A bank's policy is to require flood insurance on all buildings on the subject property when the subject property is partially in a SFHA. The bank does not pursue a determination as to which, if any, of the buildings are in the SFHA. When the borrower-obtained insurance expires, the bank mails the 45-day letter and force places insurance on each of the buildings and adds the force placement premium to the outstanding principal balance. Does this process expose a bank to regulatory risk (i.e. UDAP) other than FDPA?

Let me get this straight: You're requiring flood insurance on buildings that are not necessarily in a flood zone? If so, forgive me, but it's stupid stuff like this that brought us all sorts of regulations.

None of this sounds like a regulatory violation (you're over-killing), but it's just plain wrong, in my opinion. Does it expose you to risk? I don't think you could get a UDAP issue from this, but it's certainly poor customer service, at a minimum.

I'd sure like to know what the logic behind this is.

Apparently the line of business finds it easier to require insurance on all buildings, rather than to do the due diligence to determine if any of the buildings are actually in the flood zone and require insurance.

Since in many cases, insurance has to be force placed on loans in default, I'm wondering what exposure that brings to the table.

Hard to say. Never heard of this. You're in unchartered waters.

If I was a borrower at your bank, I'd run the other way.

The line of business really needs to re-think this strategy.

The issue I see is how do you know if the borrower provided policy is rated properly? I'm assuming you pull a determination to find out that the property is partially in an SFHA. Do the zones on the borrower provided policies match the zone listed on your determinations? I would imagine that if this is going on the way you are describing, the borrower-provided policies are rated X when your determinations show an A or V zone. Regulators have cited these discrepancies as inadequate insurance in this area. You may be able to get out of criticism during an exam when the due diligence is completed then, but why not just get it over with on the front end.

Also, how are you forceplacing? Do you forceplace using the higher rated (and more expensive) zone on your determinations? I think you could have a real problem if the force-placed policy is written on an A or V zone and your collateral building is actually in an X zone. If nothing else, a customer with a good lawyer could sue you for overinsuring his property and overcharging him on the forceplaced insurance.

Thank you for the additional insight. All good points that need to be raised to the line of business.