David, that's not what I'm saying at all. The statute is written in such a way that it can be interpreted to mean the bank may not require the insurance. It's a drafting error, to be sure, but to some judges the law is the law.

This is something that needs to be cleared up. Even our local examiners can't give me any clear guidance.

Not sure why everyone is getting up on a high horse about customers running the bank. Seems like a smokescreen to me.

Sometimes we compliance risk folks can be a little arrogant and short sighted when it comes to customers and front-line employees.

Of course customers run the bank. If we don't have customers, we don't have a bank.

Our jobs should be customer focused. We need to find less risky and legal ways to help our business folks meet the needs of customers and attract potential customers. We may work in the back office, but we should never lose sight of the front lines.

I've approached my compliance role like this for years and it has served me well, with management, front-line folks, and especially our examiners. We are not dictators. We are trusted advisors. I hardly ever tell someone they cannot do this or that (but I will when necessary.) I usually explain the risks, what would need to be done to mitigate it, offer an alternative (if any exist), and give them my thoughts about how I would handle it if I were them. Works almost every time.

Buggs - I do not disagree in general terms with anything you said, but in this case, there is no case.

As Dan pointed out - you cannot read one sentence of the law in a vacuum and neither would a judge. There is no "drafting" error.

It would be like saying you absolutely cannot require flood insurance on any loan having an original outstanding principal balance of $5,000 or less and a repayment term of 1 year or less.

The fact that the law contains stated exceptions from previously stated requirements in a law does not mean you cannot do something. It is just that the law does not require you to do it.

I perfectly understand customer service buggs. I own a business and value customer input but customer's should never make decisions for my business or your bank. You said:
At this time, we are *not* requiring insurance on detached properties if the borrower comes back to us and claims we cannot under Biggert Waters due to "...flood insurance shall not be required..."

As Dan & Randy pointed out, you CAN require insurance on detached structures. That's been clarified by Congress. You don't have to, but you can.

What about the instance where the personal residence is not in a flood zone, but the detached garage is, and both are held as collateral? Is the detached garage still exempt from the flood insurance requirement, if we deem it acceptable?

If the property is a residential property (not a defined term, unfortunately), it appears you would be able to decide whether coverage on the garage is needed, but it would not be required by statute.

I understand that Section 13 of the Homeowner Flood Insurance Affordability Act signed into law by President Obama on March 21st, 2014 excludes from the flood insurance purchase requirement any structure which is part of a residential property but is detached from the primary residential structure and does not serve as a residence.

Maybe I'm just used to consumer protection laws (i.e. TILA, RESPA, etc.), but do flood insurance laws not have implementing regulations? It seems I remember the Agencies issuing a proposed rulemaking that would implement parts of the Biggert-Waters and Homeowners Flood Insurance Affordability Act for which a comment period ended December 29th, 2014.

Does the fact that Section 13 of HFIAA outlines this exclusion for these additional non-residential detached structures make it effective as of the date the law was passed, or do implementing regulations have to be issued before this exclusion can be used...

This is probably an obvious question, but a good explanation would really aid me in my understanding of the differences in purpose of "acts" and implementing regulations and what can be relied on for purposes of compliance.

It seems that all of the guru's here pretty much agree that these structures are excluded from the mandatory flood insurance purchase requirement, but if that is the case, why are they still having comment periods to issue implementing rules. A little help could really go a long way. Thanks.

You ask lots of questions. Let me take them one at a time:
1. do flood insurance laws not have implementing regulations?
Here's a non-technical answer to this: The law was assigned to FEMA. The regulatory have no uniform regulation for all agencies (Like Reg B, C, D, Z, etc.) Each regulator has had to interpret the law on their own. The FRB has put it in Reg H & the FDIC has it in Part 338, etc. In the late '90's, the FFIEC tried to create some uniformity with the FAQs and things have been better. However, this isn't a banking regulation.

2. Does the fact that Section 13 of HFIAA outlines this exclusion . . . make it effective as of the date the law was passed, or do implementing regulations have to be issued before this exclusion can be used...
It's law. No regulation can't change what it says. The problem is we don't have definitions and guidance on how to do it. What is a "residential property" is the biggest question.

3. . . . a good explanation would really aid me in my understanding of the differences in purpose of "acts" and implementing regulations and what can be relied on for purposes of compliance.
Over simplification: Act = Law. Regulation = not law, but interpretation and further guidance to comply with the law.
Analogy: Law = Tree trunk. Regulation = branches of tree (can't contradict the law and grows from it). Guidance/FAQs/Commentary = leaves on the tree (again, can't contradict the law or regulations and grow out of it).

4. It seems that all of the guru's here pretty much agree that these structures are excluded IF the property is a residential structure, we all agree. The question is "what's a residential structure"? That's what we need the regulators to issue a regulation. Also, will there be a notice requirement beyond the notice in the Tool Kit? If the regulation requires it and you've already told a borrower they don't need insurance on their detached building, how do you give it after the fact?

Hope this helps.

Don't forget though, that even though it is not a " banking regulation", the burden is on banks to enforce because of the link in the law to lending and the fact that back in the 90s language was added that made this a safety and soundness issue for banks.

I greatly appreciate your responses. They were very helpful. I think I finally get it now.

The law is the law and the implementing regulations are supplied to give us greater specifics on how to comply, often after a comment period, to address outstanding questions (such as what is a "residential structure"). Commentary, agency guidance, and FAQ's provide greater clarity where implementing rules fall short of adequately or directly answering questions on how to comply with implementing regulations or how to interpret the law.

So as an example, the Dodd-Frank Wall Street Reform and Consumer Protection Act is a law that amends existing law and the implementing rules (Reg Z, X, B etc.) give us a roadmap as to how to comply with the changes to the law.

As for the case of the mandatory flood insurance purchase requirement, the law has been in effect since March of 2014 and does not require flood coverage for structures that are part of a "residential property" that are detached from the primary residence and are not a residence themselves. The implementing rules will clarify the definition of a "residential property" to help financial institutions comply as well as other question in regards to HFIAA compliance.

If I'm missing anything, let me know!

Thank you again!

There is no guarantee that the regulators will define "residential property," although they did inquire whether they should do so. I sincerely hope that the industry has made it clear that it needs such a definition.

Congress clearly has no idea of what is needed to implement the changes it made in the law.

Is your interpretation that residential property basically means 1-4 family residences, absent of an official interpretation. Thank you!