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[¶12,219] In the Matter of Commerce Bank & Trust Company, Worcester,
Massachusetts, Docket No. 04-093b (5-26-04).
A cease and desist order was issued, based on findings by the FDIC that
it had reason to believe that respondent was engaged in unsafe and
unsound practices.
[.1] Compliance CommitteeEstablishment Required
[.2] Compliance ProgramConsumer Compliance Plan Required
[.3] Compliance ProgramWritten Compliance Plan Required
[.4] AuditReview of Policies Required
[.5] Home Mortgage Disclosure ActCompliance Required
[.6] InsuranceFlood InsuranceCompliance with FDIC Regulations Required
[.7] Equal Credit Opportunity ActCompliance Required
[.8] Board of DirectorsMotor Vehicle Policy Required
[.9] Violations of LawCorrections of Violations Required
[.10] MortgageReview of Residential Mortgage Loans Required
[.11] ManagementQualifications Specified
[.12] MortgageReview of Residential Mortgage Loans Required
[.13] Consumer Credit TransactionsReview Required
[.14] MortgageReview of Mortgage Notes Required
[.15] Compliance ProgramRetain Qualified Personnel
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[.16] Bank OperationsInternal Routine and Controls, Correction of
Weaknesses Required
[.17] Reconciliation of Books and RecordsMaintain
[.18] Board of DirectorsReview Procedures
[.19] Cease and Desist OrdersConsumer Disclosure
[.20] Board of DirectorsWritten Plan Required
[.21] ShareholdersDisclosure of Cease and Desist Order Required
[.22] Progress ReportWritten Report Required
In the Matter of
COMMERCE BANK & TRUST COMPANY
WORCESTER, MASSACHUSETTS
(Insured State Nonmember Bank; State Chartered Trust Company) and its wholly-owned subsidiary
1-800-EAST-WEST MORTGAGE COMPANY, INC.
WORCESTER, MASSACHUSETTS
ORDER TO CEASE AND DESIST
Commonwealth Docket No. 2004-007
FDIC Docket #FDIC-04-093b
Commerce Bank & Trust Company, Worcester, Massachusetts (the
"Bank"), has been advised of its rights to a Notice of Charges
and of Hearing detailing the unsafe or unsound banking practices and
violations of laws and/or regulations alleged to have been committed by
the Bank and of its right to a hearing on the alleged charges under
section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12
U.S.C. §1818(b)(1), has waived those rights, and has been advised by
the Division of Banks of the Commonwealth of Massachusetts (the
"Division") of its concerns regarding the Bank's alleged failure
to comply with certain statutes and regulations; and 1-800-East-West
Mortgage Company, Inc. ("East-West"), has been advised by the
Division of its concerns regarding East-West's alleged failure to
comply with certain statutes and regulations.
In consideration of the foregoing, the Bank and East-West entered into
a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND
DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit
Insurance Corporation ("FDIC") and with the Commissioner of Banks
of the Commonwealth of Massachusetts (the "Commissioner") dated
May 25, 2004, whereby solely for the purpose of this proceeding and
without admitting or denying the alleged charges of unsafe or unsound
banking practices and violations of laws and/or regulations, the Bank
and East-West consented to the issuance of this ORDER TO CEASE AND
DESIST ("ORDER") by the Commissioner and the FDIC.
The Commissioner and the FDIC considered the matter and determined that
they had reason to believe that the Bank and East-West have engaged in
unsafe or unsound practices and have committed violations of laws
and/or regulations. The Commissioner and the FDIC, therefore, accepted
the CONSENT AGREEMENT and issued the following:
ORDER TO CEASE AND DESIST
Provisions Applicable to the Bank
IT IS HEREBY ORDERED that the Bank, its directors, officers,
employees, agents, and other 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:
(a) Operating with a Board of Directors which has failed to provide
adequate supervision over, and direction to, the management of the Bank
in order to ensure compliance with laws and regulations referred to in
the FDIC's Report of Examination-Compliance prepared as of December
30, 2002 (the "FDIC Report") and the Report of Examination (the
"Division's Report") issued by the Division under Massachusetts
General Laws chapter 167, section 2 pursuant to the examination of the
Bank and East-West by the Division as of March 10, 2003;
(b) Operating with certain officers and employees who do not have
adequate knowledge and/or sufficient allocated time to
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ensure compliance with the laws and regulations referred to in
the FDIC Report and the Division's Report;
(c) Operating with policies and internal routines and controls which
are insufficient to ensure compliance with laws and regulations
referred to in the FDIC Report and the Division's Report;
(d) Operating in violation of the following laws and/or regulations:
(i) Part 202, Regulation B of the Board of Governors of the
Federal Reserve System, as more fully described on pages 35, 36, 37 and
41 of the FDIC Report;
(ii) Part 339 of the FDIC's Rules and Regulations, 12 C.F.R. Part 339,
as more fully described on pages 42-55 of the FDIC Report; and,
(iii) Part 203, Regulation C of the Board of Governors of the Federal
Reserve System, as more fully described on pages 56, 57, 58, 60, 61 and
62 of the FDIC Report;
(iv) Part 3500, Regulation X of the Department of Housing and Urban
Development, as more fully described on pages 65, 66, 68, 69, 72, 79
and 80 of the FDIC Report;
(v) Part 205, Regulation E of the Board of Governors of the Federal
Reserve System, as more fully described on pages 86-88 of the FDIC
Report;
(vi) Part 229, Regulation CC of the Board of Governors of the Federal
Reserve System, as more fully described on pages 88-90 of the FDIC
Report;
(vii) Part 345 of the FDIC's Rules and Regulations, as more fully
described on pages 62-65 of the FDIC Report.
(viii) Part 332 of the FDIC's Rules and Regulations, as more fully
described on pages 80-81 of the FDIC Report;
(ix) Part 230, Regulation DD of the Board of Governors of the Federal
Reserve System, as more fully described on pages 90-91 of the FDIC
Report;
(x) Part 343 of the FDIC's Rules and Regulations, as more fully
described on pages 82-83 of the FDIC Report;
(xi) Part 338 of the FDIC's Rules and Regulations, as more fully
described on page 85;
(xii) Massachusetts General Laws chapter 255B, section 14, as more
fully described on pages 24-25 of the Division's Report; and
(xiii) The Division's regulation 209 CMR 32.15(5), as more fully
described on page 27 of the Division Report.
IT IS FURTHER ORDERED, that the Bank, its institution-affiliated
parties, and its successors and assigns, take affirmative action as
follows:
[.1] 1. Upon the effective date of this ORDER, the Bank's Board of
Directors (the "Bank's Board") shall increase its supervision
and oversight of the Bank's compliance program. At a minimum, the
Bank's Board should:
(a) oversee the Bank's review and revision of its compliance
program;
(b) review and revisit the roles and responsibilities of the Bank's
Compliance Officer and its Compliance Committee to ensure that the Bank
has a more effective and centralized approach to compliance management;
(c) supervise and proactively oversee the Bank's compliance program
and its Compliance Officer, including careful consideration of all
reports submitted to the Bank's Board from such officer and timely and
effective responses;
(d) carefully review and consider the results of the Bank's consumer
compliance audits and take effective and timely actions to correct or
cause the correction of any shortcomings in the Bank's compliance
program that are brought to light by such audits;
(e) foster a positive compliance culture at the Bank so that its
employees will understand that consumer compliance is a priority; and,
(f) supervise and monitor the bank's compliance with the requirements
of this ORDER.
The actions required by this paragraph shall be in a form and
manner acceptable to the Regional Director of the FDIC's New York
Regional Office ("Regional Director") and the Commissioner as
determined at subsequent examinations and/or visitations.
[.2] 2. The Bank and the Bank's Board shall increase their supervision and
oversight of East-West's compliance activities to ensure that
East-West is complying with all applicable consumer compliance laws and
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the provisions of this ORDER applicable to it. Toward this end, the
Bank's Board shall at a minimum:
(a) reevaluate the manner in which the Bank currently supervises
and oversees East-West's practices, policies, operations and its
compliance program;
(b) take actions to ensure that Bank management and other personnel who
are responsible for overseeing East-West's compliance program have
sufficient time and resources to carry out these responsibilities;
(c) become and remain familiar with East-West's policies, practices,
operations, and compliance program, through whatever means are
necessary;
(d) review East-West's compliance audits and the responses to such
audits by East-West's management; and,
(e) review all reports submitted by East-West to the Commissioner and
the Regional Director pursuant to paragraphs 21-22 of this ORDER, and
record the results of such reviews in the Bank's Board minutes.
[.3] 3. Within 60 days from the effective date of this ORDER, the Bank shall
revise and implement its written compliance program. The revised
compliance program shall be adopted by the Bank's Board and shall set
forth revised policies and procedures designed to meet the Bank's
compliance responsibilities on an ongoing basis. The Bank's Board
shall take actions to ensure implementation of, and adherence to, the
revised compliance program. At a minimum, the revised compliance
program shall specifically address the following areas:
(a) the retention, within 60 days from the effective date of this
ORDER and continuously thereafter, of a qualified Compliance Officer
who shall be given stated written authority by the Bank's Board to
implement and supervise the Bank's compliance program. The duties and
responsibilities of this position shall be clearly defined in writing.
The Compliance Officer shall be provided with the necessary training,
authority, time, resources, and responsibility to effectively
administer the Bank's compliance program. The Compliance Officer shall
report directly to the Bank's Board on a monthly basis and such report
shall be documented in the minutes of the Bank's Board meeting;
(b) the duties and responsibilities of the Bank's Compliance
Committee;
(c) consideration of staffing levels and revisions to job descriptions,
if necessary, to ensure that all Bank personnel responsible for any
aspects of the compliance program have sufficient time to fulfill their
responsibilities;
(d) the review, development and implementation of written consumer
compliance policies and procedures for all applicable consumer
compliance laws and regulations, including department-wide loan and
deposit procedures and consumer complaint procedures. Such policies and
procedures should be sufficiently detailed to provide employees with
the information they need to perform their duties in compliance with
applicable laws and regulations. The consumer complaint procedures
should identify the person or persons who are responsible for handling
such complaints and the protocol to follow when receiving a complaint;
(e) ongoing training in consumer compliance laws and regulations for
all appropriate personnel, including both operation and lending staff,
and the development and implementation of a system to test employees on
their knowledge of compliance-related laws and regulations to monitor
training effectiveness. The Bank shall document the training activities
for its recordkeeping purposes. The training program should be updated
periodically, at reasonable intervals to ensure that appropriate
personnel are provided with the most current and up-to-date
information;
(f) the creation and implementation of an effective internal review and
monitoring system for the purpose of ensuring that the Bank is
operating in compliance with all consumer laws and regulations. Such
system should be designed, at a minimum, to detect and identify any
weaknesses that may exist in the Bank's compliance efforts prior to
audits and/or examinations; to include periodic reviews of disclosures
and standardized forms and calculations for various loan and deposit
products; and to provide for periodic reviews of document filing and
retention procedures. The Bank's Board and management shall require
all departments of the Bank which are engaged in activities subject to
the statutes and regulations cited in clause (d) on pages 3 and 4 of
this
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ORDER, to participate in the review and monitoring efforts.
A copy of the revised written compliance program should be
forwarded to the Regional Director and the Commissioner upon
completion. The program and its implementation must be maintained in a
manner satisfactory to the Regional Director and the Commissioner as
determined at subsequent examinations and/or visitations.
[.4] 4. Within 60 days of the effective date of this ORDER, the Bank's
Board shall review and revise as appropriate the Bank's formal
independent audit program which may be conducted either externally or
internally. This review should examine and define the scope and
determine the frequency of such audits, considering the compliance risk
profile of the institution. In addition, the audit reports should be
thoroughly reviewed by the Bank's Board and fully documented in the
minutes. The program shall include policies and procedures for
internally monitoring the Bank's compliance with applicable consumer
laws and regulations, including a quarterly review of the Bank's
compliance program by the Compliance Officer, the results of which
shall be in writing, reported directly to the Bank's Board, and
recorded in the minutes of the Bank's Board meeting at which the
report is made. The Bank's Board should implement and monitor
corrective action in areas/departments where deficiencies have been
identified. Thereafter, the Bank's Board should review the scope and
frequency of such audits on a periodic basis to ensure that the audits
continue to be appropriate for the Bank's compliance activities and
any new risks that have been identified through the Bank's monitoring
efforts, form reviews, or prior audits.
[.5] 5. Within 60 days from the effective date of this ORDER, the Bank shall
develop and implement procedures to ensure compliance with the Home
Mortgage Disclosure Act ("HMDA"), 12 U.S.C. §2801 et
seq., as implemented by Regulations of the Board of Governors of
the Federal Reserve System, 12 C.F.R. Part 203, which requires a
lending institution to report data to its supervisory agency about home
purchase and home improvement loans it originates or purchases, or for
which it receives applications; and to disclosure certain data to the
public.
[.6] 6. Within 60 days from the effective date of this ORDER, the Bank shall
develop a policy and implement procedures to ensure that it complies
with the requirements of the National Flood Insurance Act of 1968 and
the Flood Disaster Protection Act of 1973, as amended, 42 U.S.C.
§§ 4001-4129, as implemented by Part 339 of the FDIC Rules and
Regulations, 12 C.F.R. Part 339. The policy and procedures are to
include but are not limited to:
(a) preparation, mailing or delivering a written notice of special
flood hazard determination to the borrower and to the servicer in all
cases whether or not flood insurance is available under the National
Flood Insurance Act of 1968, as amended, for the collateral securing
the loan, as required in section 339.9 of the FDIC's Rules and
Regulations, 12 C.F.R. §339.9;
(b) ensuring that flood hazard insurance coverage is obtained when
required, pursuant to section 339.3 of the FDIC's Rules and
Regulations, 12 C.F.R. §339.3;
(c) ensuring that flood hazard insurance coverage, where required,
remains in force throughout the life of a loan, as required by section
339.3(a) of the FDIC's Rules and Regulations;
(d) ensuring that the amount of flood hazard insurance coverage, where
such insurance is required, is at least equal to the lesser of the
outstanding principal balance of the loan or the maximum amount of
coverage available for the particular property, as required by section
339.3(a) of the FDIC's Rules and Regulations; and,
(e) ensuring compliance with section 339.7 of the FDIC's Rules and
Regulations by sending proper notices to borrowers whose flood hazard
coverage has become inadequate, and by force placing such insurance
when borrowers who have received such notices fail to take appropriate
corrective action.
[.7] 7. (a) Within 60 days from the effective date of this ORDER, the Bank
shall develop and implement procedures to ensure compliance with the
Equal Credit Opportunity Act, 15 U.S.C. §§ 1691 et seq.,
as implemented by Regulation B of the Board of Governors of the Federal
Reserve System, 12 C.F.R. Part 202, governing loan applicants and
notifications to customers against whom adverse action is taken. These
procedures shall include but are not limited to, procedures to ensure
that the Bank complies
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with section 202.7(d) of Regulation B, 12 C.F.R
§202.7(d), which provides, with certain exceptions, that a creditor
shall not require the signature of a loan applicant's spouse or other
person, other than a joint applicant, or any credit instrument if the
applicant qualifies for an extension of credit under the creditor's
standards of creditworthiness for the amount and terms of the credit
requested.
(b) In the case of each residential mortgage loan, home equity loan,
and home equity line of credit originated by the Bank after December
30, 2002, in connection with which the Bank obtained the signatures of
two or more joint owners of the mortgaged real estate on a note,
guarantee, or other credit instrument other than a mortgage deed, the
Bank shall send a letter ("Stage 1 Letter") to at least one of
such joint owners asking if the joint owners intended to be joint
applicants, or whether the signatures of one or more such joint owners
were required by a Bank officer or employee. The form of the Stage 1
Letter which the bank proposes to send to such persons must be
submitted to the Regional Director for approval before the Stage 1
Letters are sent. In any case where a recipient of a Stage 1 Letter
replies that such a signature of a co-owner of the mortgaged property
who did not originally intend to be an applicant was required by the
Bank, and the Bank's action of requiring that signature was not
consistent with 12 C.F.R. §202.7(d), the Bank shall advise the
replying person, by letter ("Stage 2 Letter"), of the rights set
forth in this paragraph. The form of the Stage 2 Letter which the Bank
proposes to send to such persons must be submitted to the Regional
Director for approval before the Stage 2 Letters are sent. The Bank
must release any such co-owner from any liability or obligations
imposed by such instrument (other than the mortgage deed) if the
original applicant was able to qualify on his/her own for the credit
requested. If the original applicant was not able so to qualify, and
the co-signer was the applicant's spouse, the original applicant must
be given the opportunity to substitute a different creditworthy person
or signer of such instrument if he/she wishes to do so. The Bank shall
promptly notify the Regional Director of any instances in which the
Bank, having received a response to a Stage 1 Letter saying that the
signature of one or more of the joint owners was required by a Bank
officer or employee, determined not to send a Stage 2 Letter. The
response shall identify the underlying loan transaction involved, and
an explanation of the Bank's reason for making its determination, in
order to assist FDIC in determining whether the determination not to
send a Stage 2 Letter was consistent with the obligations imposed by
this paragraph 7.
[.8] 8. Within 30 days of the effective date of this ORDER the Bank's Board
of Directors shall establish, implement, and maintain revised
procedures which provide that the Bank, in the administration of its
motor vehicle indirect lending program, ensures that the terms of all
acquired retail installment sales of motor vehicle contracts properly
include all applicable charges, defined by applicable laws or
regulations as finance charges, in the calculation of the finance
charge, the amount financed, and the annual percentage rate disclosed
to the consumer. The revised procedures shall necessarily address and
ensure that in any transaction in which a document preparation fee, or
any similar fee, is collected in a retail installment sale of motor
vehicle contract either purchased or acquired by the Bank, such fee
shall be included in the finance charge for the purpose of determining
the annual percentage rate in accordance with the twenty-one percent
limitation set forth by Massachusetts General Laws chapter 255B,
section 14.
[.9] 9. Within 120 days of the effective date of this ORDER, the Bank shall
correct all other violations of law as described on pages 92-102 in the
FDIC Report and on pages 24-44 of the Division's Report, and implement
procedures to prevent their recurrence. The Bank's actions as required
by this paragraph must be satisfactory to the Regional Director and the
Commissioner, respectively, as determined at subsequent examinations
and/or visitations.
Provisions Applicable to East-West
IT IS HEREBY ORDERED that East-West, its directors, officers,
employees, and agents, and their successors and assigns cease and
desist from the following unsafe or unsound mortgage lending practices
and violations:
(a) Operating with a Board of Directors which has failed to provide
adequate supervision over, and direction to, the management of
East-West in order to ensure compliance with laws and regulations
referred to in the Division's Report;
(b) Operating with officers and employees
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who do not have adequate
knowledge and/or sufficient allocated time to ensure compliance with
the laws and regulations referred to in the Division's Report;
(c) Operating with policies and internal routines and controls which
are insufficient to ensure compliance with laws and regulations
referred to in the Division's Report; and
(d) Operating in violation of the following laws and/or regulations:
(i) The Office of the Attorney General of Massachusetts' (the
"Attorney General") regulation 940 CMR 8.00, as more fully
described on pages 6-7, 7-10, and 14 of the Division's Report;
(ii) The Division's regulation 209 CMR 32.00, as more fully described
on pages 6-7, 7-10, and 14 of the Division's Report;
(iii) Massachusetts General Laws chapter 183, section 56, as more fully
described on pages 10-11 of the Division's Report;
(iv) Massachusetts General Laws chapter 167, section 6, and
Massachusetts General Laws chapter 140D, section 30, as more fully
described on page 12 of the Division's Report;
(v) Massachusetts General Laws chapter 184, section 17D, as more fully
described on pages 15-16 of the Division's Report;
(vi) 24 C.F.R. Part 3500, Regulation X of the Department of Housing and
Urban Development, as more fully described on pages 17-20 of the
Division's Report; and
(vii) Massachusetts General Laws chapter 183, section 59, as more fully
described on page 13 of the Division's Report;
IT IS FURTHER ORDERED, that East-West, its officers and directors,
and their successors and assigns, take affirmative action as follows:
[.10] 10. Within 30 days of the effective date of this ORDER, East-West's
Board of Directors shall cause to be made a review of all Massachusetts
residential mortgage loan applications received by East West since
February 12, 2001 in which (i) East-West accepted or collected any
non-refundable fee or good faith deposit, prior to the consumer's
receipt of the applicable disclosures required under either the Office
of the Attorney General's Regulation 940 CMR 8.00 et seq.,
Massachusetts General Laws chapter 184, §17D, the Division's
regulation 209 CMR 38.00 et seq., or 209 CMR 32.00 et
seq., and (ii) no extension of credit by East-West to the consumer
was made.
(a) In any instance in which each of the provisions set forth in
clauses (i) and (ii) of this paragraph 10 are satisfied, East-West
shall reimburse the consumer for the full amount of such non-refundable
fee or good faith deposit collected. The provisions of this subsection
of the ORDER shall necessarily apply, without limitation, to
transactions involving residential property located in Massachusetts
for: the refinancing of a mortgage loan, an open-end credit plan
secured by the consumer's dwelling; a variable rate transaction under
209 CMR 32.19(2); and any other mortgage loan application for the
purchase or initial construction of residential property in which the
consumer paid a non-refundable fee or good faith deposit prior to
receiving the required, applicable disclosure referenced above;
(b) Within 30 days of the effective date of this ORDER, East-West's
Board of Directors shall revise East-West's application procedures to
ensure that prior to accepting or collecting any fee from a consumer,
other than a credit report fee, appraisal fee, or other similar third
party fee, East-West shall provide the consumer with the written
disclosures required by applicable state and federal laws and
regulations. Such procedures shall prohibit East-West from accepting or
collecting any non-refundable fee or good faith deposit in a
residential mortgage loan transaction except to the extent that the
amount and terms of such non-refundable fee or good faith deposit have
been previously disclosed to the consumer in writing, which disclosure
shall be in the form specified by the applicable statute, rule or
regulation;
(c) Within 30 days of the effective date of this ORDER, East-West's
Board of Directors shall submit to the Commissioner a list of all
borrowers identified pursuant to the above described review to whom a
reimbursement is owed by East-West in accordance with paragraph (10)(a)
of this ORDER; and
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(d) Within 45 days of the effective date of this ORDER, East-West's
Board of Directors shall submit to the Commissioner, evidence of the
reimbursements issued to consumers in accordance with paragraph (10)(a)
of this ORDER. Such evidence shall include the consumers' names, the
date the application was submitted, the check numbers, the amount of
the reimbursements, and sufficient evidence to illustrate receipt of
the reimbursements.
[.11] 11. Within 180 days of the effective date of this ORDER, East-West,
with the approval of the Bank's Board of Directors, shall have and
retain qualified management to administer the operations of East-West,
it being understood that East-West shall, as soon as practicable
following the effective date of this ORDER, begin a search for
qualified management to administer the operations of East-West.
East-West's Board of Directors shall take action to ensure that each
member of management is provided the necessary time and written
authority to implement the provisions of this ORDER.
(a) Each member of management shall have qualifications and
experience commensurate with his or her duties and responsibilities at
East-West. At a minimum, management shall include the following:
(i) a chief executive officer with proven ability in managing a
mortgage lender of comparable size and in effectively implementing
lending, investment, and operating policies in accordance with sound
lending practices; and
(ii) a compliance officer with significant appropriate experience
relevant to managing the operations of a mortgage lender of similar
size and complexity in accordance with sound lending practices.
(b) The qualifications and acceptability of management shall be
assessed on its ability to:
(i) comply with the requirements of this ORDER;
(ii) comply with applicable laws, rules and regulations, and regulatory
bulletins; and
(iii) restore all aspects of East-West to a satisfactory compliance
condition, including management effectiveness, implement revised
compliance programs and training procedures, and implement and monitor
all internal control procedures adopted pursuant to this ORDER.
(c) Prior to permitting the individuals identified pursuant to
paragraph 11(a) of this ORDER to perform in the designated capacity on
behalf of East-West, East-West shall submit such personnel selections
to the Commissioner for review of the qualifications and acceptability
of such individuals; and
(d) As long as this ORDER remains in effect, East-West shall notify the
Commissioner, in writing, at least 30 days prior to any proposed change
in the chief executive officer or compliance officer of East-West.
[.12] 12. Within 30 days of the effective date of this ORDER East-West's
Board of Directors shall cause to be made a review of all Massachusetts
residential mortgage loan applications since February 12, 2001 and
shall identify any mortgage loan transaction in which (i) East-West
either directly or indirectly through a mortgage broker in a brokered
loan transaction, provided a consumer with an initial disclosure
indicating that the interest rate for which the consumer had applied
had been locked, or provided any other mortgage loan commitment or
agreement guaranteeing a specified interest rate, or the consumer
otherwise exercised an interest rate lock option under any rate lock
correspondence provided either directly or indirectly by East-West
(said specified rate may be referred to hereinafter as the "Locked
Rate"), (ii) East-West charged or collected from the consumer any
fee or point in consideration of locking the interest rate in the
mortgage loan transaction, and (iii) the interest rate at which the
mortgage loan was closed was greater than the interest rate contained
in any of the documents identified in clause (i) of this paragraph 12,
through no fault of the consumer.
(a) In any instance in which each of the provisions set forth in
clauses (i), (ii), and (iii) of this paragraph 12 are satisfied,
East-West shall indemnify and reimburse the consumer, in full, for an
amount which is equal to the excess interest charges actually paid by
the consumer resulting from the application of a higher rate than the
Locked Rate, except that (1) with respect to loans that were
subsequently refinanced at a rate equal to or lower than the Locked
Rate or were refinanced at a rate higher than the Locked Rate with
another
{{7-31-04 p.C-6143}
lender prior to the effective date of this ORDER for any
purpose exclusive of a purpose to lower the interest rate, East-West's reimbursement
obligation with respect to such loan shall end at the date of such
refinance, and (2) East-West shall have the option to refinance
any and all such consumers at the respective Locked Rates, provided
that no points, fees or other costs are incurred by such consumers. Any
and all costs incurred by East-West in indemnifying and reimbursing any
consumer under this paragraph 12 of the ORDER, shall be borne by
East-West and shall not be charged to the consumer or otherwise
discounted from the indemnification and reimbursement required by this
paragraph 12 of the ORDER;
(b) In the case of each qualifying mortgage loan under paragraph 12 of
this ORDER, East-West shall send a letter to the applicable borrower
for the purpose of notifying such borrower of East-West's intent to
issue a lump sum reimbursement of excess interest previously paid by
the borrower and, as applicable, to notify the borrower of East-West's
continued obligations under the provisions of this ORDER relative to
the borrower's account, or to extend an offer to the borrower to
refinance the mortgage loan under the interest rate and terms required
by this ORDER. The forms of letters which East-West proposes to send to
such borrowers must be submitted to the Commissioner for approval
before the letters are sent.
(c) East-West shall maintain its books, records, and files in a manner
which will permit the Division's examiners to review the borrower
accounts identified under subparagraph 12(a) of this ORDER at any
subsequent examination of the Bank and which will clearly illustrate
how any indemnification or reimbursement of excess interest issued to
the borrower beyond 120 days after the effective date of this ORDER was
calculated.
(d) The review required by this paragraph 12 of the ORDER shall also
necessarily include and identify all transactions in which the
provisions set forth in clauses (i) and (ii) of this paragraph 12 were
satisfied, and in which the consumer either: (1) withdrew the mortgage
loan application after East-West failed to offer an extension of credit
under the terms previously disclosed by East-West as locked, or
otherwise guaranteed, or (2) East-West issued a denial of an extension
of credit at an interest rate equal to or higher than the terms
included in the applicable document identified in clause (i) of this
paragraph 12. In any qualifying transaction under the provisions of
this subsection, East-West shall reimburse the consumer, in full, for
any fees collected to lock the interest rate notwithstanding any terms
included in the rate lock agreement, or other document prepared by
East-West, which would otherwise render such fees nonrefundable;
(e) Within 60 days of the effective date of this ORDER, East-West's
Board of Directors shall submit to the Commissioner a list of all
borrowers identified pursuant to the above described review of
residential mortgage loan applications to whom a reimbursement is owed
by East-West in accordance with subparagraphs (a) and (d) of this
paragraph 12; and
(f) Within 120 days of the effective date of this ORDER, East-West's
Board of Directors shall submit to the Commissioner, evidence of the
reimbursements issued to consumers in accordance with subparagraphs (a)
and (d) of this paragraph 12. Such evidence shall include the
consumers' names, the date the application was submitted, the location
of the property, a copy of the rate lock agreement or similar
agreement, the relevant portion of the note disclosing the interest
rate at which the mortgage loan was closed, the relevant portion of the
refinanced Note or revised payment schedule as applicable, the check
numbers, the amount of the reimbursements, and sufficient evidence to
illustrate receipt of the reimbursements. It being understood that
indemnification and reimbursement of the excess interest, referenced in
subparagraph 12(a) of this ORDER, which is incurred by borrowers after
the effective date of this ORDER, may be made by East-West on an annual
basis and that evidence of such reimbursements need not be submitted to
the Commissioner within the timing provisions otherwise applicable
under this subparagraph 12(f).
[.13] 13. Within 30 days from the effective date of this ORDER, East-West
shall conduct a review of all consumer credit transactions
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originated
since February 12, 2001 in which the consumer has exercised a right of
rescission under Massachusetts law. Pursuant to such review, East-West
shall ensure the following:
(a) In any instance in which the amount returned to the consumer by
East-West after an exercise of the right of rescission was less than
the amount collected by East-West in the credit transaction, East-West
shall refund to the consumer the amount of such difference such that
the consumer receives a refund in full of all amounts paid to East-West
in the transaction. The requirements of this subsection shall also
necessarily apply to any consumer credit transaction in which the
consumer has exercised a right of rescission under applicable law or
regulation and for which, as of the effective date of this ORDER,
East-West has not yet refunded any portion of the amount paid by the
consumer in such transaction;
(b) Within 45 days of the effective date of this ORDER, East-West shall
submit to the Commissioner, evidence of the refunds issued to consumers
in accordance with paragraph 13(a). Such evidence shall include the
consumers' names, the date of consummation of the transaction, the
total amount received by East-West in the transaction, the amount, if
any, previously refunded to the consumer, the amount of the refunds
issued under this paragraph of the ORDER, the check numbers, and
sufficient evidence to illustrate receipt of the refunds; and
(c) Within 30 days of the effective date of this ORDER, East-West's
Board of Directors shall establish, implement, and maintain revised
procedures which ensure that East-West complies with applicable laws
and regulations governing transactions in which a consumer exercises a
right of rescission such that all amounts received from the borrower in
the transaction, are refunded to the borrower, in full, within the
timing requirements of the applicable law or regulation.
[.14] 14. East-West's Board of Directors shall cause to be made a review of
all mortgage notes secured by a first lien on a dwelling house of one
to three separate households in Massachusetts, occupied in whole or in
part by the mortgagor, which were originated by East-West on or after
February 12, 2001, identifying each mortgage note which contains a
prepayment penalty provision which exceeds the maximum terms permitted
for such provision as set forth by Massachusetts law. The requirements
of this paragraph shall necessarily apply to both home equity loans and
home equity lines of credit, secured by a first lien on a dwelling
house of one to three separate households in Massachusetts, occupied in
whole or in part by the mortgagor (a "qualifying mortgage loan"
under this paragraph).
(a) Within 30 days of the effective date of this ORDER, East-West
shall submit to the Commissioner a list of all borrowers identified
pursuant to the above described review of all qualifying mortgage
loans. Upon review and approval from the Commissioner, East-West shall
take applicable actions set forth by the following provisions of this
paragraph within the relevant time periods.
(b) East-West shall within 30 days of the effective date of this ORDER
establish, implement, and maintain revised procedures to ensure that in
any transaction originated after the effective date of this ORDER in
which such a provision is to be included, East-West shall provide the
consumer with a prepayment penalty disclosure in accordance with, and
within the timing provisions set forth by the Division's regulation
209 CMR 32.00 et seq. If a prepayment penalty obligation is
to be included on a qualifying mortgage loan, the prepayment penalty
disclosure shall clearly describe the circumstances under which the
provision would be triggered and shall include only such terms as are
within the limitations set forth by Massachusetts law;
(c) East-West shall amend the terms and conditions of all qualifying
mortgage loans that East-West either owns, or with respect to which it
retains servicing or other rights, sufficient to change the prepayment
penalty provisions of such qualifying loans, provided that the loan
remains outstanding as of the effective date of this ORDER.
Notwithstanding the terms and conditions included in the qualifying
mortgage loan agreements, East-West shall provide that such a provision
will not cause the borrower to pay any amount in excess of the
limitations, nor beyond the permissible time periods set forth by
Massachusetts law. Within 30 days of receiving approval from the
Commissioner, East-West
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shall notify the applicable borrowers, in
writing, of such changes to the prepayment terms of the borrower's
loan(s);
(d) In any instance in which a qualifying mortgage loan originated by
East-West after February 12, 2001 was (i) prepaid either in part of in
full prior to the effective date of this ORDER, and (ii) the borrower
was charged an amount in excess of the limitations set forth by
Massachusetts law, East-West shall refund to the borrower the amount so
collected in excess of the applicable limitations;
(e) Within 30 days of receiving approval from the Commissioner,
East-West shall submit to the Commissioner evidence of the
reimbursements issued to consumers in accordance with paragraph 14(d)
of this ORDER. Such evidence shall include the consumers' names, the
date the application was submitted, the check numbers, the amount of
the reimbursements, and sufficient evidence to illustrate receipt of
the reimbursements;
(f) For all qualifying mortgage loans originated by East-West on
or after February 12, 2001 and before the effective date of this ORDER
that (i) remain outstanding and (ii) are not, as of the effective date
of this ORDER, within East-West's ownership or control sufficient to
change the prepayment penalty terms, East-West shall provide full
reimbursement of the amount of the prepayment penalty charged to
borrowers who incur a prepayment penalty in excess of the limitation or
beyond the permissible time period for such penalty under Massachusetts
law. Within 30 days of receiving approval from the Commissioner,
East-West shall notify all affected borrowers, in a form acceptable to
the Commissioner, of the borrower's right to receive such
reimbursement from East-West.
[.15] 15. Within 60 days of the effective date of this ORDER, East-West shall
have and retain, with approval from the Board of Directors of the Bank,
qualified personnel to administer East-West's consumer complaint
processing, investigation, and resolution functions. The Board of
Directors of East-West shall take action to ensure that such personnel
are provided the necessary time and written authority to implement the
provisions of this paragraph of the ORDER.
(a) East-West shall establish, implement, and maintain written
policies and procedures to ensure that an effective consumer complaint
resolution function is maintained and operated which addresses matters,
including but not limited to, internal controls, timeliness and
adequacy of responses, compliance with applicable federal and state
laws, regulations, and regulatory bulletins, and with the provisions of
this ORDER;
(b) East-West shall designate personnel to perform in the capacity of
an ombudsman relative to any future request from the Division to
produce any of East-West's books, records, accounts, or other
relevant, supporting documentation as the Division may require in
processing and administering any consumer complaint submitted to the
Division about East-West. Such personnel shall be responsible for the
timeliness, the accuracy and adequacy of East-West's response to the
Division's production request.
(c) With East-West's written response to the Division's Report,
submitted to the Division pursuant to paragraph 21 of this ORDER,
East-West shall notify the Commissioner in writing, of the personnel
designated to satisfy this paragraph of the ORDER. The written response
to the Commissioner shall indicate the individual(s) name, title,
business address, business telephone number, business facsimile number,
and business email address. East-West shall also notify the
Commissioner, in writing, if East-West seeks to change the employee(s)
designated in accordance with this subparagraph;
(d) East-West shall adopt and implement procedures designed to ensure
that within the time that this ORDER is in effect, East-West shall
restore its rating assigned by the Better Business Bureau serving
Central Massachusetts (the "BBB") to a level of
"satisfactory", it being understood that whether such rating is
actually restored is not within the control of East-West. East-West
shall contact the BBB and thereafter take action to resolve any
consumer complaints referenced on page 4 of the Division's Report
which remain pending, in addition to any other consumer complaints
which are designated by the BBB as currently pending, as of the
effective date of this ORDER. With the written progress reports to be
submitted to the Commissioner under paragraph 22 of this
{{7-31-04 p.C-6146}
ORDER, East-West shall provide a description of all such
complaints which have either been closed during the preceding calendar
quarter or which remain pending as of the date of East-West's submission
of the written progress report to the Commissioner; and
(e) East-West shall take action to ensure that all applicable staff
receives sufficient training to ensure compliance with the consumer
complaint policies and procedures implemented by East-West in
accordance with this ORDER.
[.16] 16. Within 60 days from the effective date of this ORDER, East-West's
Board of Directors shall revise, adopt, and implement written policies
and procedures to provide effective guidance and control over
East-West's consumer compliance function and corresponding internal
control standards. The revised policies and procedures shall include,
at a minimum, revisions to address and correct all violations and areas
of concern cited in the Division's Report, including, but not limited
to, the Division's findings pertaining to sales and marketing
practices, loan processing procedures, form completion, and loan
pricing policies. The revised policies and procedures shall also
require that East-West's Board of Directors supervise and oversee
East-West's consumer compliance program and its Compliance Officer to
ensure that East-West complies with the standards set forth therein.
[.17] 17. Within 60 days from the effective date of this ORDER, East-West
shall establish, implement, and maintain written policies and
procedures to ensure that it maintains all books, records, and accounts
in accordance with the requirements of Massachusetts General Laws
chapter 167, section 6. The policies and procedures are to include but
are not limited to:
(a) Providing that East-West conducts on-going, periodic reviews of
document filing and retention procedures, and its compliance thereto,
to ensure its books, records, and accounts are maintained in a manner
sufficient to evidence compliance with applicable federal and state
laws, rules and regulations, and regulatory bulletins;
(b) Implementing procedures to ensure the full cooperation of all
East-West employees with the Division and the FDIC during all future
examinations of East-West which shall necessarily provide for complete
and timely access to its books, records, accounts, and any other
additional, relevant materials pursuant to the provisions of
Massachusetts General Laws chapter 167, section 2; and
(c) Providing that all applicable staff of East-West with form
completion and/or document filing and retention responsibilities,
receive adequate training to ensure proper implementation and execution
of the revised policies and procedures adopted by East-West under this
paragraph.
[.18] 18. East-West's Board of Directors shall review the origination,
processing, and underwriting functions of East-West to address and
correct the matters identified by the Division and detailed in the
Division's Report on pages 3-5, inclusive. Pursuant to such review,
the Board of Directors shall adopt and implement revised procedures to
ensure that East-West provides consumers with new, accurate disclosures
when required in accordance with applicable provisions of the
Division's regulation 209 CMR 32.00 et seq.by the
occurrence of subsequent events which render prior disclosures
inaccurate. Also, the Board of Directors shall adopt and implement
revised procedures to ensure that East-West complies with the
requirements of Massachusetts General Laws chapter 184, section 17D(d)
and (e) relative to both the notice and timing provisions of the
statute. The Board of Directors shall establish a system of internal
controls to further address the remaining matters identified by the
Division on pages 3-5 of the Division's Report and to monitor
East-West's compliance with the revised procedures adopted pursuant to
this paragraph.
[.19] 19. (a) East-West shall review its origination and processing functions
to address and correct the matters identified by the Division and
detailed in the Division's Report on page 14, and pages 16-24,
inclusive, relative to East-West's disclosure of all fees and premiums
charged and collected as compensation by East-West in a mortgage loan
transaction in Massachusetts, as well as all third party
mortgage-related fees collected from consumers to be paid by East-West,
on the consumer's behalf;
(b) Pursuant to the above review, East-West shall adopt and
implement revised procedures to ensure that East-West provides each
consumer with accurate disclosures which (i) are completed in good
faith to reflect as much information as is available at the time the
disclosure must be
{{7-31-04 p.C-6147}
provided, (ii) when required to be disclosed on
multiple disclosures in the mortgage loan transaction, disclose to the
consumer through consistent terminology and amounts throughout the
mortgage loan transaction the costs and fees collected in the
processing and origination of the mortgage loan, (iii) when permitted
to be disclosed as a range of charges by an applicable law, rule or
regulation, disclose such fee or premium within a range that reflects a
reasonable relationship to the charge the consumer will likely incur at
the settlement of the mortgage loan in the applicable transaction, and
(iv) are reflective of East-West's experience in residential mortgage
loan transactions in Massachusetts; and
(c) East-West shall establish a system of internal controls to monitor
its compliance with the revised procedures adopted pursuant to this
paragraph.
[.20] 20. Within 60 days of the effective date of this ORDER, East-West's
Board of Directors shall submit to the Commissioner acceptable, revised
written policies and procedures which shall govern East-West's
operating procedures and compensation practices applicable to account
executives, branch managers, mortgage loan originators, processors, and
underwriters. The policies and procedures shall, at a minimum, consider
and ensure that:
(a) Written standards are established, implemented, and maintained
to monitor the compliance of all loan originators, processors,
underwriters, and other applicable staff with the revised written
policies and procedures required under paragraph 16 of this ORDER. Such
standards shall further set forth the procedures that East-West shall
maintain to monitor and control the extent and conditions under which a
loan officer, processor, or underwriter may set or effect the mortgage
loan interest rates to be offered to consumers;
(b) East-West, after review by its Board of Directors, adopts,
implements, and monitors a system of written procedures which sets
forth East-West's interest rate lock commitment practices. The written
procedures shall consider and address, at a minimum, (i) the content
and timing of applicable consumer disclosures, (ii) internal procedures
applicable to the processing and review of all interest rate lock
commitment requests, or similar requests, from consumers, (iii)
internal standards governing who shall be authorized to obtain or
approve an interest rate lock commitment, or similar agreement, on
behalf of East-West, (iv) effective and prompt consumer dispute
resolution guidelines, and (v) the supervision of all applicable staff
to monitor and maintain compliance with the written procedures adopted
pursuant to this paragraph 20;
(c) The written procedures adopted pursuant to subparagraphs (a) and
(b) above, are sufficiently tailored to expressly remove any financial
gain or incentive to the loan originator, processor, underwriter, or
other applicable staff to delay the submission, acceptance, processing,
or execution of a request from a consumer to lock a mortgage loan
interest rate with or through East-West;
(d) All employees of East-West described in this paragraph 20, and any
other applicable staff, receive adequate training to ensure proper
implementation and execution of the revised operating procedures and
compensation practices and to require that all applicable employees
receive training on the terms of, and compliance with, the provisions
of this ORDER; and
(e) A system of internal controls is established to monitor
East-West's continued compliance with the revised operating procedures
and compensation practices.
21. Within 90 days of the effective date of this ORDER, East-West
shall submit to the Commissioner and the Regional Director a written
response which has been signed and approved by a majority of the
members of East-West's Board of Directors and which shall be entered
in the minutes of the proceedings at the next scheduled meeting of
East-West's Board of Directors. The written response shall address
each of the alleged violations and areas of concern specified in the
Division's Report. The written response shall describe the revised
policies and procedures adopted by East-West's Board of Directors in
accordance with paragraph 16 of this ORDER to implement all corrective
actions set forth in the "Examiner's Comments and Conclusions"
section of the Division's Report.
(a) East-West's Board of Directors shall establish, implement, and
maintain internal
{{7-31-04 p.C-6148}
review standards to monitor East-West's compliance
with (i) the revised policies and procedures implemented pursuant to
this paragraph 21, (ii) the provisions of this ORDER, and (iii) the
relevant statutes, rules and regulations, and Regulatory Bulletins
applicable to residential mortgage loan transactions in Massachusetts.
Such procedures and policies shall be designed to prevent the
recurrence of the violations and areas of concern addressed in the
Division's Report; and
(b) East-West's Board of Directors shall establish, implement, and
maintain procedures and policies to ensure that all applicable staff
receives adequate instruction and ongoing, periodic training to ensure
proper implementation and execution of the revised practices and
procedures implemented pursuant to this ORDER.
22. On the thirtieth (30th) day after the end of each calendar
quarter following the date of this ORDER, beginning with the calendar
quarter ending June 30, 2004, East-West shall furnish a written
progress report to the Commissioner and the Regional Director, which
has been approved by East-West's Board of Directors and which shall be
entered in the minutes of the proceedings at the next scheduled meeting
of East-West's Board of Directors. The progress reports shall address
and include the following:
(a) A description of the form, content, and manner of any actions
taken to address each paragraph of this ORDER applicable to East-West,
and the results thereof;
(b) Written findings prepared by East-West's Board of Directors
detailing a review of management's and staff's adherence to the
policies, programs, and procedures adopted pursuant to this ORDER and
to applicable statutes, regulations, and rules, as well as a
description of any operational changes or initiatives implemented
during such quarter which are intended to improve East-West's
compliance condition in Massachusetts and the results thereof;
(c) All actions taken by East-West's Board of Directors pursuant to
this ORDER and the content of the written progress reports required by
this paragraph 22, shall be duly entered in the minutes of the
proceedings of the next regularly scheduled meeting; and
(d) The reporting requirement to the Commissioner and the Regional
Director contained in this paragraph 22 shall remain in effect and
shall not be amended or rescinded without the prior written
modification, termination, or suspension of the applicable provision of
this ORDER from the Commissioner and the Regional Director.
General Provisions
[.21] 23. Following the effective date of this ORDER, the Bank shall send to
its shareholders or otherwise furnish a description of this ORDER in
conjunction with the Bank's next shareholder communication and also 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, statement or notice shall be sent to both the FDIC,
Accounting and Securities Section, Washington, D.C. 20429, and the
Division, at least 15 days prior to dissemination to shareholders. Any
changes requested to be made by either the FDIC or the Division shall
be made prior to dissemination of the description, communication,
notice, or statement.
[.22] 24. Within 30 days of the end of the first calendar quarter following
the effective date of this ORDER, and within 30 days of the end of each
calendar quarter thereafter, the Bank shall furnish written progress
reports to the Regional Director and the Commissioner 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 and the Commissioner have released the Bank in
writing from making further reports. A copy of each such report shall
be incorporated into the Bank's Board of Directors' minutes.
25. Notwithstanding any term of this ORDER to the contrary, the
Commissioner and the Regional Director may, in their discretion, issue
a written extension of time to the Bank, East-West, and/or to other
persons subject to this ORDER, to comply with any requirements of this
ORDER.
26. Nothing in this ORDER shall be construed as permitting the Bank or
East-West to violate any law, rule, regulation, or regulatory
{{7-31-04 p.C-6149}
bulletin to which the Bank or East-West is subject.
27. In consideration of the foregoing ORDER, the Commissioner agrees
not to pursue any further formal measures against the Bank, East-West,
or any of their officers and directors, or their successors or assigns
relative to this matter.
This ORDER shall become effective immediately.
The provisions of this ORDER shall be binding upon the Bank, East-West,
and their directors, officers, employees, agents, and other
institution-affiliated parties, and their successors and assigns.
The provisions of the 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 Commissioner and the FDIC.
This ORDER does not relieve the Bank, East-West, their respective
Boards of Directors, or any of their respective officers, employees,
agents, or their successors and assigns of any responsibilities or
obligations such parties may have to comply with other actions or
agreements entered by or with the Commissioner or Regional Director.
Pursuant to delegated authority.
Dated: May 26, 2004.