By Cody Roberts
As compliance professionals, we constantly get updates and alerts from a variety of sources. Periodically, we get notices of a “Suspension of Community Eligibility” from Federal Emergency Management Agency (FEMA) regarding flood insurance. However, have you ever wondered what this means or how it affects your bank and your customers?
Background
The National Flood Insurance Act of 1968 prohibits FEMA from providing flood insurance in a community unless the community adopts and enforces floodplain management regulations that meet or exceed minimum NFIP criteria.
A community can be suspended from the National Flood Insurance Program (NFIP) for the following reasons:
- Failure to adopt compliant floodplain management measures.
- Repealing or amending previously compliant floodplain management measures.
- Failure to enforce its floodplain management regulations.
Effects of Suspension
Bank customers, as residents or purchasers of flood insurance, face problems if communities are suspended. A community that is suspended from the NFIP (or does not join or has withdrawn from the program) can result in the following sanctions:
- No resident will be able to purchase a flood insurance policy.
- Existing flood insurance policies will not be renewed.
- No Federal grants or loans for development may be made in identified flood hazard areas under programs administered by Federal agencies such as HUD, EPA, and SBA.
- No Federal disaster assistance may be provided to repair insurable buildings located in identified flood hazard areas for damage caused by a flood.
- No Federal mortgage insurance or loan guarantees may be provided in identified flood hazard areas. This includes policies written by FHA, VA, and others.
- Federally insured or regulated lending institutions, such as banks and credit unions, must notify applicants seeking loans for insurable buildings in flood hazard areas that there is a flood hazard and that the property is not eligible for Federal disaster relief.
The suspensions are typically published in the Federal Register. An effective date of suspension and the reasons for the suspension are described.
For more information on this topic, go to: https://www.fema.gov/.
