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Division of Supervision and Consumer Protectionís Supervisory Actions Taken for Compliance Violations –

September 2006
Audit Report No. 06-024

Footnote 1:  We focused on violations of the following statutes: Electronic Fund Transfer Act (EFTA); Equal Credit Opportunity Act (ECOA) and Fair Housing Act (FHA); National Flood Insurance Act (Flood Insurance); Home Mortgage Disclosure Act (HMDA); Gramm-Leach-Bliley Act (Privacy); Real Estate Settlement Procedures Act (RESPA); Truth in Lending Act (TILA); and Truth in Savings Act (TISA).

Footnote 2:  For purposes of this report, program deficiencies are weaknesses in an institutionís compliance management system as discussed in footnote 3.

Footnote 3:  A financial institution uses its CMS to identify, monitor, and manage its compliance responsibilities and risks. A CMS includes: (1) management and director oversight; (2) a compliance program (policies and procedures, training, monitoring, and complaint process); and (3) audit procedures applied by the institutionís internal or external compliance review function. During each examination, the institutions are assessed by the examiners as strong, adequate, or weak in these areas.

Footnote 4:  The ROEs define significant violations as being of supervisory concern due to their serious nature, recurrent pattern, or system-wide impact. Individually or collectively, these violations reflect deficiencies requiring prompt corrective action by the financial institution. The criteria for what constitutes a significant violation is discussed on the next page.

Footnote 5:  We are using data we obtained from DSCís System of Uniform Reporting of Compliance and CRA Examination (SOURCE) as of January 2006.

Footnote 6:  For purposes of this report, repeat violations represent repeat citations of the same violation codes in consecutive examinations and are reported in SOURCE as consecutive significant violations. Appendix III provides additional information reported in SOURCE from January 1, 2005, to December 31, 2005.

Footnote 7:  When compliance violations and deficiencies are detected, examiners must determine the severity along with the timing and form of needed corrective actions. The FDIC uses a number of tools to address supervisory concerns, ranging from informal advice and written criticisms, to ratings downgrades and informal supervisory actions, to formal actions that are legally enforceable. Informal supervisory actions are voluntary commitments made by an insured institutionís board of directors and are not legally enforceable.

Footnote 8:  A BBR is an informal commitment adopted by a financial institutionís board of directors (often at the request of the FDIC), directing the institutionís personnel to take corrective action for specific noted deficiencies. BBRs may also be used to strengthen and monitor the institutionís progress with regard to a particular component rating or activity.

Footnote 9:  An MOU is an informal agreement between an institution and the FDIC that is signed by both parties.

Footnote 10:  One visitation occurred between compliance examinations to review the institutionís progress on correcting significant violations. The other visitation was DSCís first visit to a new FDIC-supervised bank; DSC performed the first compliance examination at the bank within a year of the visitation.

Footnote 11:  Supervisory actions for the other two institutions were still in effect as of the date of our review.

Footnote 12:  Formal actions are notices or orders issued by the FDIC against insured financial institutions and/or individual respondents. The purpose of formal actions is to correct noted safety and soundness deficiencies, ensure compliance with federal and state banking laws, assess civil money penalties, and/or pursue removal or prohibition proceedings. Formal actions are legally enforceable.

Footnote 13:  A compliance audit is an independent review of an institutionís compliance with consumer protection laws and regulations conducted by the institution or its contractor.

Footnote 14:  Financial Institution Letter (FIL), Revised Compliance Examination Process, dated June 20, 2003 (FIL-52-2003). FILs are advisories to financial institutions regarding the latest policies and procedures, or new products available.

Footnote 15:  In 2004, FDIC assessed civil money penalties against Institution B for violations of Part 339, the FDICís flood insurance regulation, and the Federal Reserve Boardís Regulation C, regarding HMDA.

Footnote 16:  This institution did not have an examination between 1997 and 2003 because DSC had revised its examination frequency schedule.

Footnote 17:  According to the Government Performance and Results Act, a performance goal is, in general, a target level of performance against which actual achievement can be compared. Performance goals are to be included in agency annual performance plans, including those of the FDIC, as required by the Act.

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Last updated 10/31/2006