Archive for month: August, 2023

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Executive Letter: The Federal Reserve’s FedNow® Service Offers New Payment Options

By Rose Oswald Poels

As you have likely seen, the Federal Reserve’s FedNow® Service is now live, having initially launched in late July with baseline functionality to support account-to-account transfers and bill pay. Through the service, financial institutions are able to instantly transfer money for customers any time of the day and any day of the year, adding greater flexibility for customers.

For those who are not yet familiar with the new service, FedNow Service is the Federal Reserve’s new instant payment infrastructure that allows financial institutions of any size to provide safe and efficient payment services. Customers can send and receive instant payments; recipients have full access to funds immediately. The following is a standard payment flow example from the FedNow Service:

  1. A sender (i.e., an individual or business) initiates a payment by sending a payment message to its Financial Institution (FI) through an end-user interface outside the FedNow Service. The sender’s FI is responsible for screening the payment according to its internal processes and requirements.
  2. The sender’s FI, or its service provider, submits a payment message to the FedNow Service.
  3. The FedNow Service validates the payment message, for example, by verifying that it meets message format specifications.
  4. The FedNow Service sends the contents of the payment message to the receiver’s FI to seek confirmation that it intends to accept the payment message. At this point, the receiver’s FI has the opportunity to confirm, among other things, that it maintains the specified account.
  5. The receiver’s FI sends a positive response to the FedNow Service, confirming that it intends to accept the payment message. Steps 4 and 5 are intended to reduce the number of misdirected payments and resulting exception cases that can occur in high-volume systems.
  6. The FedNow Service debits and credits the designated master accounts of the sender’s and receiver’s FI (or those of their correspondents), respectively.
  7. The FedNow Service sends a payment message forward to the receiver’s FI with an advice of credit and sends an acknowledgement to the sender’s FI that settlement is complete.
  8. Outside of the FedNow Service, the receiver’s FI credits the receiver’s account.* The receiver’s FI makes funds available to the receiver immediately after step 7. This crediting to the receiver’s account as well as the debiting of the sender’s account by their respective financial institutions happens outside the FedNow Service.*

*The FedNow Service processes payments around the clock, every day of the year. However, for accounting and reporting purposes, the FedNow cycle date differs from the calendar date for a period of time (from close until midnight) because it aligns with the Fedwire® Funds Service business day, which generally has a closing time of 7:00:59 p.m. ET. If the Fedwire Funds Service business day is extended, the FedNow cycle date extends along with it. For consistency, the FedNow Service aligns to the same timeframe for weekends and holidays.

For financial institutions that elect to be a receive-only participant, the institution is able to receive customer payments, but may not initiate customer payments, except to return payments using the service. Alternatively, a financial institution may elect to be able to send and receive customer transfers. A financial institution could also elect to participate in the FedNow Service to receive requests for payment via the FedNow Service.

The FedNow Service will also support transfers between participating financial institutions, either on behalf of their respondents or for their own internal purposes. This type of transfer includes settlement services.

In trying to identify future educational offerings and other resources for the WBA membership, I ask that bankers please complete the following short survey regarding use or non-use of the new service. Results will be kept confidential.

Take the Survey

Additional FedNow® Service Resources

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September/October 2023 Wisconsin Banker

Learn more about how Wisconsin’s 2023–2025 Budget will impact banks across the state, upcoming WBA events, and serving Amish/Mennonite communities.

Featured inside are the chair’s column by Donna Hoppenjan, current WBA chair and president and CEO of Mound City Bank, Platteville; Lauren Moran, marketing director at Wolf River Community Bank in Greenville; and the Community Advocate, Craig Stuedemann, president and CEO of AbbyBank in Abbotsford.

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From the Fields: Fall Transitions

By Steven Thomas, BMO

Transitioning from summer to fall brings with it the excitement of the fall sports seasons. Friday night football, volleyball games, and cross country meets. A new quarterback in Green Bay. New leaders for Wisconsin Badger Football. New schools, new classes, new students, and new routines for parents, children, and teachers as they get back to school.

Transition is the name of the game for our household as my wife and I prepare for empty nesting. It certainly feels strange after 10 years of having an Onalaska High School student in our household. Our oldest has entered his third year in the financial training program with Ecolab in Houston, TX. Our middle child graduated UW–Madison and has transitioned to working on her Masters at Winona State for Athletic Training. Our youngest heads to the collegiate ranks to study Sports Psychology and has been aggressively working on preparing for the UW–La Crosse Track and Field team. We are excited about the career advancement and experiences the future holds for them.

Fall also presents expectations for harvest and transitioning from the growing season to harvest push. Drought conditions have persisted across the Midwest in varying degrees. In my travels from western Iowa, southern Minnesota, and southern Wisconsin corn, soybean, and alfalfa fields look to be in pretty good condition with fourth crop hay giving more substantial yields than many second and third cuttings. Most of the wheat is harvested. Pollination for corn appears to have been successful with many getting prepared for corn silage harvest. It is advisable to be checking moistures regularly as drought stressed corn looks to be drying down and nearing harvest targets. Weather conditions in late August and early September with temps approaching triple digits will certainly accelerate harvest timing.

For those of us who like to eat, the U.S. Agriculture industry will be transitioning this year as our elected officials are in negotiations toward the development of the new 2023 Farm Bill. The new rendition is due on September 30. Wisconsin 3rd District Congressman Derrick Van Orden hosted a listening session last week in La Crosse with U.S. House of Representatives Ag Committee Chairman G.T. Thompson and Sen. Ron Johnson fielding questions and listening to comments from representatives of the agricultural community. Agriculture is the number one industry in 49 of 50 states, despite having an ever-diminishing number of producers actively involved in production. Hawaii is the only state where ag is not number one due to their tourism industry. Rep. Van Orden expressed that agriculture and food security are key to national security and that discussions on the new farm bill are critical in this legislative session.

Over 300 people attended and those offering comments expressed questions and thoughts on a wide variety of topics. Primary areas of interest included milk pricing and revisions to the milk marketing orders and producer price differentials. Dairy Margin Coverage and Crop insurance programs were mentioned with Chairman Thompson expressing continued support for the funding and potential expansion of these successful programs

Negotiation on trade agreements were raised with Mexico, Canada, and China being major trading partners. The war in Ukraine was mentioned for the world and national impact. Proposition 12 and its potential impact on interstate trade. Border policy and related impacts on the labor force. Other topics included biofuels, organic certification standards, foreign land ownership, autonomous agriculture, dairy supply management, cannabis regulations, conservation programs, and farm ownership transitions.

Thompson, Van Orden, and the rest of the Ag Committee will be working to develop a bipartisan bill supporting our number one industry. They are continuing to collect verbal and written comments. If you have feedback, I encourage you to reach out to your state or U.S. representatives or Rep. Van Orden at 202-225-5506.

For this ag transition, Chairman Thompson expressed appreciation for everyone attending and quipped that “if you are not at the table, you are on the menu.” He welcomed the input received and is certainly a champion for agriculture at the federal level.

Make your voice heard and enjoy your transitions this fall.

Thomas is vice president – commercial relationship manager at BMO in Onalaska. Thomas also serves as a member of the 2023–2024 WBA Agricultural Bankers Section Board of Directors.

Photo courtesy of Christy Besonen, East Wisconsin Savings Bank

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Executive Letter: Check Fraud Resources

By Rose Oswald Poels

Check fraud remains a top issue and expense for WBA members. Often when needing to work through the process of collecting on a fraudulent check, it can be difficult to determine the correct party or department to work with at another financial institution involved in the particular check negotiation chain. I have heard of banks having to wait several weeks, or even months, to get a response from another when trying to resolve a fraudulent check matter. I have also heard from bankers of the frustration of not knowing what the other bank may need for research purposes or if a particular affidavit is required, such as an affidavit of forgery.

To help with this problem, the American Bankers Association (ABA) has created an online directory to assist banks in handling check fraud claims more efficiently. The directory lists contact information for banks that need to file a check warranty breach claim with another financial institution. It is searchable by bank name, city, state, or FDIC number, so banks can find the right contact at the institution to help resolve a warranty breach claim. The directory is available to ABA members and non-members.

To access the directory, banks will need to provide their detailed contact information and any documentation requirements for submitting a claim. As I understand the process, ABA will verify all submissions before uploading information to the directory. The process may take 5–10 business days, after which ABA will email the bank to let the bank know it has been added to the directory. I encourage banks to participate to maximize the utility of the resource.

To further assist banks with other resources, various affidavits have been created and/or shared by the WBA Financial Crimes Committee and may be found in the Security/Financial Crimes folder within the WBA Best Practices Library.

The WBA Best Practices Library is password protected; should you need the password, please contact WBA Legal at wbalegal@wisbank.com.

Information about the ABA Check Fraud Claim Directory may be found at: aba.com/banking-topics/risk-management/fraud/check-fraud.

If you have other suggestions or needs for resources to help your team mitigate check fraud, please let me know.

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August 2023 Compliance Journal

The August 2023 WBA Compliance Journal is now available. In this edition, readers will find an article regarding the new tax exemption for banks that provide certain business- and agricultural-purpose loans to Wisconsin customers written by Jessica Schwantes, CPA and partner with Wipfli LLP, a WBA Silver Associate Member. Readers will also find an article regarding FTC’s recently updated guide concerning the use of endorsement and testimonials in advertising and of new WBA-created resources for members. The publication also includes a summary of recently published agency rules and notices, other important compliance-related updates for bankers, and a WBA Education Calendar which lists upcoming training events. Don’t miss out on seeing Tom Omdahl, vice president – BSA/compliance, Bank First as Morrie the Sea Creature from past BSA training videos as he shares his insights as a compliance officer.

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Executive Letter: Leading Financial Awareness Across Wisconsin

By Rose Oswald Poels

Throughout the industry, bankers make a difference in every community they serve. Whether it is helping an individual open their first saving account, mortgaging a home, or volunteering for various initiatives — the significance of the banking industry is undeniable.

As your partners in ensuring the well-being and longevity of the industry, the Wisconsin Bankers Association (WBA) is not only committed to your bank’s success, but also that of each of the communities you serve.

Of course, a major aspect of this mission is professional development. In addition to the countless schools, workshops, and conferences our team hosts annually, there are a number of resources and best practice tools that every member of the bank may take advantage of. By investing in the expertise of your team, bankers will have the ability to meet the needs of every customer.

Bankers have always been known in their communities as trusted advisors and confidants. To aid bankers in guiding their communities toward financial success and keep customers aware of critical information, topics of interest, and other safe-banking practices, the Association has created a consumer resources page on the WBA website.

The resources, which can be found at wisbank.com/consumercontent, are free and available to all members. Ranging from one-pagers discussing topics such as the risks of storing money in apps to elder abuse factsheets and Wisconsin Uniform Transfers to Minors Act (WUTMA) account information, WBA has a list of tools that not only feature relevant and timely information related to banking but are also easily customizable. Bankers are encouraged to utilize this page to share as handouts, social media reminders, or as topics of conversation with customers.

In addition, WBA’s non-profit arm, the Wisconsin Bankers Foundation, has a number of free, financial literacy-related resources. Available at wisbankfoundation.org/resources, all bankers are encouraged to utilize these resources as they connect with community members or in their recommendations to teachers and parents.

As always, WBA’s resource library is ever-expanding, and we want to make sure the topics highlighted are relevant and useful for your team and community. If you have any suggestions for what consumer resources our team should create next, please reach out to Jackie Lindquist, WBA marketing specialist.

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Executive Letter: New Resources Available to All WBA-Member Bankers

By Rose Oswald Poels

As part of the Wisconsin Bankers Association’s (WBA) mission to support bankers across the state, our team — often in collaboration with the membership — regularly creates resources to assist WBA-member bankers in expanding their knowledge and expertise. Recently, WBA launched several valuable compliance resources that your staff will find useful in maneuvering the ever-changing banking compliance landscape. Our objective with these services is to continue to make training accessible and more flexible for all WBA members at a reasonable cost.

I am excited to announce our new WBA Legal In-House Compliance Training resource. Member banks are encouraged to take advantage of this opportunity to bring compliance training by the WBA Legal team directly to your bank. The training may be conducted in-person or as a virtual meeting and will be customized to your bank’s needs. All training will be conducted by WBA Legal; the presenter selected is dependent on the topic and timing of the training.

Additionally, I am excited to share that the new WBA Account Titling Video Series is now available. This series is designed for your bank to use as a new employee onboarding tool or a refresher for frontline retail staff. The series is built upon WBA’s longstanding and popular, comprehensive account titling workshop and is meant to help frontline staff develop an awareness of the laws related to account titling, analyze a variety of deposit account ownerships and fiduciary roles of deposit account relationships, recognize the legal and practical importance of an account title, and identify various documents which make up a deposit contract and understand their significances.

The new series provides information about account titling in short, topic-specific videos. Each video is supported by written materials. When utilizing the videos as training, there are also exercises to illustrate concepts shared within the videos. Managers are encouraged to supplement the information in the series with bank-specific policies, procedures, and operational requirements, so frontline staff know of any additional actions bank management expects frontline staff to execute.

The new resource consists of 11 modules, covering 60 topics with over five hours of video material! Each video ranges between two and 10 minutes in length — making training very flexible. Also included are manager/trainer resources such as a viewing sequence listing, tracking resource, examples, and test questions with an answer key.

As our legal team has provided for decades, new materials and resources are routinely added to the WBA Compliance page on the WBA website, so I encourage your compliance team to monitor this site and our e-publications for updates. The newest release is a Lender’s Guide to the Marital Property Act. The guide answers frequently asked questions lenders have regarding the Act and is just one of several other available guides for members. Other such resources include a Banker’s Guide to LLCs and a Transfer by Affidavit Guide.

Finally, many other resources created by bankers serving on various WBA Sections and Committees may be found in the WBA Best Practices Library on our website. The Best Practices Library is password protected. If you do not have the password, please reach out to WBA Legal.

WBA strives to provide comprehensive compliance resources for its members. If you have requests for new content or other materials, please let me know and we will incorporate all feedback into our new product development process.

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Association Update: Empower Your Team to Inspire

Membership opportunities for every banker

By Daryll Lund

With a new fiscal year underway, the Wisconsin Bankers Association (WBA) has renewed its commitment to providing beginning and experienced bankers with expansive opportunities to spearhead their professional development and form connections throughout the industry. At the heart of WBA’s mission to support, educate, and advocate for bankers in Wisconsin is, of course, the over 30,000 bankers our organization represents. As a member-led association, WBA relies on the skills and knowledge of our membership to shape the Association and inspire the future of banking.

The Association continues to be dedicated to delivering high-quality and relevant programs. In addition to the various virtual options bankers utilize, the team at WBA offers nearly 70 in-person conferences, schools, and events throughout the state. While a primary objective of WBA programming is professional development, WBA is also focused on connecting bankers with experts in various banking-related subjects and helping to foster relationships between peers.

As Donna Hoppenjan, president and CEO of Mound City Bank in Platteville, takes the helm of the Association’s Board of Directors for the year ahead, one of our greatest priorities is demonstrating the impact we each make when standing united, staying engaged, and making our voice heard. To be an inspiration, both in your bank and throughout your community, bankers of all levels are highly encouraged to engage with the Association’s various education and advocacy-related events, programs, and groups.

The Building Our Leaders of Tomorrow (BOLT) program is one of the many ways current and emerging leaders can get involved and make a difference. Launched 10 years ago, the program was created to ensure the ongoing success of community banks by focusing on talent development. Today, the program has impacted thousands of bankers from around Wisconsin and continues to provide bankers with the space to connect, learn, and advocate for their industry. Additionally, BOLT members have the opportunity to take part in the BOLT Mentorship program to help guide the next generation of banking leaders.

WBA Connect, the Association’s collection of peer networks, is another great resource for beginning and experienced bankers to utilize. The groups — which focus on topics ranging from enterprise risk management to diversity, equity, and inclusion (DEI) in the banking industry — provide a non-competitive setting in which bankers can discuss the successes, challenges, ideas, and questions they have regarding their specific area of the institution.

In addition to learning and idea sharing with peers, bankers should consider volunteering within WBA’s Advocacy Officer program. Advocacy is a foundational component to the work the Association does to support our members. To effectively lead the change, both in our communities and in our legislature, bankers who serve as Advocacy Officers will connect with individuals locally, at the state level, and in D.C. These efforts are vital in telling the story of our industry and in ensuring bankers throughout Wisconsin have the resources needed for success.

Your active participation in the Association not only assists our staff in creating the most meaningful and up-to-date events, but also shapes the perception of our industry. Together, we can create the future we wish to see in our industry, our institutions, and in our communities.

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The Rise of Artificial Intelligence in Banking

Banks in Wisconsin explore the use of AI

By Hannah Flanders

Just five years ago, the idea that AI, or artificial intelligence, could be incorporated into nearly every aspect of the human experience seemed like a topic for future generations. However, the further we wade into the 2020s, the more each of us comes to encounter aspects of AI in our daily lives, even without realizing it. As the capabilities of AI multiply and the number of individuals utilizing this unique technology expands, professionals in many sectors of the U.S. economy — including the financial services — are considering the ways in which AI impacts their business and the surrounding communities.

What is AI?

Despite what many think, AI is not a new phenomenon. Shortly after the creation of the first digital computer, scientists in the 1950s birthed the concept of AI as they explored the possibility of creating an artificial brain. Today, AI has molded into the creation of technology that has the potential to add efficiencies to our daily lives.

In its current state, AI is a computer system with the capability to sense, think, learn, and take action. Throughout the day, we may encounter AI technology by way of recommendations on our favorite streaming platforms, the anti-virus software that scans our emails for spam, or timed traffic signals. However, the Pew Research Center recently found in its study “Public Awareness of Artificial Intelligence in Everyday Activities” that only around 50% of individuals believed that they interacted with some form of AI more than twice a week.

As technology continues to become more widely available, the development of AI and its integration into day-today life has greatly increased. The New York Times states that in 2022, nearly $1.4 billion was invested into various generative AI companies worldwide. By 2030, PwC expects that AI will contribute over $15 trillion to the global economy by increasing productivity and allowing products and services to be more personalized and readily available.

AI in the Banking Industry

Already, banks around the country have employed AI in various areas of their daily operations. In 2020, McKinsey & Company reported that around 60% of financial institutions had already embedded at least one AI capability into their organization. In utilizing systems that have the potential to conduct research, translate languages, create messages, and write job descriptions — among so many other possibilities — banks are able to quickly detect fraud, streamline specific services, and interact with customers at any time of the day.

However, there are many more possibilities, as noted in a Forbes article “The Future of AI in Banking.” In addition to automating routine tasks, AI is great at tracking patterns, targeting product recommendations, providing more accurate customer support, and serving as a single point of contact for banking operations.

Despite these opportunities, many banks are concerned with the challenges embracing AI may impose. Among the top concerns of Americans, reports the Pew Research Center, are digital privacy and the lack of human connection.

Hello, ChatGPT

In November 2022, ChatGPT was released by OpenAI, a San Francisco-based AI research lab. The chatbot, unlike many others, offers detailed responses in many domains of knowledge. In early 2023, Reuters reported that the chatbot had reached 100 million monthly users.

GPT, which stands for Generative Pre-trained Transformer, is a type of Large Language Model (LLM). The UK’s National Cyber Security Centre describes an LLM as a type of algorithm that has been trained using a significant amount of text-based data, which can typically be found on the open internet. ChatGPT then utilizes “deep learning,” or the process of imitating human learning, to formulate humanlike responses.

The Benefits and Challenges of AI

Because ChatGPT is trained using free, unfiltered data sourced from across the internet, many are skeptical of its reliability and validity. However, it is important for users to acknowledge that many systems are programmed, using the desired or relevant algorithms and data, by humans. As many begin to harness the capabilities of AI, the benefits (and challenges) are becoming evident.

  • Logic and Creativity

Rather than be influenced by emotion, most AI models only have the aptitude to make logical decisions. This capability, which may be beneficial in removing some forms of bias, may not consider the full picture of the data presented. In addition, the lack of emotion may result in less creative solutions.

  • Human Connection

Unlike humans, AI is constantly available. While ensuring customers have around-the-clock access to the organization and its services is key in combating competition, many are concerned that AI may result in less human interaction or replace humans in the workforce.

  • Privacy and Risk

American Banker stated that nearly 80 U.S. financial institutions reported a data breach in 2022. As increasingly more banks look to incorporate AI to analyze large swaths of data, the risk of personal information falling into the wrong hands rises. Because the security measures of ChatGPT, and other models, are determined by the organization or platform hosting the software, businesses should ensure that their risk management practices are up to date and monitored regularly.

  • Implementation/Adaption

Although AI can minimize repetitive and time-consuming tasks, banks should first consider how employing new AI programs may interact with existing software. Additionally, if the adaption process requires extensive effort for both employees and customers, AI may not be the right solution.

  • Regulation

As of this writing, financial regulators have not yet published a comprehensive set of AI-related rules. However, banks are reminded that existing regulation may apply. Several agencies — including the Financial Crimes Enforcement Network (FinCEN) and the Office of the Comptroller of the Currency (OCC) — are encouraging banks to engage with AI to determine its usefulness within their organization.

As more individuals throughout the country become aware of AI, it is important that bankers in Wisconsin closely follow its advancements and challenges as wells as continually explore the ways in which systems, such as ChatGPT, may impact their business, staff members, and customers, While ChatGPT may be just the latest trend, there is no doubt that AI has already left a lasting effect on the power of technology.

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Executive Letter: Federal Judge in Texas Delays Section 1071 Mandatory Compliance Dates for Some

By Rose Oswald Poels

Through an order issued earlier this week, a federal judge in the U.S. District Court, Southern District of Texas, McCallen Division enjoined implementation and enforcement of the Bureau of Consumer Financial Protection’s (CFPB) Section 1071 Small Business Data Collection and Reporting Rule while the United States Supreme Court hears a challenge to CFPB’s funding structure. This enjoinment however does not apply to all banks.

The American Bankers Association (ABA), Texas Bankers Association (TBA), and Rio Bank of McAllen, Texas (collectively, the plaintiffs) had jointly filed a lawsuit against CFPB earlier this spring seeking an injunction for all lenders covered by the rule. The plaintiffs requested the court enjoin the Section 1071 rule nationwide until the U.S. Supreme Court resolves the constitutionality of CPFB’s funding structure.

In 2022, the Fifth Circuit held CFPB’s funding structure unconstitutional because Congress funded CFPB directly from the Federal Reserve; such funding contradicts the Constitution’s Appropriations Clause. CFPB appealed the Fifth Circuit’s decision. See CFPB v. Community Financial Services Association of America. The U.S. Supreme Court agreed to take up the case; however, the Supreme Court is not scheduled to hear arguments until October. A decision by the Supreme Court could be released any time before the end of June 2024. These dates are very close to mandatory implementation of the Section 1071 rule — which for some banks begins as soon as October 2024.

As mentioned above, the federal Texas judge enjoined implementation and enforcement of CFPB’s Section 1071 rule. Unfortunately, however, the court denied the plaintiff’s request for nationwide injunctive relief. The order only applies to the plaintiffs’ members. As a result, the relief only applies to ABA members, TBA members, and to Rio Bank.

I am currently in discussion with outside counsel regarding the narrowness of the order and whether other steps may be taken to help find relief for WBA-member banks not covered by the order. I encourage banks that have yet to determine applicability of Section 1071 to the bank to determine whether and when it must comply with Section 1071, as applicable.

As a reminder, implementation of the Section 1071 rule is staggered. Banks that originate more than 2,500 covered credit transactions in each of the two preceding calendar years must comply with the rule no later than October 1, 2024; banks that originate less than 2,500 but at least 500 covered credit transactions in each of the two preceding calendar years must comply no later than April 1, 2025; and banks that originate less than 500 but at least 100 covered credit transactions in the previous two calendar years must implement by January 1, 2026.

A covered credit transaction is one that meets the definition of “business credit” under Regulation B unless the credit is specifically excluded by the Section 1071 rule. Agricultural purpose loans are included in the Regulation B definition. Specifically excluded credit from the definition of a covered credit transaction under Section 1071 are: trade credit, HMDA-reportable transactions, insurance premium financing, public utility credit, securities credit, incidental credit, factoring, and leases, as defined by the rule. The ability to exclude HMDA-reportable transactions from the definition of covered credit transaction applies to both HMDA-reporting and non-HMDA reporting banks.

Read the Order
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