Regulation X (PRX 3, p. 155).
         (b) As of January 29, 1980, Respondent bank made federally related loans without providing the applicants with a copy of the "Special Information Booklet" or "Good Faith Estimate," as required by Sections 3500.6 and 3500.7 of Regulation X (PRX 3, pp. 152-155).
         (c) The following transactions were identified by the Examiner as transactions which evidenced the practices in paragraphs 21(a) and 21(b) by Respondent bank:
         (1) * * * Transaction identified by Examiner: TR pp. 164A, 167-170
         (2) * * * Transaction identified by Examiner: TR pp. 193, 197–198

Regulation 345 Matters (Community Reinvestment Act)

       22. As of January 29, 1980, Respondent bank did not adopt a Community Reinvestment Act Statement (TR. pp. 284-285), which Respondent bank was required to adopt pursuant to Section 345.4 of FDIC's Rules and Regulations (PRX 3, p. 129).
       23. As of January 29, 1980, Respondent bank did not post the Community Reinvestment Act Notice in its public lobby (TR pp. 285-286), which Respondent bank was required to post pursuant to Section 345.6 of FDIC's Rules and Regulations (PRX 3, p. 130).

Regulation 338 Matters (Fair Housing)

       24. As of January 29, 1980, Respondent bank made home loans, as defined in Section 338.1(f) of FDIC's Rules and Regulations (PRX 3, pp. 123-124), and did not collect or retain the information required to be collected and retained pursuant to Section 338.4(a)(1) of FDIC's Rules and Regulations (PRX 3, p. 125). (TR pp. 289–290).

Regulation 326 Matters (Minimum Security Devices and Procedures for Insured Nonmember Banks

       25. As of January 29, 1980, Respondent bank did not maintain a record of inspection, testing and servicing of security devices, as required by Section 326.4(b)(1) of the FDIC's Rules and Regulations (PRX 3, p. 115). (TR pp. 290-291).

Regulation 328 Matters (Advertisement of Membership)

       26. As of January 29, 1980, Respondent bank advertised for deposit accounts and did not include in the advertisements the official advertising statement required by Section 328.2 of FDIC's Rules and Regulations (PRX 3, p. 117) for such advertisements (TR pp. 291-297, 496-497; PRX 11, 15, 16, 17, 18, 19, 20).

Regulation 329 Matters (Deposit Interest Rate Advertising)

       27. As of January 29, 1980, Respondent bank advertised interest paid on its time deposits and did not include a clear and conspicuous statement that a substantial penalty would be imposed if the time deposit was withdrawn prior to its maturity, as required by Section 329.8(h) of FDIC's Rules and Regulations (PRX 3, p. 121). (TR pp. 291–298, 496–497; PRX 12, 13, 14, 21, 22, 23, 24, 25.)

Regulation 103 Matters (Financial Recordkeeping and Reporting of Currency and Foreign Transactions

       28. After June 30, 1972 and up until January 29, 1980, Respondent bank opened deposit accounts and did not obtain the taxpayer identification number of the individuals in whose name the account was maintained within 45 days of the opening of the deposit account, nor did Respondent bank make reasonable effort to obtain the taxpayer identification number of the individuals, nor did Respondent bank maintain a list of those depositors whose taxpayer identification numbers it did not have (TR pp. 298-299), as Respondent bank was required to do pursuant to Section 103.34(a)(1) of the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Regulation of the United States Treasury (PRX 3, p. 160).

   I cannot accept the banks argument that it is not responsible for what appeared in the newspaper advertisements. There might be circumstances under which the bank {{4-1-90 p.A-176}}would not be responsible but Mr. * * * testimony that he told the newspaper to put in certain information is not sufficient to allow the bank to escape liability. Nor can I accept the bank's argument that many of the requirements of the regulations are of a picayune nature. I agree that some of these requirements seem like nit-picking, but they are nevertheless regulations with the force and effect of law and must be complied with.4
   I am adopting certain conclusions of law requested by FDIC. As in the case of the proposed findings set forth above, I am leaving the original number and letter designations contained in the requested conclusions of law, so that by comparison, the parties can see which conclusions I have rejected. The conclusions are as follows:

CONCLUSIONS OF LAW

       1. FDIC has jurisdiction over the Respondents and the subject matter of the proceeding.
       2. Respondents are now and have been at all times pertinent herein, subject to the provisions of:
         (a) the Federal Deposit Insurance Act (12 U.S.C. §1811, et seq.) and the Rules and Regulations of the Federal Deposit Insurance Corporation (12 C.F.R. Part 303, et seq.). (Notice at paragraph 1, Answer at paragraph 1);
         (b) the Truth in Lending Act, Title I of the Consumer Credit Protection Act (15 U.S.C. §1601 et seq.), and Regulation Z of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 226) promulgated thereunder, the Equal Credit Opportunity Act, Title VII of the Consumer Credit Protection Act (15 U.S.C. §1691 et seq.), and Regulation B of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 202) promulgated thereunder, the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. §2601 et seq.) and Regulation X of the Department of Housing and Urban Development (24 C.F.R. Part 3500) promulgated thereunder, and the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Regulations of the United States Treasury Department (31 C.F.R. Part 103). (Notice first paragraph.)
       3. FDIC has authority to issue a Cease and Desist Order directed at violations of law, rules and regulations.
       4. FDIC has authority under Section 8(b) of the Federal Deposit Insurance Act to issue Cease and Desist Orders requiring affirmative corrective action.
       5. As of January 29, 1980, Respondents violated:
         (j) Section 202.5(d) of Regulation B of the Board of Governors of the Federal Reserve System (12 C.F.R. §202.5(d) (1980)) by using application forms which request the marital status of persons applying for individual unsecured credit.
         (k) Section 202.5(q)(1) of Regulation B of the Board of Governors of the Federal Reserve System (12 C.F.R. §202.5(c)(1) (1980)) by requesting information concerning the income of a non-applicant spouse.
         (l) Section 202.5(d)(2) of Regulation B of the Board of Governors of the Federal Reserve System (12 C.F.R. §202.5(d)(2) (1980)) by using application forms which make a general inquiry about income without first making the disclosure that income concerning alimony, child support or separate maintenance payments need not be revealed.
         (m) Section 202.9(a)(2) of Regulation B of the Board of Governors of the Federal Reserve System (12 C.F.R. §202.9(a)(2) (1980)) by failing to give written notification of the adverse action to applicants against whom adverse action was taken.
         (n) Section 202.7(d) of Regulation B of the Board of Governors of the Federal Reserve System (12 C.F.R. §202.7(d) (1980)) by following a loan policy which required the signature on credit instruments of the non-applicant spouse of credit applicants.
         (o) Section 3500.8(a) of Regulation X of the Department of Housing and Urban Development (24 C.F.R. §3500.8(a) (1980)) by conducting

4 Nor does the fact that the examiner has guidelines that require him to take certain actions in his sampling procedure when there are four or more violations of a similar type prevent me from finding a violation when there are less than four such incidents.
{{4-1-90 p.A-177}}
      settlement of federally related mortgage loans and failing to use the HUD-1 "Uniform Settlement Statement" form in transactions not exempt under Section 3500.8(d) of Regulation X (24 C.F.R. §3500.8(d) (1980)).
         (p) Sections 3500.6 and 3500.7 of Regulation X of the Department of Housing and Urban Development (24 C.F.R. §§3500.6, 3500.7 (1980)) by making federally related mortgage loans and failing to provide the applicant with a copy of the "Special Information Booklet" and "Good Faith Estimate."
         (q) Section 345.4 of the FDIC's Rules and Regulations (12 C.F.R. §345.4 (1980)) by failing to adopt a Community Reinvestment Act Statement for each delineated local community of the Respondent bank.
         (r) Section 345.6 of the FDIC's Rules and Regulations (12 C.F.R. §345.6 (1980)) by failing to provide the public notice required by Section 345.6 of the FDIC's Rules and Regulations (12 C.F.R. §345.6 (1980)).
         (s) Section 338.4(a)(1) of the FDIC's Rules and Regulations (12 C.F.R. §338.4(a)(1) (1980)) by making home loans and failing to collect and/or retain prescribed information required by Section 338.4(a)(1) of the FDIC's Rules and Regulations (12 C.F.R. §338.4(a)(1) (1980)).
         (t) Section 326.4(b)(1) of the FDIC's Rules and Regulations (12 C.F.R. §326.4(b)(1) (1980)) by failing to maintain a record of inspection, testing and servicing of the Respondent bank's security devices.
         (u) Section 328.2 of the FDIC's Rules and Regulations (12 C.F.R. §328.2 (1980)) by advertising for deposit accounts and failing to use the official advertisement statement.
         (v) Section 329.8(h) of the FDIC's Rules and Regulations (12 C.F.R. §329(h) (1980)) by advertising interest paid on time deposits and failing to include in the advertisement a clear and conspicuous statement of a substantial penalty for early withdrawal of the time deposit before maturity.
         (w) Section 103.34(a)(1) of the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Regulations of the United States Treasury (31 C.F.R. §103.34(a)(1) (1980)) by failing to secure taxpayer identification numbers of individuals who opened an account after June 30, 1972, within 45 days of the date the account was opened, or by failing to make a reasonable effort to secure the taxpayer identification number of such individuals, or by failing to maintain a list of those individuals from whom the bank failed to obtain a taxpayer identification number.
   7. Cessation of violations of law is not a defense in this proceeding.
   A cease and desist order is justified, but restitution is not. While all of the provisions of the cease and desist order that I am issuing, could be stated in negative terms,5I think the affirmative form proposed by FDIC is more direct and easier to comprehend. I am therefore, adopting in the order below as much of the language submitted in FDIC's proposed order.

ORDER TO CEASE AND DESIST

   NOW, THEREFORE, IT IS ORDERED, that the * * * , * * * (the "Bank"), its directors, officers, employees, and agents cease and desist from the violations set forth in the Findings of Fact and Conclusions of Law, and further affirmative action as follows:

       1. Within 30 days from the effective date of this ORDER, the board of directors of the Bank shall adopt a Community Reinvestment Act statement in conformity with the procedures set forth in Section 345.4 of the Corporation's Rules and Regulations (12 C.F.R. §345.4).
       2. Within 30 days from the effective date of this ORDER, the Bank shall provide the Community Reinvestment Act public notice in the manner prescribed in Section 345.6 of the Corporation's Rules and Regulations (12 C.F.R. §345.6).
       3. Within 30 days from the effective date of this ORDER, the Bank shall review its loan application forms and make such corrections as are necessary to ensure that persons applying for individual,

5 For example "cease and desist from failing to etc."
{{4-1-90 p.A-178}}
    unsecured credit are not requested, explicitly or implicitly, to disclose their marital status, in violation of Section 202.5(d) of Regulation B (12 C.F.R. §202.5(d)). A copy of the corrected application form(s) shall be sent to the Corporation's Regional Director for review.
       4. Within 30 days from the effecti4ve date of this ORDER, the Bank shall review its loan application forms and make such corrections as are necessary to ensure that applicants are not requested, explicitly or implicitly, to provide information regarding the income of a nonapplicant spouse in a manner prohibited by Section 202.5(c)(1) of Regulation B (12 C.F.R. §202.5(c)(1)). A copy of the corrected application form(s) shall be sent to the Regional Director for review.
       5. Within 30 days from the effective date of this ORDER, the Bank shall review its loan application forms and make such corrections as are necessary to ensure that they provide disclosures as to alimony, child support and separate maintenance payments in conformity with Section 202.5(d)(2) of Regulation B (12 C.F.R. §202.5(d)(2)).
       6. From the effective date of this ORDER, the Bank shall use the HUD-1 "Uniform Settlement Statement" as required by Section 3500.8(a) of Regulation X (24 C.F.R. §3500.8(a)) in all transactions not exempt under Section 3500.8(d) of Regulation X (24 C.F.R. §3500.8(d)).
       7. From the effective date of this ORDER, the Bank shall provide the "Special Information Booklet" and "Good Faith Estimate" as required by Sections 3500.6 and 3500.7 of Regulation X (24 C.F.R. §§3500.6, 3500.7).
       8. Within 30 days from the effective date of this ORDER, the Bank shall comply with the requirements relative to security devices as required by Section 326.4(b)(1) of the Corporation's Rules and Regulations (12 C.F.R. §326.4(b)(1).
       9. From the effective date of this ORDER, the Bank shall include the official advertising statement in all future advertisements as required by Section 328.2 of the Corporation's Rules and Regulations (12 C.F.R. §328.2) in all newspaper advertisements.
       10. From the effective date of this ORDER, the Bank shall include in all advertisements relating to the interest paid on time deposits, a clear and conspicuous statement required by Section 329.8(h) of the Corporation's Rules and Regulations (12 C.F.R. §329.8(h)).
       11. Within 60 days from the effective date of this ORDER, the Bank shall establish and maintain a list of the names, addresses and account numbers of persons maintaining deposit accounts opened after the effective date of this ORDER for whom the Bank has not obtained a taxpayer identification number, as required by Section 103.34(a)(1) of the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Regulations of the United States Treasury (31 C.F.R. §103.34(a)(1)).
   The provisions of this ORDER shall be binding upon the Bank, its subsidiaries, affiliates, directors, officers, agents, servants, employees, successors, and assigns.
   The provisions of this ORDER shall remain effective and enforceable until such time as any provisions of this ORDER shall have been modified, terminated, suspended or set aside by the Board.

/s/ Charles C. Moore, Jr.
Administrative Law Judge
Mine Safety and Health
Review Commission on
detail to Federal Deposit
Insurance Corporation

ORDER TERMINATING THE ORDER
TO CEASE AND DESIST FDIC-80-51b

   IT IS HEREBY ORDERED, that the Order to Cease and Desist issued against * * *, pursuant to Section 8(b) of the Federal Deposit Insurance Act (12 U.S.C. §1818(b)), on December 19, 1983, be, and hereby is, terminated.
   Pursuant to delegated authority.
   Dated at * * *, this 18th day of March, 1985.

/s/ J.V. Prohaska
Special Deputy Regional Director

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