Archive for category: Compliance

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Regulation CC Threshold Adjustments

By Scott Birrenkott

Every five years, the agencies amend Regulation CC to adjust for inflation dollar amounts relating to availability of funds. In May of 2024, FRB and CFPB issued a final rule amending Regulation CC with new adjustments. The effective date for the threshold adjustments is July 1, 2025. However, banks are permitted to implement those changes sooner if so desired.

To summarize the inflation adjustments:
• The first $225 becomes $275.
• Reg CC requires the first $100 of a deposit made by check be made available on the next business day. This “first $100” rule was adjusted to $200 in 2011, to $225 in 2020, and becomes $275 in 2025.
•  The $450 for non-next day items becomes $550.
• Reg CC provides that cash withdrawals from local and non-local checks need not be available for cash withdrawal until 5:00 p.m. on the day specified in the schedule, but at least $450 of the deposit must be made available for cash withdrawal before 5:00 p.m. This amount becomes $550.
• Note that this $550 is in addition to the $275 available pursuant to the requirements above.
•  The $5,525 of the “large deposit” exception hold, “new account” amount, and the repeatedly overdrawn threshold becomes $6,725.
• Reg CC permits an exception hold on large deposits in excess of $5,525 which becomes $6,725.
• Reg CC permits funds to be held for new accounts in excess of $5,525, which becomes $6,725.
• Reg CC permits when an account is repeatedly overdrawn for funds to be held in excess of $5,525 which becomes $6,725.
•  As of July 1, 2025, the amounts for civil liability in an individual action shall not be greater than $1,350 and $672,950 for class action.

Change in terms notification to customers will be required as well. Reg CC requires notice to customers at least 30 days before implementing a change to the bank’s availability policy regarding such accounts, except that a change that expedites the availability of funds may be disclosed not later than 30 days after implementation. Because the threshold adjustments mean that more funds are available to the customer sooner, the change will expedite availability. Thus, customers must be notified of

Birrenkott is the WBA director – legal

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Executive Letter: New Section 1071 Proposed Rule Expected Soon

From the Desk of Rose Oswald PoelsBy Rose Oswald Poels

In court filings last week involving the Bureau of Consumer Financial Protection’s (CFPB) Section 1071 rule, the CFPB stated that staff have been instructed to initiate new rulemaking to possibly replace or change the current rule. While I do not know yet what specific changes CFPB has planned for its new rulemaking, I am very pleased to have learned of this news as WBA has been vocal in our objections and concerns of Section 1071 since it was first proposed in the fall of 2021. In addition, last week the House Financial Services Committee voted on April 2 to approve H.R. 976, which would repeal Section 1071 in its entirety.

The Dodd-Frank Act directed CFPB to adopt a regulation to require banks to collect certain lending data from small businesses. This provision of the Act, Section 1071, was first implemented in March 2023 through amendments to Regulation B which implements the Equal Credit Opportunity Act (ECOA). The original effective date of the 2023 final rule was August 29, 2023, with rolling mandatory compliance dates ranging from October 1, 2024, to January 1, 2026, based upon loan origination activity.

Due to litigation by lenders challenging the rule, the mandatory compliance dates for the Section 1071 rule were extended by CFPB on June 25, 2024, through the issuance of an interim final rule. In February, the Fifth Circuit granted a stay in the ongoing litigation which further tolled the compliance dates for financial institutions that are also members of the trade associations involved in the lawsuit.

In the past, when I have been asked by members whether the bank should work to implement the requirements of Section 1071 despite the ongoing litigation and our industry efforts to rollback or eliminate the rule, my recommendation has been for banks to continue their efforts to meet the revised mandatory compliance dates for the rule. However, given the change in the Administration, the litigation status, last week’s movement of repeal legislation and news of a new proposed Section 1071 rule, I believe banks should take a temporary pause pending the outcome in one or more of these actions.

The industry has challenged the Section 1071 rule on all fronts over the years – through legislation, regulation, and judicial action. While a new proposed rule is not yet published, WBA will advocate for the elimination of a requirement to collect any data beyond that expressly provided for under the Dodd-Frant Act. WBA will also advocate for CFPB to revise the definitions of “covered financial institutions” and “small business” to raise both thresholds within. WBA is also continuing its legislative advocacy this week while we are in Washington D.C. with a banker delegation as part of ABA’s Washington Summit for the full repeal of Section 1071, encouraging continued support of H.R. 976.

WBA will continue to keep members apprised of these various changes regarding Section 1071 as they occur. If you have any questions regarding Section 1071, be sure to reach out to WBA Legal at wbalegal@wisbank.com

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May a Person Use the Name, Logo, or Symbol of a Bank in Marketing Material?

By Scott Birrenkott

Not if it is deceptive. More specifically, Wisconsin law provides, in summary, that no person may use the name, logo, or symbol of a bank, or such that is deceptively similar to that of a bank, in any marketing material provided to another person in a manner that a reasonable person may believe that the marketing material originated from the bank.

From time to time, potentially deceptive letters circulate among bank customers, causing frustration and confusion. WBA is aware that such deceptive letters have recently been circulating once more. These letters often take the form of mortgage relief offers, solicited by individuals unassociated with the bank. When these letters violate Wisconsin law, such as by misrepresenting their nature as being associated with a bank, WBA recommends reporting them to the Wisconsin Department of Financial Institutions (DFI). DFI has enforcement authority over such letters, including the ability to issue cease and desist orders, and penalties. For this reason, banks that encounter such letters are encouraged to contact WBA and DFI.

Banks should also be mindful of the customer service aspect of such letters. Even when reporting letters, and even if a letter is not deceptive, banks will likely still receive complaints from their customers. In such situations, banks might consider discussing with their customers how and when it will issue correspondence. This way, customers can easily identify what originates from the bank. Additionally, banks might consider discussing this matter with their customers at time of loan closing so they can be better prepared to identify these letters as not originating from the bank. By preparing customers ahead of time, banks can potentially curb some confusion and frustration resulting from these letters. To assist with this matter, WBA’s Mortgage Lending Committee has prepared a sample letter which can be used for these purposes.

Tangential to this matter, WBA has also become aware of many Wisconsin loan applicants receiving numerous unsolicited offers for credit and insurance after submitting a loan application. The volume of offers has greatly increased during the past couple years given the overall slowdown in mortgage loan activity due to rising interest rates and the low inventory of homes for sale. Customers become upset due to the number of offers received and because some believe the bank shared their nonpublic information. The WBA Mortgage Lending Committee has also created a customer awareness letter in this regard to alert loan
applicants upfront of the effect of prescreening under FCRA.

Both letters are available through WBA’s best practices library. If you need assistance accessing the WBA best practices library, or if you have any questions on this topic or other matters of compliance, contact WBA’s legal call program at 608-441-1200 or wbalegal@wisbank.com

Birrenkott is the WBA director – legal

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Contents Coverage for Purposes of Flood Insurance

By Scott Birrenkott

While there are no new requirements regarding flood insurance, examiners have been looking closely at portfolios for flood compliance lately. Specifically, WBA has become aware of some questions arising regarding contents coverage. This article will discuss what the flood rules require for purposes of insuring contents, as well as some important concepts to be aware of.

The requirement of “contents coverage” starts with the general requirement to purchase flood insurance for designated loans. That requirement being that a bank shall not make, increase, extend, or renew any designated loan unless the building or mobile home and any personal property securing the loan are covered by flood insurance for the term of the loan. “Personal property” in this context will be referred to as “contents” for the rest of this article. Meaning, a bank making a designated loan in a special flood hazard area (SFHA) must also ensure that any contents securing that loan are covered by flood insurance. The rule, in this context, leaves some unanswered questions. Fortunately, the agencies have provided clarification in the form of questions and answers.

In 2022, the agencies issued the revised Interagency Questions and Answers Regarding Flood Insurance (Q&As). The Q&As clarify that when a building and its contents both secure a loan, and the building is located in a SFHA in which flood insurance is available, flood insurance is required for the building and any contents securing the loan. They also clarify that if contents securing the loan are stored in a building which does not secure the loan, then flood insurance is not required on those contents, regardless of whether the building is in a SFHA. The agencies also clarify that both contents and the building will be considered to have a sufficient amount of flood insurance coverage for regulatory purposes so long as some reasonable amount of insurance is allocated to each category. The Q&As provide an example which is helpful in this regard:

Lender A makes a loan for $200,000 that is secured by a warehouse with an insurable value of $150,000 and inventory in the warehouse worth $100,000. The Act and Regulation require that flood insurance coverage be obtained for the lesser of the outstanding principal balance of the loan or the maximum amount of flood insurance that is available. The maximum amount of insurance that is available for both building and contents is $500,000 for each category. In this situation, Federal flood insurance requirements could be satisfied by placing $150,000 worth of flood insurance coverage on the warehouse, thus insuring it to its insurable value, and $50,000 worth of contents flood insurance coverage on the inventory, thus providing total coverage in the amount of the outstanding principal balance of the loan. Note that this holds true even though the inventory is worth $100,000.

It is important to note that when contents coverage is required, a bank must always assign a “reasonable amount” to the contents. This is true even if the building’s value meets or exceeds the minimum flood insurance required. For example, if the facts of the above example were changed so that the insurable value of the warehouse was $200,000, the bank couldn’t assign $200,000 to the warehouse alone and leave the contents uninsured. It would need to be divided in a reasonable amount among both the warehouse and the contents.

In the commercial and agricultural setting, it is common within the industry for banks to take a security interest in property which includes contents. Because of this, it’s important to be aware of the language within a bank’s security agreements, and what it covers, so that the bank is able to meet flood insurance requirements. If a bank does not wish to take contents as collateral to avoid flood insurance implications, it could consider disclaiming the collateral. In this case, the bank should also consider the implications of disclaiming collateral from a loan policy standpoint, understanding that such decisions have broader implications on the security of the loan beyond just flood insurance rules. The Q&As can be found here: https://www.fdic.gov/sites/default/files/2024-03/fil22020a.pdf

Birrenkott is the WBA director – legal

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Executive Letter: Happy New Year – 2025 Brings Adjusted Regulatory Thresholds

From the Desk of Rose Oswald PoelsBy Rose Oswald Poels

Happy New Year! As we step into 2025, there are many thresholds which have been adjusted by both state and federal regulators which go into effect now that the new year has arrived. Below is a collection of thresholds effective January 1, 2025. A link has been provided for each as a reference.

Regulation Z, TILA  

  • The exemption threshold for Regulation Z (Truth in Lending Act) will increase to $71,900, up from $69,500. https://www.govinfo.gov/content/pkg/FR-2024-10-15/pdf/2024-23275.pdf
  • The exemption threshold under Regulation Z for HPML appraisals will increase to $33,500, up from $32,400. https://www.govinfo.gov/content/pkg/FR-2024-10-15/pdf/2024-23277.pdf
  • The asset-size threshold under Regulation Z which exempts creditors from the requirement to establish an escrow account for HPMLs will be:
    • For creditors and their affiliates that regularly extended covered transactions secured by first liens, the asset-size threshold is adjusted to $2.717 billion, up from $2.640 billion; and
    • The exemption threshold for certain insured depository institutions with assets of $10 billion or less is adjusted to $12.179 billion, up from $11.835 billion. https://www.govinfo.gov/content/pkg/FR-2024-12-23/pdf/2024-30653.pdf
  • The dollar amount thresholds under Regulation Z for HOEPA and QM-related loans have been adjusted as follows:
    • For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages will be $26,968.
    • The adjusted points-and-fees dollar trigger for high-cost mortgages will be $1,348.
    • For QMs under the General QM loan definition in § 1026.43(e)(2), the thresholds for the spread between the annual percentage rate (APR) and the average prime offer rate (APOR) will be:
      • 2.25 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $134,841;
      • 3.5 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $80,905 but less than $134,841;
      • 6.5 or more percentage points for a first-lien covered transaction with a loan amount less than $80,905;
      • 6.5 or more percentage points for a first-lien covered transaction secured by a manufactured home with a loan amount less than $134,841;
      • 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $80,905; or
      • 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $80,905.
    • For all categories of QMs, the thresholds for total points and fees will be:
      • 3 percent of the total loan amount for a loan greater than or equal to $134,841;
      • $4,045 for a loan amount greater than or equal to $80,905 but less than $134,841;
      • 5 percent of the total loan amount for a loan greater than or equal to $26,968 but less than $80,905;
      • $1,348 for a loan amount greater than or equal to $16,855 but less than $26,968; and
      • 8 percent of the total loan amount for a loan amount less than $16,855.
  • For open-end consumer credit plans under TILA, the threshold that triggers requirements to disclose minimum interest charges will remain unchanged at $1.00 for 2025. https://www.govinfo.gov/content/pkg/FR-2024-12-02/pdf/2024-27553.pdf

Regulation C, HMDA

Community Reinvestment Act (CRA)  

  • The Board of Governors of the Federal Reserve System (FRB) and Federal Deposit Insurance Corporation (FDIC) CRA regulations have adjusted the asset-size thresholds used to define “small bank” and “intermediate small bank” to be:
    • Small bank means a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.609 billion; and
    • Intermediate small bank means a small bank with assets of at least $402 million as of December 31 of both of the prior two calendar years and less than $1.609 billion as of December 31 of either of the prior two calendar years. https://www.govinfo.gov/content/pkg/FR-2024-12-30/pdf/2024-30849.pdf
  • The Office of the Comptroller of the Currency (OCC) made the identical adjustments to the asset-size thresholds used to define “small bank or savings association” and “intermediate small bank or savings association.” https://www.occ.gov/news-issuances/bulletins/2024/bulletin-2024-36.html

Required Escrow Rate under Wisconsin Law

Other Regulatory Thresholds and Limits  

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How to Take and Perfect a Security Interest in a Mobile Home

By Scott Birrenkott

While there are no new requirements regarding the taking and perfecting of a security interest in a mobile home, WBA has received several questions recently regarding the steps for doing so. While taking and perfecting a security interest depends upon the facts of a particular loan, as well as a bank’s available documentation, there are some important general aspects to consider specific to mobile homes, which are presented in this article.

When it comes to perfecting a security interest on a mobile home (note that there is an important distinction when a mobile home becomes a “manufactured home” which is discussed more below), we have a few recommendations for what to consider. Typically, we recommend starting with whether the home is on land and whether it is affixed to that land. This is important because if the home is affixed to the land, the bank will need to file a fixture filing with the register of deeds office where the land is located.

Additionally, if the home is located on land not owned by the homeowner, for example a trailer park, the bank should consider obtaining a fixtures disclaimer signed by landowner. On the other hand, if the home is on land owned by the mobile home owner, the bank should consider filing a mortgage on that land as well.

For purposes of perfection, under Wisconsin law, a security interest in a “manufactured home” is perfected by notation on the certificate of title with the Department of Commerce (DOC) unless it is a fixture or intended to be affixed to land. Note that a “manufactured home” includes in its definition a mobile home that is greater than 45 feet in length. A mobile home that is 45 feet or less is considered a “recreational vehicle” and the Department of Transportation (DOT) retains responsibility for these vehicles.

The DOC may remove information pertaining to a security interest perfected in a manufactured home from its records when 20 years has elapsed after the original perfection. This is also true with regard to the DOT and information pertaining to a security interest in “recreational vehicles.” However, a secured interest in a manufactured home that is a
fixture or which the owner intends to permanently affix to land that the owner of the manufactured home owns is not necessarily perfected by a notation on the certificate of title, as there may be no such title. Instead, the creditor should file a fixtures filing on the manufactured home.

With respect to such a fixtures filing the Wisconsin Manufactured Home Certificate of Title must be completed for titled manufactured homes greater than 45 feet in length. To obtain a perfected security interest in the home, a lender must have its lien noted on the title of the home that is delivered to DOC.

Keeping in mind the distinction between a “manufactured home” versus mobile homes that might not meet that definition, the MV1- Wisconsin Title and License Plate Application must be completed for those mobile homes 45 feet in length or less which are titled. The perfection of a security interest in a mobile home is accomplished by a notation of the lien on the Certificate of Title that is delivered to DOT. For titled manufactured homes, the bank’s security interest is perfected as of the time of its creation if the delivery described (to either DOT or DOC) is completed within 10 days thereafter, otherwise, as of the time of such delivery.

Taking all of this together, and given the various complexities in the area of mobile homes, it has been our longstanding recommendation that lenders do all as applicable to perfect their security interest in manufactured homes. For example, have the bank’s lien noted on title either with DOC or DOT, and File UCC 1 and UCC 1A fixtures filing with Register of Deeds office where a mortgage would be filed on related real property noting that the fixtures filing is being filed in connection with a manufactured home transaction, and if applicable, a fixtures disclaimer.

Note: The above information is not intended to provide legal advice; rather, it is intended to provide general information about banking issues. Consult your institution’s attorney for specific legal advice or assistance.

 

Birrenkott is the WBA director – legal

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What BOI Resources Exist for Bank Customers?

By Scott Birrenkott

Earlier this year, we published an article discussing the various rulemakings undertaken by the Financial Crimes Enforcement Network (FinCEN) to implement the requirements of the Corporate Transparency Act (CTA). One of those requirements applies to companies that must report (reporting companies) beneficial ownership information (BOI). While this rule doesn’t place any requirements upon banks, many reporting companies have come to their banks with questions. FinCEN has created numerous resources which reporting companies may find helpful and banks can direct their customers toward when they have questions.

Most recently, FinCEN issued a notice to customers of financial institutions about the BOI reporting requirements. This notice should answer any remaining questions reporting companies might have. Should they still have questions, there are additional resources banks can refer them to. For example, FinCEN maintains numerous resources on its website. The website includes frequently updated FAQs, information subscriptions, access to the filing system and filing instructions, a brochure introduction to BOI reporting, BOI reference guide, and BOI videos.

One particularly helpful resource is FinCEN’s small entity compliance guide. This guide includes 57 pages of information for reporting companies. It includes sections outlining how to determine whether a company must report, how to identify who a beneficial owner is, the specific information which must be reported, and explicit instructions for when and how a BOI report must be filed.

Additionally, WBA has created resources for banks to further understand the differences between the rules, as well as customer-facing resources to better help banks work with reporting companies who might have questions. These resources can be found on the WBA website under the compliance section of the Best Practices Library.

Additional information regarding the CTA and specifics surrounding FinCEN’s rule are in the March/April 2024 edition of the Wisconsin Banker. If you have any questions, please contact WBA legal at wbalegal@wisbank.com or call us at 608-441-1200.

Birrenkott is the WBA director – legal

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Strategic Connections: Public Relations Strategy on the Growing Threat of Overdraft Fee Lawsuits Against Wisconsin’s Community Banks

By Kathleen Rolfs

Are Recent Social Media Ads Scams or Legitimate?
Small community banks across the nation are increasingly becoming targets of aggressive law firms seeking to initiate overdraft fee lawsuits. Utilizing sophisticated digital advertising tactics, these firms entice our customers to contact a law firm if they were charged overdraft fees, likely in exploration of the possibility of a class action lawsuit. While these ads are legitimate, they typically employ ambiguous terms like “investigation” which may lead your customers to come to you with questions as to their nature. This year alone, the Wisconsin Bankers Association (WBA) has reported that many community banks in Wisconsin have been subjected to such targeted campaigns. This issue not only creates challenges for banks’ marketing communications teams but also poses a significant public relations risk to Wisconsin consumers by potentially undermining trust in the banking system.

Why Is This an Increasing Problem?
According to data from Bankrate, roughly 91% of banking accounts are subject to overdraft fee structures, with this information disclosed to customers at account opening with transparent fee schedules. Recent increased media coverage on the topic has prompted some lawyers to prospect for new customers, hoping to find bank and credit union customers who may have charged their customers improperly. Some are prospecting through paid social media advertising campaigns that target consumers in the geographic area of a bank’s location. These ads are inexpensive and have a wide reach.

Should These Ads be Reported and Treated as Scams?
Some bankers incorrectly dismiss these aggressive solicitations as mere scams, viewing them as attempts by “bad actors” to obtain personal information from bank clients. However, it is best not to shrug off these ads targeting Wisconsin banks simply as scammers’ attempt to collect information. These craftily planned advertisements represent legitimate attempts to build relationships with our customers with the end goal being a possible lawsuit. WBA Director – Legal Scott Birrenkott recently shared that some Wisconsin banks have received information requests from law firms working with customers who have responded to their advertising.

If your bank is targeted by this type of ad — and if it hasn’t been yet, it likely will be — it is crucial to be prepared. Clear communication, customer education, and proactive networking can help mitigate the impact of these campaigns.

How to Handle a Campaign Targeting Your Customers
While the actual response of each individual bank will depend upon what is appropriate for your situation, and your customer base, here are some elements to consider:

1. Transparency: Ensure your employees understand your bank fee schedule. Communicate your bank’s policies and the rationale behind them. If appropriate, consider sharing the details of any ad campaigns targeting your bank with your staff to ensure that they are aware of it because they may be asked about it when they are out in the community and may receive inquiries from customers by phone and in-person visits. Alternatively, it might be best to ignore addressing the advertisements directly, and instead focus on an independent, yet proactive educational campaign focusing on how to learn more about your bank’s overdraft services.

2. Education: Educate your customers on overdraft fees and what they can do to avoid them. In addition to providing this education at account opening, create statement stuffers or flyers with information to insert into overdraft notices that include tips on how to avoid these unnecessary fees and links to internal and external resources.

3. Networking: Collaborate with other community banks and WBA to share best practices and strategies. If you happen to notice an ad targeting other banks, let them know, even if they are your competitor. Report campaigns impacting your bank to the WBA legal team as they are monitoring these ads and have been in communication with the Wisconsin Department of Financial Institutions, Wisconsin Department of Justice, and Wisconsin Department of Agriculture, Trade, and Consumer Protection regarding the potential misrepresentations these advertisements suggest regarding bank overdraft practices.

4. Check the Meta Ad Library: If you start seeing ads, check the ad library under Meta’s page transparency feature so that you can see the campaign beginning and end dates. It seems recently that the firms run the ads for a five-day run starting over the weekend, most likely to catch the bank off guard during the weekend.

With this issue being at the top of the CFPB’s agenda, it isn’t going away any time soon. It is incumbent upon us as community bankers to keep abreast of bank policy issues that are discussed in the media and to be prepared for the fallout. Awareness, education, and communication are key to ensure we effectively protect our reputation. And it’s always a good idea to let WBA know if you are targeted by these law firms so that they can continue to provide strategic resources to support us and advocate on our behalf.

Rolfs, vice president – chief marketing & communications at PremierBank in Fort Atkinson, is a member of the 2024–2025 WBA Marketing Committee.

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Executive Letter: Free WBA FDIC Part 328 Revised Rule Resources

By Rose Oswald Poels

For several months now, WBA legal staff have fielded questions regarding FDIC’s recently revised Part 328 rule as banks work to implement new requirements before the January 1, 2025, mandatory compliance date. The rule requires use of a new FDIC digital sign on digital deposit taking channels which includes websites and web-pages or mobile applications that offer the ability to make deposits electronically and provide access to deposits. Signage on bank ATMs may also be affected; and banks that offer non-deposit products must also, clearly and conspicuously, display a non-deposit sign in certain branch locations and also electronically if the bank’s website offers access to non-deposit products.

To assist with implementation, WBA has created a free FDIC Part 328 Rule Resource which includes a straightforward review of the rule (with implementation tips), a model plan for monitoring compliance with the rule, steps to consider for reviewing and testing compliance, and links to FDIC resources which includes past FDIC webinar presentations and a Frequently Asked Questions (FAQ) document. The WBA FDIC Part 328 Resource is found in the Compliance Best Practices section of the WBA Best Practices Library.

In addition, I have regular conference calls with senior staff at FDIC Chicago to share concerns of the membership. I have shared questions with FDIC regarding revised Part 328, some of which have not been answered yet in their resources. Several previously shared questions have been incorporated into FDIC presentations and FAQs. FDIC is hosting four webinars regarding requirements of Part 328, two of which have already been conducted. The presentation slide deck for both webinars may be found on FDIC’s Deposit Insurance Banker Webinar website. I expect FDIC to post dates for the remaining two webinars at the same site. The webinars are hosted via Teams Live Event at the link found at the site. There is no formal registration for the live event.

If you or your staff have outstanding Part 328-related questions or need the password for the protected WBA Best Practice Library, please contact WBA Legal at wbalegal@wisbank.com.

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Executive Letter: CFPB Wins Section 1071 Case. Plaintiffs Plan to Appeal. WBA Continues to Fight!

By Rose Oswald Poels

Federal Judge Randy Crane made his decision last week in the much-anticipated case Texas Bankers Association v. CFPB, S.D. Tex., Docket No. 7:23-cd-00144, 8/26/24, that CFPB did not violate the Administration Procedure Act (APA) when it finalized the small business data collection rule (Section 1071) last March. Section 1071 requires banks that make at least 100 small business loans a year to collect and report certain data about the small business borrower, application information, and loan terms. In his decision, Judge Crane wrote: “It may well be that the Final Rule proves ill-advised as a policy matter, but that possibility does not itself make the Final Rule unlawful under the APA.”

I am certainly disappointed with the decision. WBA, and the industry as whole, continue to be gravely concerned over the cost of implementing the rule and most importantly of the privacy concerns of our small business community borrowers. It is expected that the plaintiffs will appeal the decision.

As a result of the decision, WBA will continue our efforts on the federal level to persuade our congressional delegation of necessary changes. Last summer WBA worked to encourage our Wisconsin congressional delegation to pass Congressional Review Act (CRA) resolutions in both the U.S. House and Senate to disapprove the Section 1071 rule. Under the CRA, if Congress enacts a joint resolution of disapproval, a rule promulgated by an agency does not take effect. Unfortunately, President Biden vetoed the joint resolution of disapproval, and the Senate fell short in its vote with the necessary two-thirds vote to overturn the veto. But our fight continues.

WBA also plans to once again communicate industry concerns directly with CFPB staff in our upcoming fall Washington, D.C. Regulatory Trip where myself, and a dozen Wisconsin bankers, will meet directly with CFPB and other federal banking agencies to express specific regulatory concerns and advocate against excessive regulatory burden.

While WBA continues to fight implementation of Section 1071, CFPB continues to work towards implementation. CFPB previously issued an interim final rule to extend mandatory compliance dates given the court case mentioned above and has recently opened a beta platform for Section 1071 data collection.

Being mindful of the possibility of having to implement a rule as robust as Section 1071, WBA has provided Section 1071 training in past WBA Compliance Forums and through past webinars. Past toolkit materials will be reposted shortly to the WBA Compliance Resources page given the recent court decision. Additionally, WBA will be hosting a Section 1071 workshop, Friday, October 18 in a hybrid format. To further assist with implementing the rule as cost effectively as possible, WBA will continue to create other educational Section 1071 resources.

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