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FDIC Enforcement Decisions and Orders |
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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 OrderFDIC Authority
[.2] Cease and Desist OrderAffirmative ActionReimbursement
[.3] Cease and Desist OrderAffirmative ActionPurpose
[.4] Cease and Desist OrderDefensesCessation of Violation
In the Matter of * * * and * * *, as the
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:
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:
[.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).
[.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.
[.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).
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.
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:
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 226.1Authority, Scope, Purpose, etc.
SECTION 226.2Definitions and Rules of Construction
SECTION 226.3Exempted Transactions
SECTION 226.4Determination of Finance Charge
SECTION 226.5Determination of Annual Percentage Rate
SECTION 226.6General Disclosure Requirements
SECTION 226.7Open-End Credit Accounts; Specific Disclosures
SECTION 226.8Credit Other Than Open End; Specific Disclosures
SECTION 226.9Right to Rescind Certain Transactions
SECTION 226.10Advertising Credit and Lease Terms
SECTION 226.11Comparative Index of Credit Cost for Open-End Credit
SECTION 226.12Exemption of Certain State-Regulated Transactions
SECTION 226.13Credit Card Transactions; Special Requirements
SECTION 226.14Billing Errors; Resolution Procedure
SECTION 226.15Consumer Leasing
DECISION AND ORDER TO CEASE
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.
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:
/s/ Hoyle L. Robinson
RECOMMENDED DECISION FDIC 80-51b
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
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.
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)
CONCLUSIONS OF LAW
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:
/s/ Charles C. Moore, Jr.
ORDER TERMINATING THE ORDER
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.
/s/ J.V. Prohaska |
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Last Updated 6/6/2003 | legal@fdic.gov |