Q: What constitutes a “pattern or practice” of violations for which civil money penalties must be imposed under the Act?
A: The Act does not define “pattern or practice.” The Agencies make a determination of whether a pattern or practice exists by weighing the individual facts and circumstances of each case. In making the determination, the Agencies look both to guidance and experience with determinations of pattern or practice under other regulations (such as Regulation B (Equal Credit Opportunity) and Regulation Z (Truth in Lending)), as well as Agencies’ precedents in assessing civil money penalties for flood insurance violations.
The Policy Statement on Discrimination in Lending (Policy Statement) provided the following guidance on what constitutes a pattern or practice:
Isolated, unrelated, or accidental occurrences will not constitute a pattern or practice. However, repeated, intentional, regular, usual, deliberate, or institutionalized practices will almost always constitute a pattern or practice. The totality of the circumstances must be considered when assessing whether a pattern or practice is present.
In determining whether a financial institution has engaged in a pattern or practice of flood insurance violations, the Agencies’ considerations may include, but are not limited to, the presence of one or more of the following factors:
Whether the conduct resulted from a common cause or source within the financial institution’s control;
Whether the conduct appears to be grounded in a written or unwritten policy or established practice;
Whether the noncompliance occurred over an extended period of time;
The relationship of the instances of noncompliance to one another (for example, whether the instances of noncompliance occurred in the same area of a financial institution’s operations);
Whether the number of instances of noncompliance is significant relative to the total number of applicable transactions. (Depending on the circumstances, however, violations that involve only a small percentage of an institution’s total activity could constitute a pattern or practice);
Whether a financial institution was cited for violations of the Act and Regulation at prior examinations and the steps taken by the financial institution to correct the identified deficiencies;
Whether a financial institution’s internal and/or external audit process had not identified and addressed deficiencies in its flood insurance compliance; and
Whether the financial institution lacks generally effective flood insurance compliance policies and procedures and/or a training program for its employees.
Although these guidelines and considerations are not dispositive of a final resolution, they do serve as a reference point in assessing whether there may be a pattern or practice of violations of the Act and Regulation in a particular case. As previously stated, the presence or absence of one or more of these considerations may not eliminate a finding that a pattern or practice exists.
– This Q&A was included in the “Interagency Questions and Answers Regarding Flood Insurance.” For ease of collection, this has been obtained from the FDIC’s Compliance Examination Manual – April 2016, which may be found here: https://fdic.gov/regulations/compliance/manual/5/V-6.1.pdf