60-Day Federal Register Notice

Federal Register / Vol. 81, No. 215 / Monday, November 7, 2016 / Proposed Rules
the NRC’s public Web site at: http://
meetings.nrc.gov/pmns/mtg.
Participants must register at the Internet
link in the meeting notice to participate
in the Webinar.
Additional details regarding the
meeting will be posted at least 10 days
prior to the public meeting on the NRC’s
public meeting Web site at: http://
meetings.nrc.gov/pmns/mtg.
Dated at Rockville, Maryland, this 31st day
of October 2016.
For the Nuclear Regulatory Commission.
Louise Lund,
Director, Division of Policy and Rulemaking,
Office of Nuclear Reactor Regulation.
[FR Doc. 2016–26825 Filed 11–4–16; 8:45 am]
BILLING CODE 7590–01–P

DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 22
[Docket ID OCC–2016–0005]
RIN 1557–AD67

FEDERAL RESERVE SYSTEM
12 CFR Part 208
[Docket No. R–1549]
RIN 7100–AE60

FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 339
RIN 3064–AE50

FARM CREDIT ADMINISTRATION
12 CFR Part 614
RIN 3052–AD11

NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 760
RIN 3133–AE64

Loans in Areas Having Special Flood
Hazards—Private Flood Insurance
Office of the Comptroller of the
Currency; Board of Governors of the
Federal Reserve System; Federal Deposit
Insurance Corporation; Farm Credit
Administration; National Credit Union
Administration.
ACTION: Joint notice of proposed
rulemaking.

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AGENCY:

The Office of the Comptroller
of the Currency (OCC), the Board of

SUMMARY:

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Governors of the Federal Reserve
System (Board), the Federal Deposit
Insurance Corporation (FDIC), the Farm
Credit Administration (FCA), and the
National Credit Union Administration
(NCUA) are issuing a new proposal to
amend their regulations regarding loans
in areas having special flood hazards to
implement the private flood insurance
provisions of the Biggert-Waters Flood
Insurance Reform Act of 2012 (BiggertWaters Act). Specifically, the proposed
rule would require regulated lending
institutions to accept policies that meet
the statutory definition of private flood
insurance in the Biggert-Waters Act and
permit regulated lending institutions to
accept flood insurance provided by
private insurers that does not meet the
statutory definition of ‘‘private flood
insurance’’ on a discretionary basis,
subject to certain restrictions.
DATES: Comments must be received on
or before January 6, 2017.
ADDRESSES: OCC: Because paper mail in
the Washington, DC area and at the OCC
is subject to delay, commenters are
encouraged to submit comments
through the Federal eRulemaking Portal
or email, if possible. Please use the title
‘‘Loans in Areas Having Special Flood
Hazards—Private Flood Insurance’’ to
facilitate the organization and
distribution of the comments. You may
submit comments by any of the
following methods:
• Federal eRulemaking Portal—
‘‘Regulations.gov’’: Go to
www.regulations.gov. Enter ‘‘Docket ID
OCC–2016–0005’’ in the Search Box and
click ‘‘Search.’’ Click on ‘‘Comment
Now’’ to submit public comments.
• Click on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov,
including instructions for submitting
public comments.
• Email: regs.comments@
occ.treas.gov.
• Mail: Legislative and Regulatory
Activities Division, Office of the
Comptroller of the Currency, 400 7th
Street SW., Suite 3E–218, Mail Stop
9W–11, Washington, DC 20219.
• Hand Delivery/Courier: 400 7th
Street SW., Suite 3E–218, Mail Stop
9W–11, Washington, DC 20219.
• Fax: (571) 465–4326.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2016–0005’’ in your comment.
In general, the OCC will enter all
comments received into the docket and
publish them on the Regulations.gov
Web site without change, including any
business or personal information that
you provide such as name and address
information, email addresses, or phone

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numbers. Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
include any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
rulemaking action by any of the
following methods:
• Viewing Comments Electronically:
Go to www.regulations.gov. Enter
‘‘Docket ID OCC–2016–0005’’ in the
Search box and click ‘‘Search.’’ Click on
‘‘Open Docket Folder’’ on the right side
of the screen and then ‘‘Comments.’’
Comments can be filtered by clicking on
‘‘View All’’ and then using the filtering
tools on the left side of the screen.
• Click on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov.
Supporting materials may be viewed by
clicking on ‘‘Open Docket Folder’’ and
then clicking on ‘‘Supporting
Documents.’’ The docket may be viewed
after the close of the comment period in
the same manner as during the comment
period.
• Viewing Comments Personally: You
may personally inspect and photocopy
comments at the OCC, 400 7th Street
SW., Washington, DC 20219. For
security reasons, the OCC requires that
visitors make an appointment to inspect
comments. You may do so by calling
(202) 649–6700 or, for persons who are
deaf or hard of hearing, TTY, (202) 649–
5597. Upon arrival, visitors will be
required to present valid governmentissued photo identification and submit
to security screening in order to inspect
and photocopy comments.
Board: You may submit comments,
identified by Docket No. R–1549 or RIN
7100 AE 60, by any of the following
methods:
• Agency Web site: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email: regs.comments@
federalreserve.gov. Include the docket
number in the subject line of the
message.
• Fax: (202) 452–3819 or (202) 452–
3102.
• Mail: Address to Robert deV.
Frierson, Secretary, Board of Governors
of the Federal Reserve System, 20th
Street and Constitution Avenue NW.,
Washington, DC 20551.

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Federal Register / Vol. 81, No. 215 / Monday, November 7, 2016 / Proposed Rules

All public comments will be made
available on the Board’s Web site at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical
reasons. Accordingly, comments will
not be edited to remove any identifying
or contact information. Public
comments may also be viewed
electronically or in paper in Room MP–
500 of the Board’s Martin Building (20th
and C Streets NW.) between 9:00 a.m.
and 5:00 p.m. on weekdays.
FDIC: You may submit comments by
any of the following methods:
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Agency Web site: http://
www.fdic.gov/regulations/laws/federal/
propose.html.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments/Legal
ESS, Federal Deposit Insurance
Corporation, 550 17th Street NW.,
Washington, DC 20429.
• Hand Delivered/Courier: The guard
station at the rear of the 550 17th Street
Building (located on F Street), on
business days between 7:00 a.m. and
5:00 p.m.
• Email: [email protected].
Comments submitted must include
‘‘FDIC’’ and ‘‘Loans in Areas Having
Special Flood Hazards—Private Flood
Insurance.’’ Comments received will be
posted without change to http://
www.fdic.gov/regulations/laws/federal/
propose.html, including any personal
information provided.
FCA: We offer a variety of methods for
you to submit your comments. For
accuracy and efficiency reasons,
commenters are encouraged to submit
comments by email or through the
FCA’s Web site. As facsimiles (fax) are
difficult for us to process and achieve
compliance with section 508 of the
Rehabilitation Act, we are no longer
accepting comments submitted by fax.
Regardless of the method you use,
please do not submit your comments
multiple times via different methods.
You may submit comments by any of
the following methods:
• Email: Send us an email at [email protected].
• Agency Web site: http://
www.fca.gov. Select ‘‘Law &
Regulations,’’ then ‘‘FCA Regulations,’’
then ‘‘Public Comments,’’ and follow
the directions for ‘‘Submitting a
Comment.’’
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail: Barry F. Mardock, Deputy
Director, Office of Regulatory Policy,

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Farm Credit Administration, 1501 Farm
Credit Drive, McLean, VA 22102–5090.
You may review copies of all
comments we receive at our office in
McLean, Virginia or on our Web site at
http://www.fca.gov. Once you are in the
Web site, select ‘‘Law & Regulations,’’
then ‘‘FCA Regulations,’’ then ‘‘Public
Comments,’’ and follow the directions
for ‘‘Reading Submitted Public
Comments.’’ We will show your
comments as submitted, including any
supporting data provided, but for
technical reasons we may omit items
such as logos and special characters.
Identifying information that you
provide, such as phone numbers and
addresses, will be publicly available.
However, we will attempt to remove
email addresses to help reduce Internet
spam.
NCUA: You may submit comments,
identified by RIN 3133–AE64 by any of
the following methods (Please send
comments by one method only):
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Agency Web site: http://
www.ncua.gov. Follow the instructions
for submitting comments.
• Email: Address to regcomments@
ncua.gov. Include [Your name]
Comments on ‘‘Loans in Areas Having
Special Flood Hazards—Private Flood
Insurance’’ in the email subject line.
• Fax: (703) 518–6319. Use the
subject line described above for email.
• Mail: Address to Gerard S. Poliquin,
Secretary of the Board, National Credit
Union Administration, 1775 Duke
Street, Alexandria, VA 22314–3428.
• Hand Delivery/Courier: Same as
mail address.
• All public comments are available
on the agency’s Web site at http://
www.ncua.gov/Legal/Regs/Pages/
PropRegs.aspx as submitted, except
when not possible for technical reasons.
Public comments will not be edited to
remove any identifying or contact
information. Paper copies of comments
may be inspected in NCUA’s law library
at 1775 Duke Street, Alexandria, VA
22314, by appointment weekdays
between 9:00 a.m. and 3:00 p.m. To
make an appointment, call (703) 518–
6546 or send an email to OGCMail@
ncua.gov.
FOR FURTHER INFORMATION CONTACT:

OCC: Rhonda L. Daniels, Compliance
Specialist, Compliance Policy Division,
(202) 649–5405; Margaret C. Hesse,
Senior Counsel, Community and
Consumer Law Division, (202) 649–
6350; or Heidi M. Thomas, Special
Counsel, or Melissa Lisenbee, Attorney,
Legislative and Regulatory Activities

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Division, (202) 649–5490, or, for persons
who are deaf or hard of hearing, TTY,
(202) 649–5597.
Board: Lanette Meister, Senior
Supervisory Consumer Financial
Services Analyst (202) 452–2705; Vivian
W. Wong, Senior Counsel (202) 452–
3667, Division of Consumer and
Community Affairs; or Daniel Ericson,
Counsel (202) 452–3359, Legal Division;
for users of Telecommunications Device
for the Deaf (TDD) only, contact (202)
263–4869.
FDIC: Navid Choudhury, Counsel,
Consumer Compliance Unit, Legal
Division, (202) 898–6526; or John
Jackwood, Senior Policy Analyst,
Division of Depositor and Consumer
Protection, (202) 898–3991.
FCA: Paul K. Gibbs, Associate
Director, Office of Regulatory Policy
(703) 883–4203, TTY (703) 883–4056; or
Mary Alice Donner, Senior Counsel,
Office of General Counsel (703) 883–
4020, TTY (703) 883–4056.
NCUA: Sarah Chung, Staff Attorney,
Office of General Counsel, (703) 518–
6540, or Judy Graham, Program Officer,
Office of Examination and Insurance,
(703) 518–6392.
SUPPLEMENTARY INFORMATION:
I. Background
A. Flood Insurance Statutes
The National Flood Insurance Act of
1968 (1968 Act) 1 and the Flood Disaster
Protection Act of 1973 (FDPA),2 as
amended, (collectively referenced
herein as the Federal flood insurance
statutes) govern the National Flood
Insurance Program (NFIP).3 These laws
make Federally subsidized flood
insurance available to owners of
improved real estate or mobile homes
located in participating communities
and require the purchase of flood
insurance in connection with a loan
made by a regulated lending
institution 4 when the loan is secured by
improved real estate or a mobile home
located in special flood hazard areas
(SFHA) in which flood insurance is
available under the NFIP.5 The OCC,
1 Public

Law 90–448, 82 Stat. 572 (1968).
Law 93–234, 87 Stat. 975 (1973).
3 These statutes are codified at 42 U.S.C. 4001–
4129. The Federal Emergency Management Agency
(FEMA) administers the NFIP; its regulations
implementing the NFIP appear at 44 CFR parts 59–
77.
4 The FDPA defines ‘‘regulated lending
institution’’ to mean any bank, savings and loan
association, credit union, farm credit bank, Federal
land bank association, production credit
association, or similar institution subject to the
supervision of a Federal entity for lending
regulation. 42 U.S.C. 4003(a)(1).
5 An SFHA is an area within a flood plain having
a one percent or greater chance of flood occurrence
in any given year. 44 CFR 59.1. SFHAs are
2 Public

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Federal Register / Vol. 81, No. 215 / Monday, November 7, 2016 / Proposed Rules
Board, FDIC, FCA, and NCUA
(collectively, the Agencies) each have
issued regulations implementing these
statutory requirements for the lending
institutions they supervise.6 The
Biggert-Waters Act 7 amended the NFIP
requirements that the Agencies have
authority to implement and enforce.
Among other things, the Biggert-Waters
Act: (1) Required the Agencies to issue
a rule regarding the escrow of premiums
and fees for flood insurance; 8 (2)
clarified the requirement to force place
insurance; 9 and (3) required the
Agencies to issue a rule to direct
regulated lending institutions to accept
‘‘private flood insurance,’’ as defined by
the Biggert-Waters Act, and to notify
borrowers of the availability of private
flood insurance.10

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B. Regulatory History
In October 2013, the Agencies jointly
issued proposed rules to implement the
escrow, force placement, and private
flood insurance provisions of the
Biggert-Waters Act (the October 2013
Proposed Rule).11 In March 2014, the
Homeowner Flood Insurance
Affordability Act (HFIAA) 12 was
enacted, which, among other things,
amended the Biggert-Waters Act
requirements regarding the escrow of
flood insurance premiums and fees and
created a new exemption from the
mandatory flood insurance purchase
requirements for certain detached
structures. Accordingly, the Agencies
jointly issued a new proposed rule in
October 2014 to implement the new
escrow and detached structure
provisions.13 In July 2015, the Agencies
jointly issued final rules to implement
the escrow and detached structure
provisions of HFIAA and the forceplaced flood insurance provisions of the
Biggert-Waters Act.14 Based on
comments received in response to the
delineated on maps issued by the FEMA for
individual communities. 44 CFR part 65. A
community establishes its eligibility to participate
in the NFIP by adopting and enforcing flood plain
management measures that regulate new
construction and by making substantial
improvements within its SFHAs to eliminate or
minimize future flood damage. 44 CFR part 60.
6 See 12 CFR part 22 (OCC), part 208 (Board), part
339 (FDIC), part 614 (FCA), and part 760 (NCUA).
7 Public Law 112–141, 126 Stat. 916 (2012).
8 Section 100209 of the Biggert-Waters Act,
amending section 102(d) of the FDPA (42 U.S.C.
4012a(d)).
9 Section 100244 of the Act, amending section
102(e) of the FDPA (42 U.S.C. 4012a(e)).
10 Section 100239 of the Biggert-Waters Act,
amending section 102(b) of the FDPA (42 U.S.C.
4012a(b)) and section 1364(a)(3)(C) of the 1968 Act
(42 U.S.C. 4104a(a)(3)(C)).
11 78 FR 65108 (Oct. 30, 2013).
12 Public Law 113–89, 128 Stat. 1020 (2014).
13 79 FR 64518 (Oct. 30, 2014).
14 80 FR 43216 (July 21, 2015).

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October 2013 Proposed Rule, and the
statutory effective date for the escrow
provisions, the Agencies decided to
finalize the escrow and force-placed
insurance provisions and to revise and
re-propose the private flood insurance
provisions.
The October 2013 Proposed Rule
would have required a regulated lending
institution to accept all coverage
meeting the statutory definition of
‘‘private flood insurance’’ in the BiggertWaters Act. The Agencies requested
comment on various issues related to
this requirement. In particular, the
Agencies sought comment on the
inclusion of a safe harbor that would
allow lenders to rely on the expertise of
State insurance regulators to determine
whether a policy meets the definition of
private flood insurance and must be
accepted by a lender. Additionally, the
Agencies asked whether the rule should
include a provision expressly permitting
regulated lending institutions to accept,
at their discretion, flood insurance
provided by private insurers that does
not meet the Biggert-Waters Act’s
definition of private flood insurance
(discretionary acceptance). The
Agencies also solicited comment on
what criteria the Agencies might require
for such a policy.
The Agencies received 81 written
comments on the October 2013
Proposed Rule, including 51 comments
addressing some aspect of private flood
insurance. These commenters addressed
specific issues, such as: The regulatory
definition of ‘‘private flood insurance,’’
the use of a regulatory safe harbor to
facilitate compliance by regulated
lending institutions, whether private
flood insurance that does not conform to
the statutory definition of the term
should be accepted by regulated lending
institutions, whether alternative criteria
for such non-conforming private flood
insurance should be developed by the
Agencies, and whether regulated
lending institutions should be permitted
to accept certain non-traditional, nonconforming flood insurance coverage,
such as Amish Aid plans.
This proposal addresses the private
flood insurance provisions of the
Biggert-Waters Act.15 The preamble
discusses comments received in
response to the October 2013 Proposed
Rule, as appropriate, in the section-by
section analysis, below.
15 In connection with the issuance of this
proposal, the Agencies have coordinated and
consulted with the Federal Financial Institutions
Examination Council (FFIEC), as required by certain
provisions of the flood insurance statutes. See 42
U.S.C. 4012a(b)(1). Four of the five Agencies (OCC,
Board, FDIC, and NCUA) are members of the FFIEC.

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II. Section-by-Section Analysis
A. Definitions
Mutual aid society. As discussed
below, the Agencies are proposing a
provision that would permit regulated
lending institutions to accept, at their
discretion and under certain
circumstances, a flood insurance policy
issued by a private insurer that does not
meet the definition of ‘‘private flood
insurance’’ in the Biggert-Waters Act.
This provision includes specific
standards for the acceptance of flood
policies issued by mutual aid societies.
In connection with this provision, the
Agencies are proposing to add a
definition of ‘‘mutual aid society’’ to
their rules. Under the proposed
definition, to qualify as a mutual aid
society, an organization would need to
meet three criteria: (1) The members
must share a common religious,
charitable, educational, or fraternal
bond; (2) the organization must cover
losses caused by damage to members’
property including damage caused by
flooding, pursuant to an agreement, in
accordance with this common bond;
and (3) the organization must have a
demonstrated history of fulfilling the
terms of agreements to cover losses to
members’ property caused by flooding.
This proposed definition would ensure
that only established organizations that
consist of members with similar
delineated goals or purposes, that have
agreed to cover damage caused by
flooding, and that have adequately
covered flood losses in the past could be
considered a ‘‘mutual aid society.’’
The Agencies request specific
comment on whether the terms of this
proposed definition adequately cover
the types of organizations that should be
considered ‘‘mutual aid societies’’ for
purposes of the discretionary
acceptance provision in this proposed
rule. Specifically, the Agencies request
comment on whether the proposed
criteria are too broad or too narrow, and,
if so, whether the final rule should
include alternative, or additional,
criteria.
Private flood insurance. The proposed
rule would amend the Definitions
section to include the definition of
‘‘private flood insurance’’ specified in
section 100239 of the Biggert-Waters
Act, which added a new section
102(b)(7) to the FDPA. The proposed
rule would define ‘‘private flood
insurance’’ consistent with the statutory
definition, with some clarifying edits, to
mean an insurance policy that:
1. Is issued by an insurance company
that is licensed, admitted, or otherwise
approved to engage in the business of
insurance by the insurance regulator of

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the State or jurisdiction in which the
property to be insured is located; or, in
the case of a policy of difference in
conditions, multiple peril, all risk, or
other blanket coverage insuring
nonresidential commercial property, is
recognized, or not disapproved, as a
surplus lines insurer by the State
insurance regulator of the State or
jurisdiction where the property to be
insured is located;
2. Provides flood insurance coverage
that is at least as broad as the coverage
provided under a standard flood
insurance policy (SFIP), including when
considering deductibles, exclusions,
and conditions offered by the insurer; 16
3. Includes a requirement for the
insurer to give written notice 45 days
before cancellation or non-renewal of
flood insurance coverage to the insured
and the regulated lending institution, or
a servicer acting on the institution’s
behalf;
4. Includes information about the
availability of flood insurance coverage
under the NFIP;
5. Includes a mortgage interest clause
similar to the clause contained in an
SFIP;
6. Includes a provision requiring an
insured to file suit not later than one
year after the date of a written denial for
all or part of a claim under a policy; and
7. Contains cancellation provisions
that are as restrictive as the provisions
contained in an SFIP.
The proposed rule would define
‘‘SFIP’’ to mean a standard flood
insurance policy issued under the NFIP
in effect as of the date the private policy
is provided to a regulated lending
institution. The Agencies request
comment on whether this is the correct
time-frame for determining what version
of the SFIP the regulated lending
institution should use to evaluate the
private policy. As discussed in more
detail below, the proposed rule also
contains criteria that regulated lending
institutions would apply to determine
whether a policy’s coverage is ‘‘at least
as broad as’’ SFIP coverage.
The Agencies received a number of
general comments in response to this
definition of ‘‘private flood insurance’’
in the October 2013 Proposed Rule. One
commenter argued that imposing a
requirement on regulated lending
16 When determining whether coverage is at least
as broad as coverage provided under an SFIP,
regulated lenders should compare like policies (e.g.,
a policy covering a 1–4 family residence or a single
family dwelling unit in a condominium to an SFIP
dwelling policy, a policy covering all other
buildings except residential condominium
buildings to an SFIP general property policy, or a
policy covering a residential condominium building
to an SFIP Residential Condominium Building
Association Policy).

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institutions to evaluate a private flood
insurance policy for compliance with
the statutory definition would put such
institutions in an untenable position: A
failure to accept a compliant private
policy would be considered a violation,
while accepting a private policy that is
later judged by an examiner to be noncompliant would also result in a
violation with potential civil monetary
penalties. Another commenter stated
that private flood insurance is marketbased, and that it is not realistic to
require such coverage to duplicate NFIP
terms.
The Agencies also received comments
on the specific requirements in the
definition. One commenter stated that
the definition of ‘‘flood’’ included in
some private flood insurance policies
can differ from that of the NFIP, which
has led to private policies being rejected
by lenders and regulators. Some
commenters asserted that the higher
deductibles offered under many private
flood insurance policies directly conflict
with NFIP maximum deductibles. One
of these commenters further noted that
there are many instances when a higher
deductible is reasonable on a policy
purchased by a commercial business
that has the financial capability to
handle such a deductible. Another
commenter noted that private flood
insurance policies typically include a
provision that details the maximum
coverage amount, or aggregate limit,
payable during the policy term. The
statutory definition does not permit
such maximum limits, which the
commenter characterized as a major
change that may not be acceptable to
private insurers. One commenter also
stated that the statute of limitations
provision in the definition should be
amended to allow for filing suit within
two years after date of loss for
commercial properties, not one year as
in the definition.
The Agencies also received comments
regarding the cancellation provision in
the definition. One commenter asserted
that the cancellation provision in the
proposed definition is problematic
because nothing in an SFIP provides a
basis to cancel a policy. Another
commenter recommended that the
definition be amended to recognize the
notice of cancellation standards for
commercial properties (typically 10 or
30 days). A commenter also stated that
notice of cancellation provisions should
be allowed that are no more restrictive
than provisions in commercial property
forms. Another commenter noted that
the requirement to provide 45 days
written notice of cancellation or nonrenewal of flood insurance coverage is
problematic because very few private

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flood policies require this type of notice.
This commenter specifically noted that
lenders would be unable to accept
private flood policies under this
definition going forward, including
those policies lenders have historically
considered acceptable.
The Agencies note that the definition
of ‘‘private flood insurance’’ included in
the October 2013 Proposed Rule and in
this current proposal is mandated by the
Biggert-Waters Act. Therefore, the
Agencies may not make substantive
changes to this definition in our
regulations. However, the issues raised
in connection with this definition by
commenters influenced the Agencies’
development and inclusion of a
proposed provision that would permit
institutions at their discretion to accept
a private flood policy that does not meet
the definition of ‘‘private flood
insurance’’ in the Biggert-Waters Act, as
discussed below.
‘‘At least as broad as.’’ Many
commenters on the October 2013
Proposed Rule also asserted that it
would be difficult for institutions to
determine whether private flood
insurance coverage is ‘‘at least as broad
as’’ the coverage provided under the
SFIP, as required by statute. In response
to these comments, the Agencies have
proposed to clarify the meaning of this
phrase. Specifically, the proposed
definition of ‘‘private flood insurance’’
would provide that a policy is ‘‘at least
as broad as’’ the coverage provided
under an SFIP if the policy, at a
minimum: (1) Defines the term ‘‘flood’’
to include the events defined as a
‘‘flood’’ in an SFIP; (2) covers both the
mortgagor(s) and the mortgagee(s) as
loss payees; (3) contains the coverage
provisions specified in an SFIP,
including those relating to building
property coverage; personal property
coverage, if purchased by the insured
mortgagor(s); other coverages; and the
increased cost of compliance; (4) for any
total policy coverage amount up to the
maximum available under the NFIP at
the time the policy is provided to the
lender, contains deductibles no higher
than the specified NFIP maximum for
the same type of property, and includes
similar non-applicability provisions as
under an SFIP; (5) provides coverage for
direct physical loss caused by a flood
and may exclude other causes of loss
identified in an SFIP; any additional or
different exclusions than those in an
SFIP may only pertain to coverage that
is in addition to the amount and type of
coverage that could be provided by an
SFIP; and (6) does not contain
conditions that narrow the coverage that
would be provided in an SFIP.

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The Agencies believe these criteria
would ensure that a private flood
insurance policy provides coverage that
would protect the collateral securing the
mortgage loan, thereby protecting both
the property owner and the regulated
lending institution making the loan, to
the same extent as a policy issued under
the NFIP. The Agencies specifically
request comment on whether these
criteria facilitate a regulated lending
institution’s determination of whether
flood insurance coverage is ‘‘at least as
broad as’’ the coverage provided under
the SFIP.

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B. Requirement To Purchase Flood
Insurance
This section currently sets forth the
general requirement that a regulated
lending institution shall not make,
increase, extend, or renew any
designated loan unless the building or
mobile home and any personal property
securing the loan is covered by flood
insurance for the term of the loan. The
coverage amount must at least equal the
lesser of the outstanding principal
balance of the designated loan or the
maximum limit of coverage available for
the particular type of property under the
1968 Act (mandatory purchase
requirement). It further provides that
flood insurance coverage under the
FDPA is limited to the building or
mobile home and any personal property
that secures a loan and not the land
itself. A ‘‘designated loan’’ means a loan
secured by a building or mobile home
that is located or to be located in an
SFHA in which flood insurance is
available under the 1968 Act, as
amended.
As in the October 2013 Proposed
Rule, the Agencies are proposing to
amend this section to implement section
102(b)(1)(B) of the FDPA, as added by
section 100239(a)(1) of the BiggertWaters Act, which requires that all
regulated lending institutions accept
‘‘private flood insurance,’’ as defined in
the statute, if certain conditions are met.
Specifically, the proposed rule includes
a new provision that would require a
regulated lending institution to accept a
private flood insurance policy that
meets both: (1) The statutory definition
of ‘‘private flood insurance,’’ and (2) the
mandatory purchase requirement,
described above.
C. Compliance Aid for Mandatory
Acceptance
The October 2013 Proposed Rule
proposed to add to the flood insurance
regulations a safe harbor that would
have allowed lenders to rely on a State
insurance regulator’s written
determination that a particular private

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insurance policy satisfies the rule’s
definition of ‘‘private flood insurance’’
and, therefore, must be accepted by the
lender in satisfaction of the mandatory
purchase requirement. The Agencies
included this safe harbor because of
concern that many regulated lending
institutions, especially small
institutions, would have difficulty
evaluating whether a flood insurance
policy meets the definition of ‘‘private
flood insurance’’ that must be accepted,
given their lack of technical insurance
expertise regarding flood insurance
policies.
Commenters on the October 2013
Proposed Rule expressed considerable
support for the inclusion of a safe
harbor, with many noting that few
lenders have the capacity to determine
whether policies meet the required
standards. However, some commenters
criticized the specific safe harbor
included in the proposal and suggested
alternatives.
In particular, many commenters
raised concerns about the feasibility of
State insurance regulators determining
if private flood insurance is compliant
with the Biggert-Waters Act, a Federal
statute. Commenters noted there
currently is no mechanism or process
for a State insurance regulator to make
such a determination. They further
noted that even if such a mechanism is
developed, States might not implement
it consistently and it could lead to fifty
different State standards. Many
commenters also indicated that a State
insurance regulator does not directly
supervise providers of surplus lines
insurance and, therefore, the safe harbor
would not be available for surplus lines
insurers.
State insurance regulators raised
many of the concerns regarding the
proposed safe harbor. One State
insurance regulatory agency stated that
the proposed safe harbor should provide
only a rebuttable presumption that the
lender must accept the private flood
insurance policy. Accordingly, the
lender would not have to accept the
policy if the lender or the lender’s
Federal supervisory agency determines
that the policy does not meet the
Federal legal standards for ‘‘private
flood insurance.’’ This commenter also
noted that a State insurance regulator
lacks the legal authority to certify that
a private flood insurance policy
complies with Federal law, but could
inform the insurer if it sees something
in the policy that would make it noncompliant with Federal law. The
National Association of State Insurance
Commissioners (NAIC) raised a similar
objection. It stated that its members had
raised concerns about the proposed safe

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harbor because it may not be possible
for some State insurance regulators to
determine whether a private flood
insurance policy satisfies the Federal
statutory definition of the term because
of the particular State laws under which
they operate.
Another commenter noted that, even
if included in the regulation, a lender
would not always benefit from the safe
harbor because a State may not have
made a determination regarding a
particular policy. In this case, a lender
would have to determine whether
private flood insurance is compliant,
particularly with respect to the ‘‘as
broad as’’ requirement.
Among the numerous alternative safe
harbors suggested, some commenters
recommended that, instead of a State
insurance regulator, the insurance
company should certify that the private
flood insurance policy being provided
meets the statutory definition. One
commenter stated that the insurance
company should not only certify
compliance with Federal law
requirements, but also indemnify the
lender if the policy should prove not to
comply with Federal law and result in
a loss to the lender. Another commenter
recommended that an insurer’s
certification should provide that the
private flood insurance policy’s
coverage is ‘‘at least as broad as’’ that
provided under the NFIP. Commenters
also suggested that the Agencies provide
model certification language or a
certification checklist.
The Agencies believe that it would be
appropriate for the rule to include a
compliance aid provision to assist
consumers and regulated lending
institutions in determining whether and
how a flood insurance policy meets the
definition of ‘‘private flood insurance’’
and is therefore a policy that the
institution is required to accept as long
as it otherwise meets the mandatory
purchase requirement. Therefore, after
careful consideration, and based on the
comments received on the proposed
‘‘safe harbor’’ under the October 2013
Proposed Rule, the Agencies have
included in this proposed rule a
compliance aid provision, which
provides that a policy is deemed to meet
the definition of ‘‘private flood
insurance’’ if the following three criteria
are met: (1) The policy includes, or is
accompanied by, a written summary
that demonstrates how the policy meets
the definition of private flood insurance
by identifying the provisions of the
policy that meet each criterion in the
definition, and confirms that the insurer
is regulated in accordance with that
definition; (2) the regulated lending
institution verifies in writing that the

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policy includes the provisions
identified by the insurer in its summary
and that these provisions satisfy the
criteria included in the definition; and
(3) the policy includes the following
provision within the policy or as an
endorsement to the policy: ‘‘This policy
meets the definition of private flood
insurance contained in 42 U.S.C.
4012a(b)(7) and the corresponding
regulation’’ (assurance clause).
The Agencies believe that the first
criterion of this proposed compliance
aid provision, an insurance company’s
written summary demonstrating how
the policy meets the definition of
private flood insurance, would assist a
regulated lending institution in
reviewing flood insurance policies,
which are often lengthy and
complicated. By identifying provisions
of the policy that meet each criterion in
this definition, this summary would
enable the institution to conduct
expeditiously the verification process
described in the second criterion. To
satisfy the second criterion, a regulated
lending institution would be required to
perform its own due diligence before
accepting the policy instead of solely
relying on the insurance company’s
claim that the policy meets the statutory
and regulatory definition of ‘‘private
flood insurance.’’ The third prong, the
insurance company’s statement that the
policy complies with the definition of
‘‘private flood insurance,’’ could
provide the policyholder and the
regulated lending institution with
recourse against the insurance company
if the company fails to abide by the
terms included in the definition of
‘‘private flood insurance.’’
The Agencies recognize that this
provision does not relieve a regulated
lending institution of the requirement to
accept a policy that meets the definition
of ‘‘private flood insurance’’ and the
mandatory purchase requirement, even
if the policy is not accompanied by a
written summary and does not include
an assurance clause. However, the
Agencies believe that this provision
would facilitate the ability of regulated
institutions, as well as consumers, to
recognize policies that a lender must
accept and may encourage insurance
providers to issue policies that meet
these criteria.17
17 We note that this provision is not a ‘‘safe
harbor’’ as generally understood. Because the
statute mandates that regulated institutions accept
any private flood insurance policy that meets the
statutory definition of ‘‘private flood insurance’’
(provided it meets the mandatory purchase
requirement), the provision would not reduce or
eliminate liability if a lender failed to accept a
policy that met the requirements in the statutory
definition of private flood insurance. Therefore, we

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The Agencies request comment on all
aspects of this proposed compliance aid
provision. In particular, commenters
should address whether the provision as
proposed would assist regulated lending
institutions in complying with the
requirement to accept insurance policies
that meet the definition of ‘‘private
flood insurance.’’ Furthermore,
commenters should address whether
each of the three criteria in this
proposed provision is necessary and
feasible. Moreover, the Agencies request
comment on whether this provision may
provide an incentive to insurance
providers to demonstrate that their
policy meets the definition of ‘‘private
flood insurance’’ and, therefore, must be
accepted by regulated lending
institutions.
D. Discretionary Acceptance
In general. The Agencies are
proposing to permit a regulated lending
institution to exercise its discretion to
accept certain types of flood insurance
policies issued by a private insurer
other than private flood insurance
policies that an institution is required to
accept. Although section 102(b)(1)(B) of
the FDPA, as added by section
100239(a)(1) of the Biggert-Waters Act,
requires a regulated lending institution
to accept ‘‘private flood insurance’’ as
that term is defined by statute, the
Agencies note that the statute is silent
about whether a regulated lending
institution may accept a flood insurance
policy issued by a private insurer that
does not meet the statutory definition.
The Agencies believe that the
Congressional intent of the statute was
to stimulate the private flood insurance
market and, therefore, the statute should
be construed to permit discretionary
acceptance of flood insurance policies
issued by private insurers that do not
meet the statutory definition requiring
mandatory acceptance.18
Additionally, in the October 2013
Proposed Rule, the Agencies specifically
requested comment on whether the
Agencies should include a provision
allowing lenders to exercise discretion
in accepting a flood insurance policy
issued by a private insurer that does not
meet the statutory definition, but
otherwise would provide flood coverage
consistent with the FDPA, and a
majority of commenters were
have not used the term ‘‘safe harbor’’ in this
proposal.
18 The Biggert-Waters Act’s reforms were
designed to improve the NFIP’s financial integrity
and stability as well as to ‘‘increase the role of
private markets in the management of flood
insurance risk.’’ H. Rep. No. 112–102, at 1 (2011);
see also 158 Cong. Rec. H4622 (daily ed. June 29,
2012) (statement of Rep. Biggert).

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supportive. Among other reasons,
commenters suggested that permitting
discretionary acceptance would
promote a diverse market for flood
insurance policies issued by private
insurers; reduce delays in lenders’
analyses of policies; and limit the
likelihood of lender confusion if NFIP
requirements included in the definition
of ‘‘private flood insurance’’ change.
Moreover, as noted above, commenters
stated that it would be difficult for many
policies to meet the statutory definition
of ‘‘private flood insurance’’ in the
Biggert-Waters Act.
In addition to soliciting comment on
whether the rule should specifically
state that regulated lending institutions
may accept flood insurance policies
issued by private insurers that do not
meet all of the statutory criteria for
‘‘private flood insurance,’’ the Agencies
asked whether some criteria should be
required for such policies. The Agencies
received comments with various views
on the imposition of such criteria. This
proposed rule adds criteria intended to
address some of the comments received.
Consequently, in addition to requiring
regulated lending institutions to accept
private flood insurance policies that
comply with the statutory definition of
‘‘private flood insurance,’’ the proposed
rule would expressly permit a regulated
lending institution to accept other types
of flood insurance policies issued by
private insurers, provided the following
criteria are met.19
First, under the proposed rule, the
flood insurance policy issued by a
private insurer would be required to be
issued by an insurer that is licensed,
admitted, or otherwise approved to
engage in the business of insurance by
the insurance regulator of the State in
which the property to be insured is
located. In the case of a policy of
difference in conditions, multiple peril,
all risk, or other blanket coverage
insuring nonresidential commercial
property, the flood insurance issued by
a private insurer would be required to
be issued by a surplus lines insurer
recognized, or not disapproved, by the
insurance regulator of the State where
the property to be insured is located.
This criterion is included in the
definition of ‘‘private flood insurance’’
in the Biggert-Waters Act, and the
Agencies believe it is appropriate to
include it as a criterion for discretionary
acceptance as well. Because State
19 The Agencies have included this provision
pursuant to their authority under the FDPA to issue
regulations directing lending institutions not to
make, increase, extend, or renew any loan secured
by property located in an SFHA unless the property
is covered by ‘‘flood insurance.’’ See 42 U.S.C.
4012a(b).

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Federal Register / Vol. 81, No. 215 / Monday, November 7, 2016 / Proposed Rules
insurance regulators, as the functional
regulators of insurance companies, may
be in the best position to evaluate the
financial condition and ability of a
private insurer to meet its obligations
under a flood insurance policy, the
Agencies believe this proposed criterion
would safeguard both the consumer
purchasing the policy and the regulated
lending institution issuing a loan for
which the insured property serves as
collateral.
Second, under the proposed rule, the
flood insurance policy issued by a
private insurer would be required to
cover both the mortgagor(s) and the
mortgagee(s) as loss payees. This
proposed criterion would ensure that
the flood policy protects both the
property owner and the regulated
lending institution issuing the mortgage
loan.
Third, the proposal would require
that a flood insurance policy issued by
a private insurer must provide for
cancellation following reasonable notice
to the borrower only for reasons
permitted by FEMA for an SFIP on the
Flood Insurance Cancellation Request/
Nullification Form, in any case of nonpayment, or when cancellation is
mandated pursuant to State law. This
proposed criterion would ensure that a
policy is cancelled only for limited
reasons and that the policyholder
receives reasonable notification of
cancellation.
Finally, the proposal would require
that a flood insurance policy issued by
a private insurer must either be ‘‘at least
as broad’’ as the coverage provided
under an SFIP, as defined above, or
provide coverage that is ‘‘similar’’ to
coverage provided under an SFIP,
including when considering
deductibles, exclusions, and conditions
offered by the insurer. In determining
whether the coverage is similar to
coverage provided under an SFIP, the
proposal would require the regulated
lending institution to: (1) Compare the
private policy with an SFIP to
determine the differences between the
private policy and an SFIP; (2)
reasonably determine that the private
policy provides sufficient protection of
the loan secured by the property located
in an SFHA; and (3) document its
findings. The Agencies believe these
proposed criteria would provide
safeguards so that a regulated lending
institution does not accept policies that
do not sufficiently protect the collateral
securing the loan.
The Agencies believe that the
proposed discretionary acceptance
provision provides regulated lending
institutions with greater flexibility to
accept flood insurance policies that do

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not contain all of the requirements
included in the definition of ‘‘private
flood insurance.’’ Specifically, under
this provision, regulated lending
institutions would be able to accept a
flood insurance policy issued by a
private insurer that: (1) Does not contain
a mortgage interest clause similar to the
clause contained in an SFIP, provided
that the policy covers the mortgagor and
the mortgagee; 20 (2) does not contain
information about the availability of
flood insurance coverage under the
NFIP; (3) provides for cancellation of
the policy following ‘‘reasonable notice’’
to the borrower instead of requiring 45
days prior written notice for
cancellation or non-renewal; (4) permits
cancellation of the policy for reasons of
non-payment or when State law
mandates cancellation, in addition to
the reasons for cancellation permitted in
an SFIP; and (5) does not contain a
provision requiring an insured to file
suit not later than one year after the date
of a written denial of all or part of a
claim under the policy. In addition,
with respect to deductibles, exclusions,
and conditions, coverage under a policy
accepted pursuant to the proposed
discretionary acceptance provision
could be ‘‘similar to’’ an SFIP instead of
‘‘at least as broad as’’ an SFIP, provided
the institution documents that it has
compared the differences between the
policy and an SFIP and that it has
reasonably determined that the private
policy provides sufficient protection of
the loan secured by the property to be
insured.
The Agencies solicit comment as to
whether these proposed criteria are
appropriate for regulated lending
institutions accepting flood insurance
policies issued by a private insurer that
do not meet the statutory definition of
‘‘private flood insurance.’’ In particular,
the Agencies seek comment on whether
the proposed criteria are compatible
with industry practice, or whether the
proposed criteria would exclude
currently accepted policies or
significantly limit the growth of the
market for flood insurance policies
issued by private insurers.
Separately, the Agencies request
comment in three other areas related to
the proposed discretionary acceptance
criteria: (1) Whether the phrase
‘‘sufficient protection of the loan’’ is
adequately clear, (2) whether the
20 The SFIP mortgage interest clause ensures that
any loss payable will be paid to any mortgagee
named in the NFIP policy application and
declarations page, as well as any other mortgagee
or loss payee determined to exist at the time of the
loss. We note that this differs from a clause covering
both the mortgagor and the mortgagee, who are
named in the policy.

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proposed criteria raise any safety and
soundness risks for regulated lending
institutions, and (3) whether the
proposed criteria raise any consumer
protection issues.
Exception for mutual aid societies.
The proposed rule also includes an
exception for certain private flood
coverage provided by mutual aid
societies. This proposed exception is
intended to be responsive to several
commenters on the October 2013
Proposed Rule that supported adding
provisions permitting regulated lending
institutions to accept certain nontraditional coverage that does not satisfy
the statutory definition for ‘‘private
flood insurance,’’ such as Amish Aid
plans, even though this coverage is not
provided by a State-regulated insurance
company. Under this proposed
exception, flood protection offered by
mutual aid societies that would not
meet all of the above requirements for
discretionary acceptance could continue
to be offered, for example, to members
of religious communities who do not
purchase insurance from traditional
insurance companies, provided certain
conditions are met.
Specifically, the proposed rule would
permit a regulated lending institution to
accept a private policy issued by a
mutual aid society in satisfaction of the
mandatory flood insurance purchase
requirement if: (1) The institution’s
primary supervisory agency determines
that such policy or types of policies
meet the requirement for flood
insurance for purposes of the Federal
flood insurance statutes; (2) the policy
meets the amount of coverage for losses
and term requirements in the mandatory
flood insurance purchase requirement;
(3) the policy covers both the
mortgagor(s) and the mortgagee(s) as
loss payees; and (4) the regulated
lending institution has determined that
the policy provides sufficient protection
of the loan secured by the property
located in an SFHA.
In determining whether a policy
issued by a mutual aid society provides
sufficient protection of the loan under
the proposed rule, the regulated lending
institution would be required to: (1)
Verify that the policy is consistent with
general safety and soundness principles,
such as whether deductibles are
reasonable based on the borrower’s
financial condition; (2) consider the
policy provider’s ability to satisfy
claims, such as whether the policy
provider has a demonstrated record of
covering losses; and (3) document its
conclusions.
Under the proposed rule, each Agency
would use its discretion individually to
determine whether policies offered by

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mutual aid societies qualify as flood
insurance for purposes of the Federal
flood insurance statutes. The OCC and
FCA propose to conduct their own
evaluations using the criteria that
institutions are expected to consider
under 12 CFR 22.3(c)(4) or 12 CFR
614.4930(c)(4), respectively. Based on
their current practices regarding nontraditional flood insurance plans, the
Board, FDIC, and NCUA expect that
cases in which they approve policies
issued by mutual aid societies to be rare
and limited.
The OCC notes that it currently
permits national banks and Federal
savings associations to accept flood
coverage issued by Amish mutual aid
societies, such as Amish Aid plans.
Amish Aid societies consist of members
who share a common religious bond
and, in accordance with this common
bond, have a demonstrated history of
fulfilling the terms of agreements
(Amish Aid plans) to cover losses to
members’ property caused by flooding
in accordance with this common bond,
either by paying to cover the cost of
damaged structures or by repairing or
rebuilding the structures. Amish Aid
plans thereby provide sufficient
protection of the loan secured by the
property and protect the lender as well
as the borrower. The proposed rule,
therefore, would maintain the status quo
by continuing to allow national banks
and Federal savings associations to
accept flood coverage issued by mutual
aid societies that have a demonstrated
history of covering expenses caused by
flood damage to members’ property, and
that is approved by the OCC, such as
Amish Aid plans.
The Agencies request comment on the
proposed requirements for discretionary
acceptance of polices issued by mutual
aid societies, including the proposed
criteria a regulated lending institution
would be required to consider in
determining whether the policy
provides sufficient protection for the
loan.
Discretionary acceptance for
nonresidential property. The mandatory
flood insurance purchase requirement
applies to loans secured by either
residential or nonresidential properties.
The Agencies understand that flood
insurance policies issued by private
insurers covering loans secured by
nonresidential properties, such as
commercial properties, may have
coverage, deductibles, exclusions, and
conditions that differ from NFIP policies
based on the type, size, and number of
nonresidential properties covered by the
policy. In some instances, such policies
are individually negotiated and tailored
to the nonresidential property that

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secures a loan. The Agencies request
comment on whether the proposed
definition of ‘‘private flood insurance’’
or the proposed discretionary
acceptance provision, both of which
include specific requirements with
respect to deductibles, exclusions,
conditions, and cancellation, would
prevent regulated lending institutions
from accepting flood insurance policies
issued by private insurers in the
nonresidential lending context, even
though coverage not including these
requirements would be acceptable for
policies covering another type of risk,
such as fire or wind.
Furthermore, the Agencies request
comment on whether the final rule
should include criteria for the
discretionary acceptance of flood
insurance policies issued by private
insurers for nonresidential properties
that are different from the criteria
applicable to flood insurance policies
issued by private insurers for residential
properties. For example, the Agencies
could require that the policy: (1) Meet
the amount of coverage for losses and
term requirements specified in the
mandatory purchase requirement, (2)
cover both the mortgagor(s) and the
mortgagee(s) as loss payees, and (3)
require the regulated institution to
determine that the policy provides
sufficient protection of the loan secured
by the property, consistent with general
safety and soundness principles, as is
required for the acceptance of coverage
provided by mutual aid societies. The
Agencies request comment on whether
a provision for flood insurance issued
by private insurers covering
nonresidential properties that includes
these criteria is appropriate or whether
different or additional criteria should be
applied in the nonresidential context.
For example, should the Agencies
require the policy to be issued by an
insurer that is licensed, admitted, or
otherwise approved to engage in the
business of insurance by the insurance
regulator of the State where the property
to be insured is located, or issued by a
surplus lines insurer recognized, or not
disapproved, by the insurance regulator
of the State where the property to be
insured is located?
III. Regulatory Analysis
A. Regulatory Flexibility Act
OCC: In general, the Regulatory
Flexibility Act (RFA) requires that in
connection with a notice of proposed
rulemaking an agency prepare and make
available for public comment an initial
regulatory flexibility analysis that
describes the impact of a proposed rule

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on small entities.21 Under section 605(b)
of the RFA, this analysis is not required
if an agency certifies that the rule would
not have a significant economic impact
on a substantial number of small entities
and publishes its certification and a
short explanatory statement in the
Federal Register along with its rule.
The OCC currently supervises
approximately 1,032 small entities.22
We identified 974 OCC-supervised
small entities that may be impacted by
the proposed rule, which is a substantial
number.23 The OCC classifies the
economic impact of total costs on a bank
as significant if the total costs in a single
year are greater than 5 percent of total
salaries and benefits, or greater than 2.5
percent of total non-interest expense.
The OCC estimates that the average cost
per small bank is approximately $10,400
per year. Using this cost estimate, we
believe the proposed rule will have a
significant economic impact on four
small banks, which is not a substantial
number. Therefore, the OCC certifies
that this regulation, if adopted, will not
have a significant economic impact on
a substantial number of small entities
supervised by the OCC. Accordingly, a
regulatory flexibility analysis is not
required.
Board: The RFA requires an agency to
publish an initial regulatory flexibility
analysis with a proposed rule or certify
that the proposed rule will not have a
significant economic impact on a
substantial number of small entities.
The Board is publishing an initial
regulatory flexibility analysis and
requests public comment on all aspects
of its analysis. The Board will conduct
a final regulatory flexibility analysis
after considering the comments received
during the public comment period.
21 See

5 U.S.C. 601 et seq.
base our estimate of the number of small
entities on the Small Business Administration’s size
thresholds for commercial banks and savings
institutions, and trust companies, which are $550
million and $38.5 million, respectively. Consistent
with the General Principles of Affiliation 13 CFR
121.103(a), we count the assets of affiliated
financial institutions when determining if we
should classify an institution we supervise as a
small entity. We used December 31, 2015, to
determine size because a ‘‘financial institution’s
assets are determined by averaging the assets
reported on its four quarterly financial statements
for the preceding year.’’ See footnote 8 of the U.S.
Small Business Administration’s Table of Size
Standards.
23 To estimate the number of small banks that
may be affected if the proposed rule is
implemented, we determined the number of small
banks that (a) self-identify by reporting mortgage
servicing assets, reporting loans secured by real
estate, or as originating 1–4 family residential
mortgage loans on a Call Report submitted for any
quarter in calendar year 2015 or during the first
quarter of 2016 or (b) are identified by OCC
examiners as originating residential mortgage loans
or as Home Mortgage Disclosure Act filers.
22 We

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1. Statement of the need for, and
objectives of, the proposed rule. The
Board is proposing revisions to
Regulation H to implement the private
flood insurance provisions of the
Biggert-Waters Act. Consistent with the
Biggert-Waters Act, the proposal would
require regulated lending institutions
accept any private insurance policy that
meets the Biggert-Waters Act’s
definition of ‘‘private flood insurance’’
in satisfaction of the mandatory flood
insurance purchase requirement. The
proposed rule would also include a
compliance aid that would deem a
policy to meet the Biggert-Waters Act
definition of ‘‘private flood insurance’’
if: (i) The policy includes, or is
accompanied by, a written summary
from the insurer that demonstrates how
the policy meets the definition of
private flood insurance; (ii) the lender
verifies that the policy includes the
provisions identified in the summary;
and (iii) the policy includes language
certifying that the policy meets the
criteria. The Agencies are also
proposing to permit lenders to accept, at
their discretion, flood insurance policies
issued by private insurers, and plans
issued by mutual aid societies, that do
not meet the definition of ‘‘private flood
insurance,’’ provided they meet certain
conditions.
2. Small entities affected by the
proposed rule. All State member banks
that are subject to the Federal flood
insurance statutes and the flood
insurance provisions of Regulation H
would be subject to the proposed rule.
As of September 27, 2016, there were
821 State member banks. Under
regulations issued by the Small
Business Administration, banks and
other depository institutions with total
assets of $550 million or less are
considered small. Approximately 588
State member banks would be
considered small entities by the Small
Business Administration.24
The Board believes the proposal will
not have a significant impact on small
entities. First, the Board believes that
most existing flood insurance policies
issued by private insurers would not
meet the definition of ‘‘private flood
insurance’’ under the Biggert-Waters Act
and that insurers would request that
lenders accept the policies under the
more flexible proposed discretionary
24 The Board reviewed the number of State
member banks that reported mortgage servicing
assets, loans secured by real estate, or originating
1–4 family residential mortgage loans on a Call
Report submitted for the four quarters ending on
June 30, 2016, which included nearly all State
member banks. Consequently, the Board is
estimating that all small State member banks may
be affected if the proposed rule is implemented.

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acceptance provisions. The proposed
provisions on discretionary acceptance,
including plans issued by mutual aid
societies, are at the discretion of the
lender. As a result, regulated lending
institutions may choose not to accept
policies under those proposed
provisions and would therefore have no
compliance burden associated with
those provisions.
Second, with respect to flood
insurance policies that a private insurer
would seek to have a lender accept
under the proposed mandatory
acceptance provisions, the Board notes
that for those regulated lending
institutions, including those that are
considered small entities, that accept
flood insurance policies issued by
private insurers today, such institutions
already have experience evaluating such
policies with the criteria in the BiggertWaters Act definition of ‘‘private flood
insurance,’’ which are almost identical
to the criteria referenced in guidance
issued by the Agencies and that
currently govern the acceptance of
private policies by regulated lending
institutions. Third, as discussed in the
SUPPLEMENTARY INFORMATION, the Board
believes the proposed rule would
alleviate the burden on regulated
lending institutions, including those
that are considered small entities, of
evaluating whether a flood insurance
policy issued by a private insurer meets
the definition of ‘‘private flood
insurance’’ under the mandatory
acceptance provisions with the addition
of a proposed compliance aid that
leverages the expertise of the insurer
issuing the policy.
Although the proposed rule could
impact a substantial number of small
entities, the Board estimates that the
costs to these entities will not be
significant. The Board estimates that the
cost for each covered small entity will
be approximately $8,096 during the first
year the proposal goes into effect. This
estimate includes first year compliance
costs 25 and ongoing costs 26 and
25 Fixed compliance costs are estimated assuming
each small entity requires one full-time employee
working 20 hours at a rate of $101 an hour. The
total cost of compliance for all 821 covered entities
is approximately $1.658 million, or $2,020 for each
small entity.
26 Ongoing compliance costs are estimated based
on available data. According to FEMA’s Policy and
Claim Statistics for Flood Insurance there are
approximately 5,083,071 flood insurance policies
nationally as of June 2016. Only 3,537,059 of these
policies are located in ‘‘High Risk Areas’’ and
would therefore require flood insurance. The Board
estimated the future adoption rate of private flood
insurance will be approximately 10 percent of the
total of flood insurance policies in any given year.
Further, small entities hold approximately 10
percent of all loans secured by real estate held in
portfolio by all Board-supervised banks as of June

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78071

assumes that the usage of private flood
insurance policies by borrower, as
defined by the proposed rule, is
distributed consistently across small
entities. The actual ongoing cost
estimate may be lower than stated
because the estimate assumes that all of
the policies for properties in High Risk
Areas will cover loans held by Boardsupervised institutions when some of
these loans may be held by institutions
supervised by other Agencies.
3. Other Federal rules. The Board has
not identified any likely duplication,
overlap and/or potential conflict
between the proposed rule and any
Federal rule.
4. Significant alternatives to the
proposed revisions. The Board solicits
comment on any significant alternatives
that would reduce the regulatory burden
associated with this proposed rule on
small entities.
FDIC: The RFA generally requires
that, in connection with a notice of
proposed rulemaking, an agency prepare
and make available for public comment
an initial regulatory flexibility analysis
describing the impact of the proposed
rule on small entities.27 A regulatory
flexibility analysis is not required,
however, if the agency certifies that the
rule will not have a significant
economic impact on a substantial
number of small entities. The Small
Business Administration has defined
‘‘small entities’’ to include banking
organizations with total assets less than
or equal to $550 million.28
The FDIC supervises 3,204 small
banking entities that have originated
1–4 family residential mortgage loans or
have reported holding mortgage
servicing assets or loans secured by real
estate and may therefore be affected by
the proposed rule.29 The FDIC estimates
that the annual cost for each covered
small entity will range between $2,020
and $4,500 per year, on average. This
estimate includes compliance costs 30
and ongoing costs 31 and assumes that
30, 2016. The Board therefore assumed that small
entities will have to review a similar share of
annual private flood insurance policies. Ongoing
policy review costs are estimated to be
approximately $6,076 per year for each small entity,
assuming one labor hour per year, per policy, at
$101 per hour.
27 5 U.S.C. 601 et seq.
28 13 CFR 121.201 (as amended, effective
December 2, 2014).
29 FDIC Call Reports (four quarters ending on
March 31, 2016).
30 Fixed compliance costs are estimated assuming
each small entity requires one full-time employee
working 20 hours at a rate of $101 an hour. The
total cost of compliance for all 3,204 covered
entities is approximately $6.5 million, or $2,020 for
each small entity.
31 Ongoing compliance costs are estimated based
on available data. According to FEMA’s Policy and

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the usage of private flood insurance
policies by borrowers, as defined by the
proposed rule, is distributed
consistently across small entities. The
actual ongoing cost estimates are likely
to be lower than stated because the
estimate assumes that all of the loans for
properties in High Risk Areas are held
by FDIC-supervised institutions; at least
some of these loans are held by OCCand Board-supervised institutions.
The proposed rule could impact a
substantial number of small entities;
however, the costs to those entities are
not estimated to be significant. For this
reason, the FDIC certifies that this
proposed rule will not have a significant
economic impact on a substantial
number of small entities that it
supervises.
FCA: Pursuant to section 605(b) of the
RFA, the FCA hereby certifies that the
final rule will not have a significant
economic impact on a substantial
number of small entities. Each of the
banks in the Farm Credit System,
considered together with its affiliated
associations, has assets and annual
income in excess of the amounts that
would qualify them as small entities.
Therefore, Farm Credit System
institutions are not ‘‘small entities’’ as
defined in the RFA.
NCUA: The RFA requires NCUA to
prepare an analysis to describe any
significant economic impact a
regulation may have on a substantial
number of small entities.32 Under
section 605(b) of the RFA, this analysis
is not required if an agency certifies that
the rule would not have a significant
economic impact on a substantial
number of small entities and publishes
its certification and a short explanatory
statement in the Federal Register along
with its rule.33 For purposes of this
analysis, NCUA considers small credit
unions to be those having under $100
million in assets.34 As of June 30, 2016,
there are 4,345 small, Federally insured
Claim Statistics for Flood Insurance there are
approximately 5,118,254 flood insurance policies
nationally as of March 2016. Only 3,568,638 of
these policies are located in ‘‘High Risk Areas’’ and
would therefore require flood insurance. The FDIC
estimated the future adoption rate of private flood
insurance will be between 1 percent and 10 percent
of the total of flood insurance policies in any given
year. Further, small entities hold approximately 22
percent of all loans secured by real estate held in
portfolio by all FDIC-supervised banks as of March
31, 2016. The FDIC therefore assumed that small
entities will have to review a similar share of
annual private flood insurance policies. Ongoing
policy review costs are estimated to be between
$250 and $2,500 per year for each small entity,
assuming one labor hour per year, per policy, at
$101 per hour.
32 5 U.S.C. 603(a).
33 5 U.S.C. 605(b).
34 80 FR 57512 (September 24, 2015).

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credit unions, and only about 2,894 of
these credit unions have real estate
loans.
NCUA classifies the economic impact
of total costs on a credit union as
significant if the total costs in a single
year are greater than 5 percent of total
salaries and benefits, or greater than 2.5
percent of total non-interest expense.
NCUA estimates that the average cost
per small credit union is approximately
$2,020 per year. Using this cost
estimate, NCUA believes the proposed
rule will have a significant economic
impact on 63 small credit unions, which
is not a substantial number. Therefore,
NCUA certifies that this proposed rule,
if adopted, will not have a significant
economic impact on a substantial
number of small entities.
B. Unfunded Mandates Reform Act of
1995
The OCC has analyzed the proposed
rule under the factors in the Unfunded
Mandates Reform Act of 1995
(UMRA).35 Under this analysis, the OCC
considered whether the proposed rule
includes a Federal mandate that may
result in the expenditure by State, local,
and tribal governments, in the aggregate,
or by the private sector, of $100 million
or more in any one year (adjusted
annually for inflation). Under Title II of
the UMRA, indirect costs, foregone
revenues and opportunity costs are not
included when determining if a
mandate meets or exceeds UMRA’s cost
threshold. The UMRA does not apply to
regulations that incorporate
requirements specifically set forth in
law.
The OCC’s estimated annual UMRA
cost is approximately $36 million.
Therefore, the OCC finds that the
proposed rule does not trigger the
UMRA cost threshold. Accordingly, the
OCC has not prepared the written
statement described in section 202 of
the UMRA.
C. Paperwork Reduction Act of 1995
The OCC, Board, FDIC, and NCUA
(the Agencies) 36 have determined that
this proposed rule involves a collection
of information pursuant to the
provisions of the Paperwork Reduction
35 Public Law 104–4, 109 Stat. 48 (1995), codified
at 2 U.S.C. 1501 et seq.
36 The FCA has determined that the proposed rule
does not involve a collection of information
pursuant to the PRA for System institutions because
System institutions are Federally chartered
instrumentalities of the United States and
instrumentalities of the United States are
specifically excepted from the definition of
‘‘collection of information’’ contained in 44 U.S.C.
3502(3).

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Act of 1995 (the PRA) (44 U.S.C. 3501
et seq.).
In accordance with the PRA (44
U.S.C. 3506; 5 CFR 1320 Appendix A.1),
the Board reviewed the proposed rule
under the authority delegated to the
Board by the Office of Management and
Budget (OMB). The collection of
information that is subject to the PRA by
this proposed rule is found in 12 CFR
22.3, 208.25, 339.3, and 760.3.
The Agencies may not conduct or
sponsor, and an organization is not
required to respond to, this information
collection unless the information
collection displays a currently valid
OMB control number. The OMB control
numbers are 1557–0326 (OCC), 7100–
0280 (Board), and 3133–0143 (NCUA).
The FDIC will seek a new OMB control
number.
Under §§ 22.3(c)(2), 208.25(c)(3)(ii),
339.3(c)(2), and 760.3(c)(2), a policy is
deemed to meet the definition of private
flood insurance if, among other things,
(i) it includes a written summary
demonstrating how the policy meets the
definition of private flood insurance,
identifying the provisions of the policy
that meet each criterion in the definition
and confirms that the insurer is
regulated in accordance with that
definition and (ii) the institution verifies
in writing that the policy includes the
provisions identified by the insurer in
the summary provided and that these
provisions satisfy the criteria included
in the definition.
Under §§ 22.3(c)(3)(iv)(B)(3),
208.25(c)(3)(iii)(D)(2)(iii),
339.3(c)(3)(iv)(B)(3), and
760.3(c)(3)(iv)(B)(3), institutions have
the discretion to accept a flood
insurance policy issued by a private
insurer that is not issued under the
NFIP, does not meet the definition of
private flood insurance, and does not
satisfy §§ 22.3(c)(3)(iv)(A),
208.25(c)(3)(iii)(D)(1), 339.3(c)(3)(iv)(A),
and 760.3(c)(iv)(A) if, among other
things, the institution has documented
in writing that it has compared the
private policy with an SFIP to
determine the differences between the
private policy and an SFIP and
reasonably determines that the private
policy provides sufficient protection of
the loan.
Under §§ 22.3(c)(4)(iv),
208.5(c)(iv)(D), 339.3(c)(4)(iv), and
760.3(c)(4)(iv), institutions may accept a
private policy issued by a mutual aid
society if, among other things, it has
determined that the policy provides
sufficient protection of the loan secured
by the property located in the SFHA and
documented its conclusions.

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Federal Register / Vol. 81, No. 215 / Monday, November 7, 2016 / Proposed Rules
Burden Estimates
OCC:
Number of Respondents: 1,341.
Total Burden: 129,968 hours.
Board:
Number of Respondents: 846.
Total Burden: 42,050 hours.
FDIC:
Number of Respondents:3,885.
Total Burden: 136,100 hours.
NCUA:
Number of Respondents: 4,058.
Total Burden: 95,211 hours.
These collections are available to the
public at www.reginfo.gov.
Comments are invited on:
(a) Whether the information
collections are necessary for the proper
performance of the Agencies’ functions,
including whether the information has
practical utility;
(b) The accuracy of the Agencies’
estimates of the burden of the
information collections, including the
validity of the methodology and
assumptions used;
(c) Ways to enhance the quality,
utility, and clarity of the information to
be collected;
(d) Ways to minimize the burden of
information collections on respondents,
including through the use of automated
collection techniques or other forms of
information technology; and
(e) Estimates of capital or start-up
costs and costs of operation,
maintenance, and purchase of services
to provide information.

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D. Riegle Community Development and
Regulatory Improvement Act of 1994
Section 302(a) of the Riegle
Community Development and
Regulatory Improvement Act of 1994
(RCDRIA) 37 requires that each Federal
banking agency,38 in determining the
effective date and administrative
compliance requirements for new
regulations that impose additional
reporting, disclosure, or other
requirements on insured depository
institutions, consider, consistent with
principles of safety and soundness and
the public interest, any administrative
burdens that such regulations would
place on depository institutions,
including small depository institutions,
and customers of depository
institutions, as well as the benefits of
such regulations. In addition, new
regulations that impose additional
reporting, disclosures, or other new
requirements on insured depository
institutions generally must take effect
37 12

U.S.C. 4802(a).
purposes of RCDRIA, ‘‘Federal banking
agency’’ means the OCC, FDIC, and Board. See 12
U.S.C. 4801.
38 For

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on the first day of a calendar quarter
that begins on or after the date on which
the regulations are published in final
form.
The Federal banking agencies note
that comment on these matters has been
solicited in other sections of this
SUPPLEMENTARY INFORMATION section,
and that the requirements of RCDRIA
will be considered as part of the overall
rulemaking process. In addition, the
Federal banking agencies invite any
other comments that further will inform
the Federal banking agencies’
consideration of RCDRIA.
List of Subjects
12 CFR Part 22
Flood insurance, Mortgages, National
banks, Reporting and recordkeeping
requirements, Savings associations.
12 CFR Part 208
Accounting, Agriculture, Banks,
banking, Confidential business
information, Crime, Currency, Federal
Reserve System, Flood insurance,
Mortgages, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 339
Flood insurance, Reporting and
recordkeeping requirements, Savings
associations.
12 CFR Part 614
Agriculture, Banks, banking, Flood
insurance, Foreign trade, Reporting and
recordkeeping requirements, Rural
areas.
12 CFR Part 760
Credit unions, Mortgages, Flood
insurance, Reporting and Recordkeeping
requirements.
Office of the Comptroller of the
Currency
12 CFR CHAPTER I

Authority and Issuance
For the reasons set forth in the joint
preamble and under the authority of 12
U.S.C. 93a, the OCC proposes to amend
chapter I of title 12 of the Code of
Federal Regulations as follows:
PART 22—LOANS IN AREAS HAVING
SPECIAL FLOOD HAZARDS
1. The authority citation for part 22
continues to read as follows:

■

Authority: 12 U.S.C. 93a, 1462a, 1463,
1464, and 5412(b)(2)(B); 42 U.S.C. 4012a,
4104a, 4104b, 4106, and 4128.

2. Section 22.2 is amended by:
a. Redesignating paragraphs (h) and (i)
as paragraphs (i) and (j), paragraphs (j)

■
■

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78073

and (k) as (l) and (m), and (l) and (m)
as (o) and (p); and
■ b. Adding new paragraphs (h), (k) and
(n) to read as follows:
§ 22.2

Definitions.

*

*
*
*
*
(h) Mutual aid society means an
organization—
(1) Whose members share a common
religious, charitable, educational, or
fraternal bond;
(2) That covers losses caused by
damage to members’ property pursuant
to an agreement, including damage
caused by flooding, in accordance with
this common bond; and
(3) That has a demonstrated history of
fulfilling the terms of agreements to
cover losses to members’ property
caused by flooding.
*
*
*
*
*
(k) Private flood insurance means an
insurance policy that:
(1) Is issued by an insurance company
that is:
(i) Licensed, admitted, or otherwise
approved to engage in the business of
insurance in the State or jurisdiction in
which the property to be insured is
located, by the insurance regulator of
that State or jurisdiction; or
(ii) Recognized, or not disapproved, as
a surplus lines insurer by the insurance
regulator of the State or jurisdiction in
which the property to be insured is
located in the case of a policy of
difference in conditions, multiple peril,
all risk, or other blanket coverage
insuring nonresidential commercial
property;
(2) Provides flood insurance coverage
that is at least as broad as the coverage
provided under an SFIP, including
when considering deductibles,
exclusions, and conditions offered by
the insurer. For purposes of this part, a
policy is at least as broad as the
coverage provided under an SFIP if, at
a minimum, the policy:
(i) Defines the term ‘‘flood’’ to include
the events defined as a ‘‘flood’’ in an
SFIP;
(ii) Covers both the mortgagor(s) and
the mortgagee(s) as loss payees;
(iii) Contains the coverage and
provisions specified in an SFIP,
including those relating to building
property coverage; personal property
coverage, if purchased by the insured
mortgagor(s); other coverages; and the
increased cost of compliance;
(iv) Contains deductibles no higher
than the specified maximum for the
same type of property, and includes
similar non-applicability provisions, as
under an SFIP, for any total policy
coverage amount up to the maximum

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available under the NFIP at the time the
policy is provided to the lender;
(v) Provides coverage for direct
physical loss caused by a flood and may
exclude other causes of loss identified
in an SFIP. Any additional or different
exclusions than those in an SFIP may
pertain only to coverage that is in
addition to the amount and type of
coverage that could be provided by an
SFIP; and
(vi) May not contain conditions that
narrow the coverage provided in an
SFIP;
(3) Includes all of the following:
(i) A requirement for the insurer to
give written notice 45 days before
cancellation or non-renewal of flood
insurance coverage to:
(A) The insured; and
(B) The national bank or Federal
savings association that made the
designated loan secured by the property
covered by the flood insurance, or the
servicer acting on its behalf;
(ii) Information about the availability
of flood insurance coverage under the
NFIP;
(iii) A mortgage interest clause similar
to the clause contained in an SFIP; and
(iv) A provision requiring an insured
to file suit not later than one year after
the date of a written denial of all or part
of a claim under the policy; and
(4) Contains cancellation provisions
that are as restrictive as the provisions
contained in an SFIP.
*
*
*
*
*
(n) SFIP means, for purposes of
§§ 22.2 and 22.3, a standard flood
insurance policy issued under the NFIP
in effect as of the date the private policy
is provided to a national bank or Federal
savings association.
*
*
*
*
*
■ 3. Section 22.3 is amended by adding
paragraph (c) to read as follows:
§ 22.3 Requirement to purchase flood
insurance where available.

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*

*
*
*
*
(c) Private flood insurance. (1)
Mandatory acceptance. A national bank
or Federal savings association must
accept private flood insurance, as
defined in § 22.2(k), in satisfaction of
the flood insurance purchase
requirement, provided that the private
flood insurance meets the requirement
for coverage under paragraph (a) of this
section.
(2) Compliance aid for mandatory
acceptance. A flood insurance policy is
deemed to meet the definition of private
flood insurance in § 22.2(k) for purposes
of paragraph (a) of this section if:
(i) The policy includes, or is
accompanied by, a written summary
that demonstrates how the policy meets

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the definition of private flood insurance
in § 22.2(k) by identifying the provisions
of the policy that meet each criterion in
the definition, and confirms that the
insurer is regulated in accordance with
that definition;
(ii) The national bank or Federal
savings association verifies in writing
that the policy includes the provisions
identified by the insurer in the summary
provided pursuant to paragraph (c)(2)(i)
of this section and that these provisions
satisfy the criteria included in the
definition; and
(iii) The policy includes the following
provision within the policy or as an
endorsement to the policy: ‘‘This policy
meets the definition of private flood
insurance contained in 42 U.S.C.
4012a(b)(7) and the corresponding
regulation.’’
(3) Discretionary acceptance. A
national bank or Federal savings
association may accept a flood
insurance policy issued by a private
insurer that is not issued under the
NFIP and does not meet the definition
of private flood insurance, as defined in
§ 22.2(k), in satisfaction of the flood
insurance purchase requirement under
paragraph (a) of this section, only if the
coverage under such flood insurance
policy meets the amount and term
requirements specified in paragraph (a)
of this section, and the policy:
(i) Is issued by an insurer that is
licensed, admitted, or otherwise
approved to engage in the business of
insurance in the State or jurisdiction in
which the property to be insured is
located by the insurance regulator of
that State; or in the case of a policy of
difference in conditions, multiple peril,
all risk, or other blanket coverage
insuring nonresidential commercial
property, is issued by a surplus lines
insurer recognized, or not disapproved,
by the insurance regulator of the State
where the property to be insured is
located;
(ii) Covers both the mortgagor(s) and
the mortgagee(s) as loss payees;
(iii) Provides for cancellation
following reasonable notice to the
borrower only for reasons permitted by
FEMA for an SFIP on the Flood
Insurance Cancellation Request/
Nullification Form, in any case of nonpayment, or when cancellation is
mandated pursuant to State law; and
(iv) Either:
(A) Meets the criteria set forth in
paragraphs (k)(2)(i) and (iii) through (vi)
of this section; or
(B) Provides coverage that is similar to
coverage provided under an SFIP,
including when considering
deductibles, exclusions, and conditions

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offered by the insurer, and the national
bank or Federal savings association has:
(1) Compared the private policy with
an SFIP to determine the differences
between the private policy and an SFIP;
(2) Reasonably determined that the
private policy provides sufficient
protection of the loan secured by the
property located in a special flood
hazard area; and
(3) Documented its findings under
paragraphs (c)(3)(iv)(B)(1) and (2) of this
section.
(4) Exception for mutual aid societies.
Notwithstanding the requirements of
paragraph (c)(3) of this section, a
national bank or Federal savings
association may accept a private policy
issued by a mutual aid society in
satisfaction of the flood insurance
purchase requirement under paragraph
(a) of this section if:
(i) The OCC has determined that such
types of policies qualify as flood
insurance for purposes of this Act;
(ii) The policy meets the amount of
coverage for losses and term
requirements specified in paragraph (a)
of this section;
(iii) The policy covers both the
mortgagor(s) and the mortgagee(s) as
loss payees; and
(iv) The national bank or Federal
savings association has determined that
the policy provides sufficient protection
of the loan secured by the property
located in a special flood hazard area. In
making this determination, the national
bank or Federal savings association
must:
(A) Verify that the policy is consistent
with general safety and soundness
principles, such as whether deductibles
are reasonable based on the borrower’s
financial condition;
(B) Consider the policy provider’s
ability to satisfy claims, such as whether
the policy provider has a demonstrated
record of covering losses; and
(C) Document its conclusions.
Federal Reserve System
12 CFR CHAPTER II

Authority and Issuance
For the reasons set forth in the joint
preamble, the Board proposes to amend
part 208 of chapter II of title 12 of the
Code of Federal Regulations as set forth
below:
PART 208—MEMBERSHIP OF STATE
BANKING INSTITUTIONS IN THE
FEDERAL RESERVE SYSTEM
(REGULATION H)
4. The authority citation for part 208
is revised to read as follows:

■

Authority: 12 U.S.C. 24, 36, 92a, 93a,
248(a), 248(c), 321–338a, 371d, 461, 481–486,

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Federal Register / Vol. 81, No. 215 / Monday, November 7, 2016 / Proposed Rules
601, 611, 1814, 1816, 1818, 1820(d)(9),
1823(j), 1828(o), 1831, 1831o, 1831p–1,
1831r–1, 1831w, 1831x, 1835a, 1882, 2901–
2907, 3105, 3310, 3331–3351, 3353, and
3905–3909; 15 U.S.C. 78b, 78l(b), 78l(i), 780–
4(c)(5), 78q, 78q–1, 78w, 1681s, 1681w, 6801
and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a,
4104b, 4106, and 4128.

5. Amend § 208.25 by revising
paragraphs (b)(7) through (b)(11) and
adding paragraphs (b)(12) through
(b)(14) and (c)(3) to read as follows:

■

§ 208.25 Loans in areas having special
flood hazards.

ehiers on DSK5VPTVN1PROD with PROPOSALS

*

*
*
*
*
(b) Definitions. For purposes of this
section:
*
*
*
*
*
(7) Mutual aid society means an
organization—
(i) Whose members share a common
religious, charitable, educational, or
fraternal bond;
(ii) That covers losses caused by
damage to members’ property pursuant
to an agreement, including damage
caused by flooding, in accordance with
this common bond; and
(iii) That has a demonstrated history
of fulfilling the terms of agreements to
cover losses to members’ property
caused by flooding.
(8) NFIP means the National Flood
Insurance Program authorized under the
Act.
(9) Private flood insurance means an
insurance policy that:
(i) Is issued by an insurance company
that is:
(A) Licensed, admitted, or otherwise
approved to engage in the business of
insurance in the State or jurisdiction in
which the property to be insured is
located, by the insurance regulator of
that State or jurisdiction; or
(B) Recognized, or not disapproved, as
a surplus lines insurer by the insurance
regulator of the State or jurisdiction in
which the property to be insured is
located in the case of a policy of
difference in conditions, multiple peril,
all risk, or other blanket coverage
insuring nonresidential commercial
property;
(ii) Provides flood insurance coverage
that is at least as broad as the coverage
provided under an SFIP, including
when considering deductibles,
exclusions, and conditions offered by
the insurer. For purposes of this part, a
policy is at least as broad as the
coverage provided under an SFIP if, at
a minimum, the policy:
(A) Defines the term ‘‘flood’’ to
include the events defined as a ‘‘flood’’
in an SFIP;
(B) Covers both the mortgagor(s) and
the mortgagee(s) as loss payees;

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(C) Contains the coverage and
provisions specified in an SFIP,
including those relating to building
property coverage; personal property
coverage, if purchased by the insured
mortgagor(s); other coverages; and the
increased cost of compliance;
(D) Contains deductibles no higher
than the specified maximum for the
same type of property, and includes
similar non-applicability provisions, as
under an SFIP, for any total policy
coverage amount up to the maximum
available under the NFIP at the time the
policy is provided to the lender;
(E) Provides coverage for direct
physical loss caused by a flood and may
exclude other causes of loss identified
in an SFIP. Any additional or different
exclusions than those in an SFIP may
pertain only to coverage that is in
addition to the amount and type of
coverage that could be provided by an
SFIP; and
(F) May not contain conditions that
narrow the coverage provided in an
SFIP;
(iii) Includes all of the following:
(A) A requirement for the insurer to
give written notice 45 days before
cancellation or non-renewal of flood
insurance coverage to:
(1) The insured; and
(2) The member bank that made the
designated loan secured by the property
covered by the flood insurance, or the
servicer acting on its behalf;
(B) Information about the availability
of flood insurance coverage under the
NFIP;
(C) A mortgage interest clause similar
to the clause contained in an SFIP; and
(D) A provision requiring an insured
to file suit not later than one year after
the date of a written denial of all or part
of a claim under the policy; and
(iv) Contains cancellation provisions
that are as restrictive as the provisions
contained in an SFIP.
(10) Residential improved real estate
means real estate upon which a home or
other residential building is located or
to be located.
(11) Servicer means the person
responsible for:
(i) Receiving any scheduled, periodic
payments from a borrower under the
terms of a loan, including amounts for
taxes, insurance premiums, and other
charges with respect to the property
securing the loan; and
(ii) Making payments of principal and
interest and any other payments from
the amounts received from the borrower
as may be required under the terms of
the loan.
(12) SFIP means, for purposes of
paragraphs (b) and (c) of this section, a
standard flood insurance policy issued

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78075

under the NFIP in effect as of the date
the private policy is provided to a
member bank.
(13) Special flood hazard area means
the land in the flood plain within a
community having at least a one percent
chance of flooding in any given year, as
designated by the Administrator of
FEMA.
(14) Table funding means a settlement
at which a loan is funded by a
contemporaneous advance of loan funds
and an assignment of the loan to the
person advancing the funds.
(c) Requirement to purchase flood
insurance where available.
*
*
*
*
*
(3) Private flood insurance. (i)
Mandatory acceptance. A member bank
must accept private flood insurance, as
defined in paragraph (b)(9) of this
section, in satisfaction of the flood
insurance purchase requirement,
provided that the private flood
insurance meets the requirement for
coverage under paragraph (c)(1) of this
section.
(ii) Compliance aid for mandatory
acceptance. A flood insurance policy is
deemed to meet the definition of private
flood insurance in paragraph (b)(9) of
this section for purposes of paragraph
(c)(1) of this section if:
(A) The policy includes, or is
accompanied by, a written summary
that demonstrates how the policy meets
the definition of private flood insurance
in paragraph (b)(9) of this section by
identifying the provisions of the policy
that meet each criterion in the
definition, and confirms that the insurer
is regulated in accordance with that
definition;
(B) The member bank verifies in
writing that the policy includes the
provisions identified by the insurer in
the summary provided pursuant to
paragraph (c)(3)(ii)(A) of this section
and that these provisions satisfy the
criteria included in the definition; and
(C) The policy includes the following
provision within the policy or as an
endorsement to the policy: ‘‘This policy
meets the definition of private flood
insurance contained in 42 U.S.C.
4012a(b)(7) and the corresponding
regulation.’’
(iii) Discretionary acceptance. A
member bank may accept a flood
insurance policy issued by a private
insurer that is not issued under the
NFIP and does not meet the definition
of private flood insurance, as defined in
paragraph (b)(9) of this section, in
satisfaction of the flood insurance
purchase requirement under paragraph
(c)(1) of this section, only if the coverage
under such flood insurance policy

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meets the amount and term
requirements specified in paragraph
(c)(1) of this section, and the policy:
(A) Is issued by an insurer that is
licensed, admitted, or otherwise
approved to engage in the business of
insurance in the State or jurisdiction in
which the property to be insured is
located by the insurance regulator of
that State; or in the case of a policy of
difference in conditions, multiple peril,
all risk, or other blanket coverage
insuring nonresidential commercial
property, is issued by a surplus lines
insurer recognized, or not disapproved,
by the insurance regulator of the State
where the property to be insured is
located;
(B) Covers both the mortgagor(s) and
the mortgagee(s) as loss payees;
(C) Provides for cancellation
following reasonable notice to the
borrower only for reasons permitted by
FEMA for an SFIP on the Flood
Insurance Cancellation Request/
Nullification Form, in any case of nonpayment, or when cancellation is
mandated pursuant to State law; and
(D) Either:
(1) Meets the criteria set forth in
paragraphs (b)(9)(ii)(A) and (C) through
(F) of this section; or
(2) Provides coverage that is similar to
coverage provided under an SFIP,
including when considering
deductibles, exclusions, and conditions
offered by the insurer, and the member
bank has:
(i) Compared the private policy with
an SFIP to determine the differences
between the private policy and an SFIP;
(ii) Reasonably determined that the
private policy provides sufficient
protection of the loan secured by the
property located in a special flood
hazard area; and
(iii) Documented its findings under
paragraphs (c)(3)(iii)(D)(2)(i) and (ii) of
this section.
(iv) Exception for mutual aid
societies. Notwithstanding the
requirements of paragraph (c)(3)(iii) of
this section, a member bank may accept
a private policy issued by a mutual aid
society in satisfaction of the flood
insurance purchase requirement under
paragraph (c)(1) of this section if:
(A) The Board has determined that
such types of policies qualify as flood
insurance for purposes of this Act.
(B) The policy meets the amount of
coverage for losses and term
requirements specified in paragraph
(c)(1) of this section;
(C) The policy covers both the
mortgagor(s) and the mortgagee(s) as
loss payees; and
(D) The member bank has determined
that the policy provides sufficient

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protection of the loan secured by the
property located in a special flood
hazard area. In making this
determination, the member bank must:
(1) Verify that the policy is consistent
with general safety and soundness
principles, such as whether deductibles
are reasonable based on the borrower’s
financial condition;
(2) Consider the policy provider’s
ability to satisfy claims, such as whether
the policy provider has a demonstrated
record of covering losses; and
(3) Document its conclusions.
Federal Deposit Insurance Corporation
12 CFR CHAPTER III

Authority and Issuance
For the reasons set forth in the joint
preamble, the Board of Directors of the
FDIC proposes to amend part 339 of
chapter III of title 12 of the Code of
Federal Regulations to read as follows:
PART 339—LOANS IN AREAS HAVING
SPECIAL FLOOD HAZARDS
6. The authority citation for part 339
continues to read as follows:

■

Authority: 12 U.S.C. 1462a, 1463, 1464,
1819 (Tenth), 5412(b)(2)(C) and 42 U.S.C.
4012a, 4104a, 4104b, 4106, and 4128.

7. Section 339.2 is amended by adding
the definitions of ‘‘Mutual aid society’’,
‘‘Private flood insurance’’, and ‘‘SFIP’’
in alphabetical order to read as follows:

■

§ 339.2

Definitions.

*

*
*
*
*
Mutual aid society means an
organization—
(1) Whose members share a common
religious, charitable, educational, or
fraternal bond;
(2) That covers losses caused by
damage to members’ property pursuant
to an agreement, including damage
caused by flooding, in accordance with
this common bond; and
(3) That has a demonstrated history of
fulfilling the terms of agreements to
cover losses to members’ property
caused by flooding.
*
*
*
*
*
Private flood insurance means an
insurance policy that:
(1) Is issued by an insurance company
that is:
(i) Licensed, admitted, or otherwise
approved to engage in the business of
insurance in the State or jurisdiction in
which the property to be insured is
located, by the insurance regulator of
that State or jurisdiction; or
(ii) Recognized, or not disapproved, as
a surplus lines insurer by the insurance
regulator of the State or jurisdiction in
which the property to be insured is

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Sfmt 4702

located in the case of a policy of
difference in conditions, multiple peril,
all risk, or other blanket coverage
insuring nonresidential commercial
property;
(2) Provides flood insurance coverage
that is at least as broad as the coverage
provided under an SFIP, including
when considering deductibles,
exclusions, and conditions offered by
the insurer. For purposes of this part, a
policy is at least as broad as the
coverage provided under an SFIP if, at
a minimum, the policy:
(i) Defines the term ‘‘flood’’ to include
the events defined as a ‘‘flood’’ in an
SFIP;
(ii) Covers both the mortgagor(s) and
the mortgagee(s) as loss payees;
(iii) Contains the coverage and
provisions specified in an SFIP,
including those relating to building
property coverage; personal property
coverage, if purchased by the insured
mortgagor(s); other coverages; and the
increased cost of compliance;
(iv) Contains deductibles no higher
than the specified maximum for the
same type of property, and includes
similar non-applicability provisions, as
under an SFIP, for any total policy
coverage amount up to the maximum
available under the NFIP at the time the
policy is provided to the lender;
(v) Provides coverage for direct
physical loss caused by a flood and may
exclude other causes of loss identified
in an SFIP. Any additional or different
exclusions than those in an SFIP may
pertain only to coverage that is in
addition to the amount and type of
coverage that could be provided by an
SFIP; and
(vi) May not contain conditions that
narrow the coverage provided in an
SFIP;
(3) Includes all of the following:
(i) A requirement for the insurer to
give written notice 45 days before
cancellation or non-renewal of flood
insurance coverage to:
(A) The insured; and
(B) The FDIC-supervised institution
that made the designated loan secured
by the property covered by the flood
insurance, or the servicer acting on its
behalf;
(ii) Information about the availability
of flood insurance coverage under the
NFIP;
(iii) A mortgage interest clause similar
to the clause contained in an SFIP; and
(iv) A provision requiring an insured
to file suit not later than one year after
the date of a written denial of all or part
of a claim under the policy; and

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Federal Register / Vol. 81, No. 215 / Monday, November 7, 2016 / Proposed Rules
(4) Contains cancellation provisions
that are as restrictive as the provisions
contained in an SFIP.
*
*
*
*
*
SFIP means, for purposes of §§ 339.2
and 339.3, a standard flood insurance
policy issued under the NFIP in effect
as of the date the private policy is
provided to an FDIC-supervised
institution.
*
*
*
*
*
■ 8. Section 339.3 is amended by adding
paragraph (c) to read as follows:
§ 339.3 Requirement to purchase flood
insurance where available.

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*

*
*
*
*
(c) Private flood insurance. (1)
Mandatory acceptance. An FDICsupervised institution must accept
private flood insurance, as defined in
§ 339.2, in satisfaction of the flood
insurance purchase requirement,
provided that the private flood
insurance meets the requirement for
coverage under paragraph (a) of this
section.
(2) Compliance aid for mandatory
acceptance. A flood insurance policy is
deemed to meet the definition of private
flood insurance in § 339.2 for purposes
of paragraph (a) of this section if:
(i) The policy includes, or is
accompanied by, a written summary
that demonstrates how the policy meets
the definition of private flood insurance
in § 339.2 by identifying the provisions
of the policy that meet each criterion in
the definition, and confirms that the
insurer is regulated in accordance with
that definition;
(ii) The FDIC-supervised institution
verifies in writing that the policy
includes the provisions identified by the
insurer in the summary provided
pursuant to paragraph (c)(2)(i) of this
section and that these provisions satisfy
the criteria included in the definition;
and
(iii) The policy includes the following
provision within the policy or as an
endorsement to the policy: ‘‘This policy
meets the definition of private flood
insurance contained in 42 U.S.C.
4012a(b)(7) and the corresponding
regulation.’’
(3) Discretionary acceptance. An
FDIC-supervised institution may accept
a flood insurance policy issued by a
private insurer that is not issued under
the NFIP and does not meet the
definition of private flood insurance, as
defined in § 339.2, in satisfaction of the
flood insurance purchase requirement
under paragraph (a) of this section, only
if the coverage under such flood
insurance policy meets the amount and
term requirements specified in

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paragraph (a) of this section, and the
policy:
(i) Is issued by an insurer that is
licensed, admitted, or otherwise
approved to engage in the business of
insurance in the State or jurisdiction in
which the property to be insured is
located by the insurance regulator of
that State; or in the case of a policy of
difference in conditions, multiple peril,
all risk, or other blanket coverage
insuring nonresidential commercial
property, is issued by a surplus lines
insurer recognized, or not disapproved,
by the insurance regulator of the State
where the property to be insured is
located;
(ii) Covers both the mortgagor(s) and
the mortgagee(s) as loss payees;
(iii) Provides for cancellation
following reasonable notice to the
borrower only for reasons permitted by
FEMA for an SFIP on the Flood
Insurance Cancellation Request/
Nullification Form, in any case of nonpayment, or when cancellation is
mandated pursuant to State law; and
(iv) Either:
(A) Meets the criteria of private flood
insurance, as defined in § 339.2, set
forth in paragraphs (2)(i) and (iii)
through (vi) of this section; or
(B) Provides coverage that is similar to
coverage provided under an SFIP,
including when considering
deductibles, exclusions, and conditions
offered by the insurer, and the FDICsupervised institution has:
(1) Compared the private policy with
an SFIP to determine the differences
between the private policy and an SFIP;
(2) Reasonably determined that the
private policy provides sufficient
protection of the loan secured by the
property located in a special flood
hazard area; and
(3) Documented its findings under
paragraphs (c)(3)(iv)(B)(1) and (2) of this
section.
(4) Exception for mutual aid societies.
Notwithstanding the requirements of
paragraph (c)(3) of this section, an FDICsupervised institution may accept a
private policy issued by a mutual aid
society in satisfaction of the flood
insurance purchase requirement under
paragraph (a) of this section if:
(i) The FDIC has determined that such
types of policies qualify as flood
insurance for purposes of this Act;
(ii) The policy meets the amount of
coverage for losses and term
requirements specified in paragraph (a)
of this section;
(iii) The policy covers both the
mortgagor(s) and the mortgagee(s) as
loss payees; and
(iv) The FDIC-supervised institution
has determined that the policy provides

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78077

sufficient protection of the loan secured
by the property located in a special
flood hazard area. In making this
determination, the FDIC-supervised
institution must:
(A) Verify that the policy is consistent
with general safety and soundness
principles, such as whether deductibles
are reasonable based on the borrower’s
financial condition;
(B) Consider the policy provider’s
ability to satisfy claims, such as whether
the policy provider has a demonstrated
record of covering losses; and
(C) Document its conclusions.
Farm Credit Administration
12 CFR CHAPTER VI

Authority and Issuance
For the reasons set forth in the joint
preamble, the FCA proposes to amend
part 614 subpart S of chapter VI, title 12
of the Code of Federal Regulations as set
forth below:
PART 614—LOANS IN AREAS HAVING
SPECIAL FLOOD HAZARDS
9. The authority citation for part 614
is revised to read as follows:

■

Authority: 42 U.S.C. 4012a, 4104a, 4104b,
4106, and 4128; secs. 1.3, 1.5, 1.6, 1.7, 1.9,
1.10, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13, 2.15,
3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12,
4.12A, 4.13, 4.13B, 4.14, 4.14A, 4.14C, 4.14D,
4.14E, 4.18, 4.19, 4.36, 4.37, 5.9, 5.10, 5.17,
7.0, 7.2, 7.6, 7.7, 7.8, 7.12, 7.13, 8.0, 8.5 of
Pub. L. 92–181, 85 Stat. 583 (12 U.S.C. 2011,
2013, 2014, 2015, 2017, 2018, 2071, 2073,
2074, 2075, 2091, 2093, 2094, 2096, 2121,
2122, 2124, 2128, 2129, 2131, 2141, 2149,
2183, 2184, 2199, 2201, 2202, 2202a, 2202c,
2202d, 2202e, 2206, 2207, 2219a, 2219b,
2243, 2244, 2252, 2279a, 2279a–2, 2279b,
2279b–1, 2279b–2, 2279f, 2279f–1, 2279aa,
2279aa–5); sec. 413 of Pub. L. 100–233, 101
Stat. 1568, 1639.

10. Section 614.4925, is amended by
adding the definitions of ‘‘mutual aid
society’’, ‘‘private flood insurance’’, and
‘‘SFIP’’ in alphabetical order to read as
follows:

■

§ 614.4925

Definitions.

*

*
*
*
*
Mutual aid society means an
organization:
(1) Whose members share a common
religious, charitable, educational, or
fraternal bond;
(2) That covers losses caused by
damage to members’ property pursuant
to an agreement, including damage
caused by flooding, in accordance with
this common bond; and
(3) That has a demonstrated history of
fulfilling the terms of agreements to
cover losses to members’ property
caused by flooding.
*
*
*
*
*

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Private flood insurance means an
insurance policy that:
(1) Is issued by an insurance company
that is:
(i) Licensed, admitted, or otherwise
approved to engage in the business of
insurance in the State or jurisdiction in
which the property to be insured is
located, by the insurance regulator of
that State or jurisdiction; or
(ii) Recognized, or not disapproved, as
a surplus lines insurer by the insurance
regulator of the State or jurisdiction in
which the property to be insured is
located in the case of a policy of
difference in conditions, multiple peril,
all risk, or other blanket coverage
insuring nonresidential commercial
property;
(2) Provides flood insurance coverage
that is at least as broad as the coverage
provided under an SFIP, including
when considering deductibles,
exclusions, and conditions offered by
the insurer. For purposes of this
subpart, a policy is at least as broad as
the coverage provided under an SFIP if,
at a minimum, the policy:
(i) Defines the term ‘‘flood’’ to include
the events defined as a ‘‘flood’’ in an
SFIP;
(ii) Covers both the mortgagor(s) and
the mortgagee(s) as loss payees;
(iii) Contains the coverage and
provisions specified in an SFIP,
including those relating to building
property coverage; personal property
coverage, if purchased by the insured
mortgagor(s); other coverages; and the
increased cost of compliance;
(iv) Contains deductibles no higher
than the specified maximum for the
same type of property, and includes
similar non-applicability provisions, as
under an SFIP, for any total policy
coverage amount up to the maximum
available under the NFIP at the time the
policy is provided to the lender;
(v) Provides coverage for direct
physical loss caused by a flood and may
exclude other causes of loss identified
in an SFIP. Any additional or different
exclusions than those in an SFIP may
pertain only to coverage that is in
addition to the amount and type of
coverage that could be provided by an
SFIP; and
(vi) May not contain conditions that
narrow the coverage provided in an
SFIP;
(3) Includes all of the following:
(i) A requirement for the insurer to
give written notice 45 days before
cancellation or non-renewal of flood
insurance coverage to:
(A) The insured; and
(B) The System institution that made
the designated loan secured by the

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property covered by the flood insurance,
or the servicer acting on its behalf;
(ii) Information about the availability
of flood insurance coverage under the
NFIP;
(iii) A mortgage interest clause similar
to the clause contained in an SFIP; and
(iv) A provision requiring an insured
to file suit not later than one year after
the date of a written denial of all or part
of a claim under the policy; and
(4) Contains cancellation provisions
that are as restrictive as the provisions
contained in an SFIP.
*
*
*
*
*
SFIP means, for purposes of
§§ 614.4925 and 614.4930, a standard
flood insurance policy issued under the
NFIP in effect as of the date the private
policy is provided to a System
institution.
*
*
*
*
*
■ 11. Section 614.4930 is amended by
adding paragraph (c) to read as follows:
§ 614.4930 Requirement to purchase flood
insurance where available.

*

*
*
*
*
(c) Private flood insurance—(1)
Mandatory acceptance. A System
institution must accept private flood
insurance, as defined in § 614.4925, in
satisfaction of the flood insurance
purchase requirement, provided that the
private flood insurance meets the
requirement for coverage under
paragraph (a) of this section.
(2) Compliance aid for mandatory
acceptance. A flood insurance policy is
deemed to meet the definition of private
flood insurance in § 614.4925 for
purposes of paragraph (a) of this section
if:
(i) The policy includes, or is
accompanied by, a written summary
that demonstrates how the policy meets
the definition of private flood insurance
in § 614.4925 by identifying the
provisions of the policy that meet each
criterion in the definition, and confirms
that the insurer is regulated in
accordance with that definition;
(ii) The System institution verifies in
writing that the policy includes the
provisions identified by the insurer in
the summary provided pursuant to
paragraph (c)(2)(i) of this section and
that these provisions satisfy the criteria
included in the definition; and
(iii) The policy includes the following
provision within the policy or as an
endorsement to the policy: ‘‘This policy
meets the definition of private flood
insurance contained in 42 U.S.C.
4012a(b)(7) and the corresponding
regulation.’’
(3) Discretionary acceptance.—In
general. A System institution may
accept a flood insurance policy issued

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by a private insurer that is not issued
under the NFIP and does not meet the
definition of private flood insurance, as
defined in § 614.4925, in satisfaction of
the flood insurance purchase
requirement under paragraph (a) of this
section, only if the coverage under such
flood insurance policy meets the
amount and term requirements specified
in paragraph (a) of this section, and the
policy:
(i) Is issued by an insurer that is
licensed, admitted, or otherwise
approved to engage in the business of
insurance in the State or jurisdiction in
which the property to be insured is
located by the insurance regulator of
that State; or in the case of a policy of
difference in conditions, multiple peril,
all risk, or other blanket coverage
insuring nonresidential commercial
property, is issued by a surplus lines
insurer recognized, or not disapproved,
by the insurance regulator of the State
where the property to be insured is
located;
(ii) Covers both the mortgagor(s) and
the mortgagee(s) as loss payees;
(iii) Provides for cancellation
following reasonable notice to the
borrower only for reasons permitted by
FEMA for an SFIP on the Flood
Insurance Cancellation Request/
Nullification Form, in any case of nonpayment, or when cancellation is
mandated pursuant to State law; and
(iv) Either:
(A) Meets the criteria set forth in
paragraphs (2)(i) and (iii) through (vi) of
the definition of private flood insurance
in § 614.4925; or
(B) Provides coverage that is similar to
coverage provided under an SFIP,
including when considering
deductibles, exclusions, and conditions
offered by the insurer, and the System
institution has:
(1) Compared the private policy with
an SFIP to determine the differences
between the private policy and an SFIP;
(2) Reasonably determined that the
private policy provides sufficient
protection of the loan secured by the
property located in a special flood
hazard area; and
(3) Documented its findings under
paragraphs (c)(3)(iv)(A)(B)(1) and (B)(2)
of this section.
(4) Exception for mutual aid societies.
Notwithstanding the requirements of
paragraph (c)(3) of this section, a System
institution may accept a private policy
issued by a mutual aid society in
satisfaction of the flood insurance
purchase requirement under paragraph
(a) of this section if:
(i) The FCA has determined that such
types of policies qualify as flood
insurance for purposes of the 1968 Act;

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Federal Register / Vol. 81, No. 215 / Monday, November 7, 2016 / Proposed Rules
(ii) The policy meets the amount of
coverage for losses and term
requirements specified in paragraph (a)
of this section;
(iii) The policy covers both the
mortgagor(s) and the mortgagee(s) as
loss payees; and
(iv) The System institution has
determined that the policy provides
sufficient protection of the loan secured
by the property located in a special
flood hazard area. In making this
determination, the System institution
must:
(A) Verify that the policy is consistent
with general safety and soundness
principles, such as whether deductibles
are reasonable based on the borrower’s
financial condition;
(B) Consider the policy provider’s
ability to satisfy claims, such as whether
the policy provider has a demonstrated
record of covering losses; and
(C) Document its conclusions.
National Credit Union Administration
12 CFR CHAPTER VII

Authority and Issuance
For the reasons set forth in the joint
preamble, the NCUA Board proposes to
amend part 760 of chapter VII of title 12
of the Code of Federal Regulations to
read as follows:
PART 760—LOANS IN AREAS HAVING
SPECIAL FLOOD HAZARDS
12. The authority citation for part 760
continues to read as follows:

■

Authority: 12 U.S.C. 1757, 1789; 42 U.S.C.
4012a, 4104a, 4104b, 4106, and 4128.

13. Section 760.2 is amended by
adding the definitions of ‘‘Mutual aid
society’’, ‘‘Private flood insurance’’, and
‘‘SFIP’’ in alphabetical order to read as
follows:

■

§ 760.2

Definitions.

ehiers on DSK5VPTVN1PROD with PROPOSALS

*

*
*
*
*
Mutual aid society means an
organization—
(1) Whose members share a common
religious, charitable, educational, or
fraternal bond;
(2) That covers losses caused by
damage to members’ property pursuant
to an agreement, including damage
caused by flooding, in accordance with
this common bond; and
(3) That has a demonstrated history of
fulfilling the terms of agreements to
cover losses to members’ property
caused by flooding.
*
*
*
*
*
Private flood insurance means an
insurance policy that:
(1) Is issued by an insurance company
that is:

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(i) Licensed, admitted, or otherwise
approved to engage in the business of
insurance in the State or jurisdiction in
which the property to be insured is
located, by the insurance regulator of
that State or jurisdiction; or
(ii) Recognized, or not disapproved, as
a surplus lines insurer by the insurance
regulator of the State or jurisdiction in
which the property to be insured is
located in the case of a policy of
difference in conditions, multiple peril,
all risk, or other blanket coverage
insuring nonresidential commercial
property;
(2) Provides flood insurance coverage
that is at least as broad as the coverage
provided under an SFIP, including
when considering deductibles,
exclusions, and conditions offered by
the insurer. For purposes of this part, a
policy is at least as broad as the
coverage provided under an SFIP if, at
a minimum, the policy:
(i) Defines the term ‘‘flood’’ to include
the events defined as a ‘‘flood’’ in an
SFIP;
(ii) Covers both the mortgagor(s) and
the mortgagee(s) as loss payees;
(iii) Contains the coverage and
provisions specified in an SFIP,
including those relating to building
property coverage; personal property
coverage, if purchased by the insured
mortgagor(s); other coverages; and the
increased cost of compliance;
(iv) Contains deductibles no higher
than the specified maximum for the
same type of property, and includes
similar non-applicability provisions, as
under an SFIP, for any total policy
coverage amount up to the maximum
available under the NFIP at the time the
policy is provided to the lender;
(v) Provides coverage for direct
physical loss caused by a flood and may
exclude other causes of loss identified
in an SFIP. Any additional or different
exclusions than those in an SFIP may
pertain only to coverage that is in
addition to the amount and type of
coverage that could be provided by an
SFIP; and
(vi) May not contain conditions that
narrow the coverage provided in an
SFIP;
(3) Includes all of the following:
(i) A requirement for the insurer to
give written notice 45 days before
cancellation or non-renewal of flood
insurance coverage to:
(A) The insured; and
(B) The credit union that made the
designated loan secured by the property
covered by the flood insurance, or the
servicer acting on its behalf;
(ii) Information about the availability
of flood insurance coverage under the
NFIP;

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78079

(iii) A mortgage interest clause similar
to the clause contained in an SFIP; and
(iv) A provision requiring an insured
to file suit not later than one year after
the date of a written denial of all or part
of a claim under the policy; and
(4) Contains cancellation provisions
that are as restrictive as the provisions
contained in an SFIP.
*
*
*
*
*
SFIP means, for purposes of §§ 760.2
and 760.3, a standard flood insurance
policy issued under the NFIP in effect
as of the date the private policy is
provided to a credit union.
*
*
*
*
*
■ 14. Section 760.3 is amended by
adding paragraph (c) to read as follows:
§ 760.3 Requirement to purchase flood
insurance where available.

*

*
*
*
*
(c) Private flood insurance—(1)
Mandatory acceptance. A credit union
must accept private flood insurance, as
defined in § 760.2, in satisfaction of the
flood insurance purchase requirement,
provided that the private flood
insurance meets the requirement for
coverage under paragraph (a) of this
section.
(2) Compliance aid for mandatory
acceptance. A flood insurance policy is
deemed to meet the definition of private
flood insurance in § 760.2 for purposes
of paragraph (a) of this section if:
(i) The policy includes, or is
accompanied by, a written summary
that demonstrates how the policy meets
the definition of private flood insurance
in § 760.2 by identifying the provisions
of the policy that meet each criterion in
the definition, and confirms that the
insurer is regulated in accordance with
that definition;
(ii) The credit union verifies in
writing that the policy includes the
provisions identified by the insurer in
the summary provided pursuant to
paragraph (c)(2)(i) of this section and
that these provisions satisfy the criteria
included in the definition; and
(iii) The policy includes the following
provision within the policy or as an
endorsement to the policy: ‘‘This policy
meets the definition of private flood
insurance contained in 42 U.S.C.
4012a(b)(7) and the corresponding
regulation.’’
(3) Discretionary acceptance. A credit
union may accept a flood insurance
policy issued by a private insurer that
is not issued under the NFIP and does
not meet the definition of private flood
insurance, as defined in § 760.2, in
satisfaction of the flood insurance
purchase requirement under paragraph
(a) of this section, only if the coverage
under such flood insurance policy

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Federal Register / Vol. 81, No. 215 / Monday, November 7, 2016 / Proposed Rules

meets the amount and term
requirements specified in paragraph (a)
of this section, and the policy:
(i) Is issued by an insurer that is
licensed, admitted, or otherwise
approved to engage in the business of
insurance in the State or jurisdiction in
which the property to be insured is
located by the insurance regulator of
that State; or in the case of a policy of
difference in conditions, multiple peril,
all risk, or other blanket coverage
insuring nonresidential commercial
property, is issued by a surplus lines
insurer recognized, or not disapproved,
by the insurance regulator of the State
where the property to be insured is
located;
(ii) Covers both the mortgagor(s) and
the mortgagee(s) as loss payees;
(iii) Provides for cancellation
following reasonable notice to the
borrower only for reasons permitted by
FEMA for an SFIP on the Flood
Insurance Cancellation Request/
Nullification Form, in any case of nonpayment, or when cancellation is
mandated pursuant to State law; and
(iv) Either:
(A) Meets the criteria set forth in
paragraphs (2)(i) and (iii) through (vi) of
the definition of private flood insurance
in § 760.2; or
(B) Provides coverage that is similar to
coverage provided under an SFIP,
including when considering
deductibles, exclusions, and conditions
offered by the insurer, and the credit
union has:
(1) Compared the private policy with
an SFIP to determine the differences
between the private policy and an SFIP;
(2) Reasonably determined that the
private policy provides sufficient
protection of the loan secured by the
property located in a special flood
hazard area; and
(3) Documented its findings under
paragraphs (c)(3)(iv)(B)(1) and (2) of this
section.
(4) Exception for mutual aid societies.
Notwithstanding the requirements of
paragraph (c)(3) of this section, a credit
union may accept a private policy
issued by a mutual aid society in
satisfaction of the flood insurance
purchase requirement under paragraph
(a) of this section if:
(i) The National Credit Union
Administration has determined that
such types of policies qualify as flood
insurance for purposes of this Act;
(ii) The policy meets the amount of
coverage for losses and term
requirements specified in paragraph (a)
of this section;
(iii) The policy covers both the
mortgagor(s) and the mortgagee(s) as
loss payees; and

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(iv) The credit union has determined
that the policy provides sufficient
protection of the loan secured by the
property located in a special flood
hazard area. In making this
determination, the credit union must:
(A) Verify that the policy is consistent
with general safety and soundness
principles, such as whether deductibles
are reasonable based on the borrower’s
financial condition;
(B) Consider the policy provider’s
ability to satisfy claims, such as whether
the policy provider has a demonstrated
record of covering losses; and
(C) Document its conclusions.
Dated: October 19, 2016.
Thomas J. Curry,
Comptroller of the Currency.
By order of the Board of Governors of the
Federal Reserve System, October 12, 2016.
Robert deV. Frierson,
Secretary of the Board.
By order of the Board of Directors of the
Federal Deposit Insurance Corporation.
Dated at Washington, DC, this 19th day of
October, 2016.
Robert E. Feldmanm
Executive Secretary,
By order of the Board of the Farm Credit
Administration.
Dated at McLean, VA, this 14th day of
October, 2016.
Dale L. Aultman,
Secretary.
By order of the Board of the National
Credit Union Administration.
Dated at Alexandria, VA, this 27th day of
October, 2016.
Gerard S. Poliquin,
Secretary of the Board.
[FR Doc. 2016–26411 Filed 11–4–16; 8:45 am]
BILLING CODE 4810–33–P; 6210–01–P; 7535–01–P;
6705–01–P

DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2016–9304; Directorate
Identifier 2016–NM–028–AD]
RIN 2120–AA64

Airworthiness Directives; Bombardier,
Inc. Airplanes
Federal Aviation
Administration (FAA), Department of
Transportation (DOT).
ACTION: Notice of proposed rulemaking
(NPRM).
AGENCY:

We propose to adopt a new
airworthiness directive (AD) for certain

SUMMARY:

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Bombardier, Inc. Model BD–700–1A10
and BD–700–1A11 airplanes. This
proposed AD was prompted by reports
of aileron and rudder control cables
which may have tensions that are
beyond allowable limits. This proposed
AD would require revising the
maintenance or inspection program to
incorporate certification maintenance
requirement tasks that introduce
functional tests of the control cable
tension. We are proposing this AD to
detect and correct out-of-tolerance
tension in the control cables, which,
with certain system failures and
environmental conditions, could result
in reduced controllability of the
airplane.
We must receive comments on
this proposed AD by December 22,
2016.

DATES:

You may send comments,
using the procedures found in 14 CFR
11.43 and 11.45, by any of the following
methods:
• Federal eRulemaking Portal: Go to
http://www.regulations.gov. Follow the
instructions for submitting comments.
• Fax: 202–493–2251.
• Mail: U.S. Department of
Transportation, Docket Operations, M–
30, West Building Ground Floor, Room
W12–140, 1200 New Jersey Avenue SE.,
Washington, DC 20590.
• Hand Delivery: Deliver to Mail
address above between 9 a.m. and 5
p.m., Monday through Friday, except
Federal holidays.
For service information identified in
this NPRM, contact Bombardier, Inc.,
400 Coˆte-Vertu Road West, Dorval,
Que´bec H4S 1Y9, Canada; telephone:
514–855–5000; fax: 514–855–7401;
email: [email protected];
Internet: http://www.bombardier.com.
You may view this referenced service
information at the FAA, Transport
Airplane Directorate, 1601 Lind Avenue
SW., Renton, WA. For information on
the availability of this material at the
FAA, call 425–227–1221.

ADDRESSES:

Examining the AD Docket
You may examine the AD docket on
the Internet at http://
www.regulations.gov by searching for
and locating Docket No. FAA–2016–
9304; or in person at the Docket
Management Facility between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal holidays. The AD docket
contains this proposed AD, the
regulatory evaluation, any comments
received, and other information. The
street address for the Docket Operations
office (telephone: 800–647–5527) is in
the ADDRESSES section. Comments will

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