The 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 have issued a final rule amending 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 (Biggert-Waters Act). Prior to implementing this final rule, the agencies issued two proposed rules addressing private flood insurance. The first proposed rule was issued in October 2013; a revised proposal was issued in November 2016.
The final rule:

  • Requires regulated lending institutions to accept policies that meet the statutory definition of “private flood insurance” as defined in the Biggert-Waters Act; and
  • Permits institutions discretion to accept flood insurance policies issued by private insurers, as well as plans providing flood coverage issued by mutual aid societies, that do not meet the statutory definition of “private flood insurance,” subject to certain restrictions (i.e. the policy must provide sufficient protection and be consistent with general safety and soundness principals, and the institution my document the sufficiency of the policy in writing.)

Also included in the final rule is a compliance aid provision, which will allow financial institutions to determine whether a flood insurance policy meets the definition of “private flood insurance” without undertaking a lengthy evaluation of a policy. Per the provision, if a policy (or an endorsement to the policy) includes the following statement an institution may conclude that the policy meets the definition of “private insurance policy,” no further review is necessary:
“This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”
It is important to note that the compliance aid provision does not relieve a regulated lending institution of the requirement to accept a policy that both meets the definition of “private flood insurance” and fulfills the flood insurance coverage requirement, even if the policy does not include the statement. In other words, this provision does not permit regulated lending institutions to reject policies solely because they are not accompanied by the statement.
The agencies are expected to publish press releases in the next few days. Meanwhile the final rule, effective on July 1, 2019, is available here.