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[¶11,468] In the Matter of North Milwaukee State Bank, Milwaukee, Wisconsin, Docket No. FDIC 97-89b (12-19-97)
Bank to cease and desist from such unsafe and unsound practices. (This order was terminated by order of the FDIC dated 3-8-01; see ¶16,275.)
[.1] Violations of Law—Eliminate/Correct
[.2] Truth in Lending Act—Compliance Required
[.3] Truth in Lending Act—Monetary Reimbursement to Consumer
[.4] Home Mortgage Disclosure Act—Compliance Required
[.5] Truth in Savings Act—Compliance Required
[.6] Real Estate Settlement Procedures Act—Compliance Required
[.7] National Flood Insurance Act—Compliance Required
[.8] Equal Credit Opportunity Act—Compliance Required
[.9] Community Reinvestment Act—Compliance Required
[.10] Compliance Program—Minimum Requirements
[.11] Written Progress Reports Required
In the Matter of
NORTH MILWAUKEE STATE BANK
MILWAUKEE, WISCONSIN
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-97-89b
North Milwaukee State Bank, Milwaukee, Wisconsin ("Bank"), having been advised of its right to a NOTICE OF CHARGES AND OF HEARING detailing the unsafe or unsound banking practices and violations of law or regulation alleged to have been committed by the bank, and of its right to a hearing on the charges under section 8(b) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal De-
{{2-28-98 p.C-4457}}posit Insurance Corporation ("FDIC"), dated October 17, 1997, whereby, solely for the purpose of this proceeding and without admitting or denying the charges of unsafe or unsound banking practices and violations of law or regulation, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had violated laws or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:
ORDER TO CEASE AND DESIST
IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and its successors and assigns, cease and desist from the following unsafe or unsound banking practices and violations of law or regulations:
(a) Violating applicable Consumer Laws as set forth in the FDIC's Compliance Report of Examination of the Bank as of January 6, 1997 ("Compliance Report");
(b) Failing to provide adequate supervision of the Bank's compliance program to prevent violations of the Consumer Laws. For purposes of this ORDER, "Consumer Laws" means those laws and regulations referenced in the FDIC Compliance Examination Manual, including the laws and regulations referred to in the Compliance Report.
IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:
[.1] 1. Within 45 days from the effective date of this ORDER, and as more specifically set forth in paragraphs 2 through 15 of this ORDER, the Bank shall eliminate or correct all violations of the Consumer Laws set forth on page 1 and on page 2 of the Compliance Report. In addition, the Bank shall adopt and implement systems and controls to ensure its future compliance with the Consumer Laws.
[.2] 2. Within 30 days after the effective date of this ORDER, the Bank shall comply with the Truth in Lending Act, 15 U.S.C. §§ 1601–1693, and Regulation Z of the Board of Governors of the Federal Reserve System ("Regulation Z"), 12 C.F.R. Part 226, by adopting and implementing systems and controls to ensure its compliance, with specific provisions to provide accurate disclosures for charges or premiums for private mortgage insurance as required by section 226.4(b)(5) of Regulation Z, 12 C.F.R. § 226.4(b)(5).
[.3] 3. Within 60 days after the effective date of this ORDER, the Bank shall identify, notify, and provide monetary adjustments to all consumers affected by the Bank's failure to provide complete and accurate account disclosures in consumer residential mortgage loans containing private mortgage insurance under Section 108(e) of the Truth In Lending Act, 15 U.S.C. § 1607(e), consistent with the following guidelines:
(a) Search its files to identify all affected consumers. This search should include all outstanding consumer residential mortgage loans containing private mortgage insurance originated since July 24, 1995, and all terminated loans of these type[s] originated since July 24, 1995.
(b) The Bank shall draft a letter to identified consumers to inform them of monetary adjustments. The Bank shall submit that letter or text for the prior approval of the Regional Director of the Chicago Regional Office of the FDIC's Division of Compliance and Consumer Affairs ("Regional Director").
(c) The Bank shall calculate monetary reimbursements to consumers using the examples in the Compliance Report as a guide.
(d) The Bank shall send the monetary reimbursement to the consumers together with the letter or other text submitted by the Bank and approved by the Regional Director, under paragraph 3(b) of this ORDER.
(e) The Bank shall notify the Regional Director within 10 days after the completion of the reimbursement program, and the Bank shall maintain a complete record of the reimbursement program for review during the FDIC's next compliance examination or visitation.
[.4] 4. Within 30 days after the effective date of this ORDER, the Bank shall comply with the Home Mortgage Disclosure Act, 12 U.S.C. §§ 2801–2810, and Regulation C of the Board of Governors of the Federal Reserve System ("Regulation C"), 12 C.F.R. Part 203, by adopting and implementing sys-
{{2-28-98 p.C-4458}}tems and controls to ensure its compliance, with specific provisions to accurately collect and record required data on applications for, and originations, purchases and refinancings of, home purchase and home improvement loans on a register in the format prescribed within 30 calendar days after the end of the quarter in which the final action is taken, as required by section 203.4(a) of Regulation C, 12 C.F.R. § 203.4(a).
5. Within 90 days after the effective date of this ORDER, the Bank shall review and correct all entries on the Bank's 1995 Loan Application Register. After corrections have been made, the Bank will refile the 1995 Loan Applications Register and contact the Federal Reserve Board through the HMDA Assistance Line (202) 452-2016 for refiling instructions.
6. Within 30 days after the effective date of this ORDER, the Bank shall comply with Part 338 of the FDIC Rules and Regulations, 12 C.F.R. § 338, by adopting and implementing systems and controls to ensure its compliance, with specific provisions to:
(a) Accurately collect and record the required data on applications for, and originations, purchases and refinancings of, home purchase and home improvement loans for each calendar year on a register in the format prescribed, as required by section 338.8(a) of the FDIC Rules and Regulations, 12 C.F.R. § 338.8(a); and
(b) Request the required additional data including the amount of the loan request on home purchase loan applications as required by section 338.7(a)(2)(ii) of the FDIC Rules and Regulations, 12 C.F.R. § 338.7(a)(2)(ii); and
(c) Request and retain information for monitoring purposes in connection with housing credit applications, as required by section 338.7(a)(2)(iii) of the FDIC Rules and Regulations, 12 C.F.R. § 338.7(a)(2)(iii).
[.5] 7. Within 30 days after the effective date of this ORDER, the Bank shall comply with the Truth in Savings Act, 12 U.S.C. §§ 4301 et seq., and Regulation DD of the Board of Governors of the Federal Reserve System ("Regulation DD"), 12 C.F.R. Part 230, by adopting and implementing systems and controls to ensure its compliance, with specific provisions to provide periodic statements that accurately disclose the annual percentage yield and interest payments as required by section 230.3(f)(2) of Regulation DD, 12 C.F.R. § 230.3(f)(2).
8. Within 90 days after the effective date of this ORDER, the Bank shall identify, notify, and provide monetary adjustments to all consumers affected by the Bank's failure to provide periodic statements with accurate annual percentage yields and interest payments in violation of 230.3(f)(2) of Regulation DD, consistent with the following additional guidelines:
a. The Bank shall search its electronic or other accurate deposit account files to identify all affected consumers and monetary adjustments to be paid to those consumers.
(i) This search shall include all money market accounts subject to the disclosure requirements of Regulation DD, and opened between February 1996, and the date in 1997, or such later date, upon which the Bank adjusted the input fields on its computer system to reflect the changes the Bank made in the interest rate paid on these types of accounts ("corrective action period").
(ii) Through this search, the Bank shall identify the total of underpaid interest which the Bank should have paid during the corrective action period for each consumer account. If the Bank reliably determines that less than $5.00 in underpaid interest is owed to any particular consumer account during the corrective action period, and the Bank intends to exercise its option under paragraph 8(c) of this ORDER not to reimburse that consumer, the Bank need not identify the exact dollar total of underpaid interest for said accounts.
(b) The Bank shall draft a letter, or other explanatory text to appear on an account statement, to identified consumers, to inform them of monetary adjustments. The Bank shall submit that letter or text for the prior approval of the Regional Director.
(c) The Bank shall make monetary reimbursements to consumers for the underpaid interest calculated under the guidelines of paragraph (8)(a) of this ORDER, by either adjusting unrestricted deposit accounts of those consumers or making payments by check to those consumers. However, the Bank need not provide any monetary adjustment to a consumer otherwise covered by this paragraph, for any single account in which the consumer was underpaid a total of less than $5.00 in interest over the entire corrective action period. At the Bank's option, monetary reimbursements may be made in exact
{{2-28-98 p.C-4459}}amounts, rounded to the nearest whole dollar, or rounded to the next higher whole dollar.
(d) The Bank shall notify consumers of the reimbursements made, using the letter or other text submitted by the bank and approved by the Regional Director, under paragraph 8(b) of this ORDER.
(e) The Bank shall notify the Regional Director within 10 days after the completion of the reimbursement program, and the Bank shall maintain a complete record of the reimbursement program for review during the FDIC's next compliance examination or visitation.
9. Within 30 days after the effective date of this ORDER, the Bank shall comply with the Truth in Lending Act, 15 U.S.C. §§ 1601-1693, and Regulation Z, 12 C.F.R. Part 226, by adopting and implementing systems and controls to ensure its compliance, with specific provisions to:
(a) Provide the home equity brochure or a suitable substitute to consumers under home equity credit plans as required by section 226.5b(e) of Regulation Z, 12 C.F.R. § 226.5b(e);
(b) Provide the initial disclosures required by section 226.6(e) of Regulation Z, 12 C.F.R. § 226.6(e); and
(c) Provide good faith estimates of certain disclosures within three business days after receipt of the application, as required by section 226.19(a)(1) of Regulation Z, 12 C.F.R. § 226.19(a)(1).
[.6] 10. Within 30 days after the effective date of this ORDER, the Bank shall comply with the Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601-2617, and Regulation X of the U.S. Department of Housing and Urban Development ("Regulation X"), 24 C.F.R. Part 3500, by adopting and implementing systems and controls to ensure its compliance, with specific provisions to:
(a) Provide good faith estimates of settlement costs within three business days after the application is received or prepared as required by section 3500.7(a) of Regulation X, 24 C.F.R. § 3500.7(a);
(b) Provide good faith estimates of settlement costs which bear a reasonable relationship to the charge a borrower is likely to be required to pay at settlement as required by section 3500.7(c) of Regulation X, 24 C.F.R. § 3500.7(c);
(c) Use the HUD-1 or HUD-1A settlement statement in every settlement involving a federally-related mortgage loan and completing it in accordance with the instructions set forth in Appendix A to Part 3500, as required by sections 3500.8(a) of Regulation X, 24 C.F.R. § 3500.8(a) and 3500.8(b) of Regulation X, 24 C.F.R. § 3500.8(b);
(d) Provide mortgage servicing transfer disclosures at the time of application or within three days of receipt of an application as required by section 3500.21(b) of Regulation X, 24 C.F.R. § 3500.21(b); and
(e) Provide an annual escrow account statement within 30 days of the completion of the escrow account computation year as required by section 3500.17(i) of Regulation X, 24 C.F.R. § 3500.17(i).
[.7] 11. Within 30 days after the effective date of this ORDER, the Bank shall use the standard flood hazard determination form when determining whether the building or mobile home offered as collateral for a loan is or will be located in a special flood hazard area as required by the National Flood Insurance Act of 1968, 42 U.S.C. §§ 4001-4129 and section 339.6 of the FDIC Rules and Regulations, 12 C.F.R. § 339.6.
[.8] 12. Within 30 days after the effective date of this ORDER, the Bank shall comply with the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-1691f, and Regulation B of the Board of Governors of the Federal Reserve System ("Regulation B"), 12 C.F.R. Part 202, by adopting and implementing systems and controls to ensure its compliance, with specific provisions to:
(a) Limit the request for an applicant's race, color, religion, or national origin to monitoring purposes as required by section 202.5(d)(5) of Regulation B, 24 C.F.R. § 202.5(d)(5); and
(b) Either notify an applicant of action taken in accordance with section 202.9(a) of Regulation B, 24 C.F.R. § 202.9(a), or request the information necessary to complete the application, as required by section 202.9(c) of Regulation B, 24 C.F.R. § 202.9(c) within 30 days after receiving an application that is incomplete.
13. Within 30 days after the effective date of this ORDER, the Bank shall provide account disclosures to a consumer before an account is opened or a service is provided, whichever is earlier as required by the Truth
{{2-28-98 p.C-4460}}in Savings Act, 12 U.S.C. §§ 4301 et seq., and section 230.4(a)(1) of Regulation DD of the Board of Governors of the Federal Reserve System ("Regulation DD"), 12 C.F.R. § 230.4(a)(1).
[.9] 14. Within 30 days after the effective date of this ORDER, the Bank shall comply with the Community Reinvestment Act, 12 U.S.C. §§ et seq., and Part 345 of the FDIC Rules and Regulations, 12 C.F.R. Part 345, by adopting and implementing systems and controls to ensure its compliance, with specific provisions to:
(a) Maintain a public file which includes a copy of the public section of the most recent CRA Performance Evaluation prepared by the FDIC, a list of the Bank's branches, a list of branches opened or closed by the Bank, a list of services generally offered at Bank's branches, and a map of each assessment area as required by section 345.43(a) of the FDIC Rules and Regulations, 12 C.F.R. § 345.43(a);
(b) Include in the public file a copy of the HMDA Disclosure Statement provided by the Federal Financial Institutions Examination Council pertaining to the Bank for each of the prior two calendar years and include the Bank's loan-to-deposit ratio for each quarter of the prior calendar year as required by section 345.43(b) of the FDIC Rules and Regulations, 12 C.F.R. § 345.43(b); and,
(c) Provide in the public lobby of each office the appropriate public notice as set forth in Appendix B to Part 345 of the FDIC Rules and Regulations, 12 C.F.R. Part 345, Appendix B.
[.10] 15. Within 90 days after the effective date of this ORDER, the Bank shall establish, and the Bank's board of directors ("Board") shall adopt, a written compliance program that sets forth the policies and procedures designed to meet the Bank's compliance responsibilities. As used in this ORDER, "compliance program" means a planned and organized effort to achieve compliance with Consumer Laws in a comprehensive manner on an ongoing basis. The Board shall ensure implementation of, and adherence to, the compliance program. At a minimum, the compliance program shall address the following areas, as more specifically set forth in this paragraph: appointment and retention of a qualified compliance officer; education and training of Bank personnel; and review and audit procedures.
(a) The compliance program shall provide for the appointment and retention of a competent compliance officer, including a clear delineation of that officer's authority and responsibilities.
(i) The compliance officer shall be given written authority by the Board to implement and supervise the Bank's compliance program, including, but not limited to, overseeing training for the Bank's employees in the Consumer Laws, establishing internal controls and procedures reasonably designed to prevent violations of the Consumer Laws, and performing or supervising periodic audits to ascertain compliance with the Consumer Laws and the Bank's compliance program.
(ii) The compliance officer shall report directly to the Board in his/her capacity as compliance officer. The compliance officer may also report to the Bank's compliance committee (which committee is required to be established in accordance with paragraph 17 of this ORDER), to provide assistance in the compliance committee's determination of the Bank's compliance with this ORDER.
(iii) Within 10 days after the date of the adoption by the Board of the compliance program, the Bank shall notify the Regional Director of the identity of the compliance officer. If the compliance officer is to be added as a director of the Bank or employed as a senior executive officer, the Bank shall comply with the requirements of section 32 of the Act, 12 U.S.C. § 1831i, and section 303.14 of the FDIC Rules and Regulations, 12 C.F.R. § 303.14, prior to the addition of the compliance officer to such position.
(iv) The ongoing determination of whether the Bank is retaining a competent compliance officer within the meaning of this paragraph shall be based upon the officer's continued effectiveness of ensuring that the Bank achieves compliance with the requirements of this ORDER and with the Consumer Laws.
(b) The compliance program shall provide for the education and training of Bank personnel in the requirements and prohibitions of the Consumer Laws.
(i) This shall include training at least annually for all Bank employees whose duties and responsibilities include activities through which the Bank intends to comply with the Consumer Laws.
(ii) The compliance officer shall oversee the Bank's training process with respect to the Consumer Laws.
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(iii) A summary of all compliance training conducted or attended by Bank personnel shall be reported to, and such report recorded in the minutes of a meeting of, the Board at least once each calendar quarter.
(iv) The Bank shall provide the compliance officer with opportunities for continuing education and training in the Consumer Laws.
(c) The compliance program shall provide for review and audit procedures. These shall include:
(i) Review of loan application and disclosure procedures, for compliance with the Consumer Laws and Bank policy;
(ii) Review of forms used by the Bank to comply with requirements of the Consumer Laws;
(iii) Establishment of an audit program and schedule, which shall include policies and procedures for monitoring the Bank's compliance with the Consumer Laws, as described in this paragraph.
16. Each calendar quarter following the effective date of this ORDER, the Bank or a consultant shall perform an audit of the Bank's compliance program. Any audit of the compliance program performed by Bank personnel shall be performed or supervised by the compliance officer. The results of the audit shall be reported to the Board, and any recommendation by the compliance officer, the consultant, or the Board shall be recorded in the minutes of the meetings at which such reports and recommendations are made.
17. Within 30 days after the effective date of this ORDER, the Bank shall establish a compliance committee comprised of at least three directors. No compliance committee member may be an executive officer or principal shareholder, as those terms are defined in sections 215.2(e)(1) and 215.2(m)(1) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §§ 215.2(e)(1) and 215.2(m)(1). The committee shall monitor compliance with this ORDER and within 60 days after the effective date of this ORDER, and on a monthly basis thereafter, shall submit to the Board for consideration at each monthly meeting a written report detailing the Bank's compliance with this ORDER. The monthly report by the compliance committee shall be incorporated into the minutes of the corresponding Board meeting. Establishment of this committee does not in any way diminish the responsibility of the entire Board for ensuring compliance with the provisions of this ORDER.
[.11] 18. Within 30 days after the end of the first calendar quarter following the effective date of this ORDER, and within 30 days after the end of each successive calendar quarter, the Bank shall furnish written progress reports to the Regional Director detailing the form and manner of any action taken to secure compliance with this ORDER and the results thereof. All progress reports and other written responses to this ORDER shall be reviewed and signed by each member of the Board, and such reviews shall be recorded in the minutes of the Board meetings. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director has released, in writing, the Bank from making additional reports.
19. Following the effective date of this ORDER, the Bank shall send to its shareholders a description of this ORDER: (a) in conjunction with the Bank's next shareholder communication; and (b) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, notice, or statement shall be sent to the FDIC, ATTN: Registration and Disclosure Section, 550 17th Street, N.W. (F-640), Washington, D.C. 20429-9990, for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice, or statement.
The effective date of this ORDER shall be ten days after the date of its issuance by the FDIC.
The provisions of this ORDER shall be binding upon the Bank, its institution-affiliated parties, and any successors and assigns thereof.
The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provision of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
Pursuant to delegated authority.
Dated this 19th day of December, 1997.
