(Madison) The augmented reality game "Pokémon Go" is everywhere, but gamers need to exercise situational awareness when playing. As of July 11, the game for mobile phones has been downloaded 7.5 million times in the U.S. and generated $1.6M in daily revenue for its developer, Niantic… and the game has only been available since July 7.

The goal of the game is to collect (or "capture") digital creatures called Pokémon by traveling to real-world locations. Some of those locations, including banks, require consumers to use some extra caution while playing. For example, a player who walks into a bank branch and chases a Pokémon into the vault or behind the teller counter may unwittingly trigger the bank's robbery response procedure.

"Banks take the safety and security of their customers and employees very seriously," explained Rose Oswald Poels, president/CEO of the Wisconsin Bankers Association. "Be respectful of your local institutions' policies while you enjoy playing the game."

Tips for Consumers

If you find Pokémon at a local financial institution, follow these common-sense tips to ensure a safe hunt:

  • Ask first – Speak to a manager at the institution and ask for permission to play the game in the lobby of the building.
  • Put your phone away – Don't pull out your phone to play inside the bank building until you have permission. As you might image, taking video or photos of the building's layout is considered suspicious activity in a bank.
  • Take "No" for an answer – If the answer is "no" respect the institution's wishes and find your Pokémon elsewhere, knowing that your continued play in the building could jeopardize the security of other customers.

By, Admin

Madison – The Wisconsin Bankers Association (WBA) applauds Governor Scott Walker’s decision to allocate $4.5 million to Milwaukee for the purpose of training workers, helping businesses and moving neighborhoods forward by addressing foreclosed homes.

“Gov. Walker is creating opportunities for businesses and families in Milwaukee’s neighborhoods which is something we can all support and should be recognized,” said Michael Semmann, WBA Executive Vice President and Chief Operations Officer. “Wisconsin’s banks have this in common with the Governor as our industry strives to meet the same goal for families across the state.”

The banking industry has worked with Governor Walker as well as Milwaukee Mayor Tom Barrett on improving economic conditions in Milwaukee and throughout the state. The WBA looks forward to continuing to work with both toward the critical goal of creating opportunities for businesses and families.

By, Admin

Digging for Gold: Data Mining for Marketing Success
Banks of all sizes should apply data analytics to maximize their marketing strategy

There’s no shortage of tools for bank marketers to deploy in their efforts to attract and retain customers. Social media, digital advertising, traditional print and media marketing, and good old-fashioned cold-calling all have their place. However, tools are ineffective without a strategy. You can have all the hammers, nails and wood you need to build a house, but if the architect didn’t design a floorplan, it’ll never come together. For bank marketers, data analytics is a critical component in creating a strategic marketing plan, though many banks aren’t fully leveraging the data available to them.


“Data analytics is critical to building a successful marketing strategy. You just have to do it,” said John Verre, president and CEO, Leap Strategic Marketing. Leveraging data starts with two primary processes: discovery and distillation of the data.


The discovery process involves collecting traditional consumer and business data, including number of accounts, balances, and attrition rates, as well as breaking down that data by branch and market segment. According to Verre, those metrics provide a holistic view of the institution and help delineate between trends at the specific bank and national trends. “That discovery is absolutely key to developing a sound business and consumer marketing plan,” he explained. “Data analysis leads to all of the strategies and tactics that drive the direction of the plan. The more data you use, the better the plan can become.”

It’s also important for banks to collect data about individual customers on a regular basis. While it may sound like an enormous task, it’s actually part of what most community banks do every day. “First and foremost, in order to enter data into the CRM, you have to get to know the customer anyway,” said Jeff McCarthy, vice president – marketing director, First Bank Financial Centre, Oconomowoc. “When a new customer comes in, you have to take the time with them on the front end. Learn everything from if they own a home and are married to how they take their coffee and if they took one of the free cookies when they came in.” Rolling this practice into a data collection strategy simply means recording all of this information in a centralized location where it can be updated and analyzed as needed. This practice can help cement customer relationships by ensuring that all bank staff have current information about each customer. “When you onboard a customer properly by asking the right questions, you become more customer-centric,” said Verre. “If banks work this well, the customer feels like you really know them.”

Tom Hershberger, president, Cross Financial Group, explained that data collected during this phase can also help the bank identify potential new customers. “In the absence of an intentional pursuit of customer segments outside an organization’s average customer profile, tomorrow’s new customer will be a clone of the customers served today,” he said. “An in-depth analysis of current customer relationships—including account balances, product possession, service usage and preferred delivery channels—will set the stage to determine what will be attractive for the next new customer.”


Distillation The second phase in using data analytics to create a successful marketing strategy is the “analytics” part of “data analytics:” distilling all of the data collected to allow for a focused analysis. “Because data can become a big landscape very quickly, it is essential that organizations direct their data assessments to the critical priorities emphasized in strategic and corporate planning,” said Hershberger. “The key is not collecting all of the data possible, but rather collecting and examining data that will improve marketing activities directly connected to desired outcomes.”

Want to increase cross-selling? Collect data on which products and services customers currently utilize and compare that with what would be appropriate for their needs. Want to acquire new customers? Collect data that will help you build a profile for your best current customers, which will tell you the type of potential customer to seek out. “There are so many things you can do every day, so you need to isolate the opportunities that make the most sense,” Verre advised.

An essential step to planning future campaigns, bank marketers can distill data to assess past efforts. “As data analytics begin to improve marketing activities, it will be important to learn what worked and what was simply a distraction,” Hershberger explained. This analysis doesn’t have to be limited to specific marketing campaigns, either. A focused approach to data analytics can also help the bank identify how best to serve current and future customers. “It’s not just about customer acquisition,” said McCarthy. “It’s about acquiring the right customers and servicing them the right way for the life of their relationship with us.”

The same theory applies to both retail and commercial customers. “Marketing efforts with retail households can be enhanced dramatically with effective data management,” said Hershberger. McCarthy pointed out that good customer data is essential for both customer service and cross-selling. “Getting to know your customers is not only good business from a customer service perspective, but from a cross-selling perspective as well,” he explained. For business customers, Hershberger said data can help expand the client’s relationship with the bank beyond lending services.


So, where should a bank start after deciding to integrate data analytics into its marketing strategy? Fortunately, banks don’t have to go far to find a data processing vendor. The most common core software providers in the financial services industry (such as FIS, Fiserv and Jack Henry) also offer data analytics and customer relationship management solutions. “I honestly believe the data processing vendor you already have is the easiest solution,” said Verre. “They can also help you sort through and find the data that’s most important.”

Some spreadsheet and database manipulation can also be a good starting point. “Most community banks have access to mainframe report writing software, or at minimum, the ability to select customer data and export it to a separate file,” Hershberger said. “Simple merge/purge activities can create a clean, non-duplicated customer list with as many products as possible connected to one family or business unit.”

In addition, there’s a wide variety of cloud-based software solutions for specific data needs, most of which all users to plug in raw data from their own systems. For example, there are several cloud applications that focus specifically on analyzing data for email marketing, and others that specialize in optimizing data for sales and cross-selling processes. Analyzing one specific piece of the bank’s marketing is one way to generate very specific returns. For example, McCarthy explained that they recently started emailing the bank’s newsletter to customers so they can monitor which articles generate the most views and click-throughs. That data will empower the bank to provide more targeted content as well as open up cross-selling opportunities. “We’re still building the data right now, but it’s a way for us to get smarter with the information we’re providing,” he said.

Technology is essential for data analytics, but the most important resource for banks to rely on when processing and analyzing data is their people. “Data is only data,” Hershberger said. “We need the human component to determine what questions to ask for the data analysis and then combine that knowledge with product and service invitations that have the greatest potential for success.” The human element is also a critical component of collecting data. “The data can tell you a customer is getting older and getting ready to retire, but conversations will tell you the meaning behind it,” McCarthy explained. “As data and technology evolve, people still want to have face-to-face interaction when complex financial issues arise.”

Ultimately, the challenge for banks is to begin using the data they have available to them. Data analytics is not an easy undertaking, requiring both time and technological investments from the institution. “It’s a commitment to actually do it,” said Verre, insisting that it’s worth the effort. “If you have the data, the insights can happen.” And those insights could be the competitive advantage that sets your bank apart.

By, Amber Seitz

Building A Strong Foundation
Seven steps to integrate capital planning throughout the strategic planning process

If strategic planning lays the foundation for a financial institution’s success, then capital planning is the mortar that holds it all together. Branch and portfolio acquisitions, organic growth into new areas, and significant investments in technology are all common strategic goals that heavily impact capital. “Strategically, you need to position your balance sheet to be ready for all of these things,” said John Behringer, CPA, partner at RSM US, LLP, a WBA Gold Associate Member. To do so, everyone involved in creating or refreshing the bank’s strategic plan must keep capital top-of-mind throughout the process. “Capital should always be an overarching—if not the overarching—consideration in the strategic planning process,” said Jon Bruss, managing principal and CEO, Fortress Partners Capital Management. Though the process will vary from bank to bank, generally, there are seven key steps to achieving synergy between the bank’s capital plan and strategic plan.


1» Identify a Capital Champion

During the bank’s strategic planning process, someone must be responsible for ensuring that capital is considered every step of the way. While the board of directors should be heavily involved, Kirk Hovde, CPA, vice president at Hovde Group, recommends starting the process with bank management. “Usually it’s easiest to start with the management team, because they’re more involved in the day-to-day operations of the bank,” he said. Though in some instances the CFO (or even CIO) may take the lead, typically integrating capital into the strategic planning process falls to the bank CEO. “The CEO must set the standards and tone for the strategic planning process,” said Bruss. “He’s ultimately responsible to the board of directors, who are in turn responsible to shareholders for the stewardship of the capital account of the bank.”

2» Weigh Shareholder Expectations

Any capital planning must include consideration of the bank’s shareholder base and their expectations with regard to ROI and share value. Strategies that will require additional or higher levels of capital need to be weighed against the possibility of diluting shareholder value. “It’s important to consider your shareholders’ appetite,” said Hovde. “You don’t want your strategic plan to pigeon-hole you into needing capital at a less-than-attractive price, because that dilutes your shareholder value.” These expectations will vary depending on the bank’s shareholder base, as well. For example, a bank with shareholders who are interested in near-term liquidity should not raise common equity as a first choice because that could dilute share value, but a closely held family bank may not have those same short-term concerns.

3» Select a Starting Point

Capital both impacts and is impacted by the bank’s other strategic goals. Therefore, management and the board must begin the planning process by selecting their starting point: capital goals or other strategic goals. “In my experience, it’s best for the board of directors and management to sit down and identify what sources of capital are readily available to them and at what cost,” said Hovde. “Your access to capital is one of the most important parts of strategic planning.” However, the capital-first strategy isn’t a one-size-fits-all solution. Behringer says that strategic planning can begin with identifying two or three primary goals for the institution, provided the board and management team recognize how capital fits into those goals. “Look at the pro forma balance sheet and come up a couple of options based on what is achievable given the restraints you have,” he recommends. Capital is a common restraint, but available resources, time and competing strategic objectives are others.

4» Assess the Budget

“The first thing any management team should look at is budgeting,” Hovde advised, cautioning bankers to be aware of its limitations, as well. “It’s a great tool, but as you get further into the future it becomes less accurate.” With that in mind, an analysis of the institution’s budget provides an excellent short-term scope of the bank’s capital needs. For example, imminent infrastructure needs or anticipated investments in technology both indicate short-term future capital needs that should be accounted for in the planning process.

5» Forecast Multiple Scenarios

To augment budgeting’s limitations, management should leverage forecasting tools that will help determine the future sources of funding needed to sustain growth. “There has to be a process of creating or forecasting the balance sheet and profit and loss statement,” said Bruss. He recommends the CFO prepare a balance sheet analysis for best-case, worst-case, and base-case scenarios for each of the strategies in order to determine what the impact on capital will be. That exercise, combined with an analysis of the balance sheet and profit and loss statement will be the best way to understand what the capital changes will be. “Having a reliable forecasting process is critical,” Behringer said, noting that the asset/liability model and economic value of equity are also important. “It helps you be ready for opportunities when you know what your options are.”

6» Measure Against Benchmarks

Regulatory requirements are the most obvious (and significant) benchmarks for banks to measure their capital plan against, as they can impact the bank’s potential for growth. “Banks should always be cognizant of where their regulatory capital levels are and how their growth will affect those,” said Hovde. “We’ve seen lots of organizations who had to slow down growth because of regulatory pressure.” However, shareholder expectations are also a key benchmark to use in order to ensure the strategic plan is leveraging the bank’s capital effectively. “Look at the common GAAP measurements that will be considered by people who want to own shares of the bank,” Bruss advised. Behringer recommended comparing the bank’s ROE to peer averages to manage what shareholder expectations and assess tolerance for deviations.

7» Consider Multiple Sources of Capital

If the board determines raising capital is the best way to achieve the bank’s strategic goals and increase shareholder value, keep in mind solutions other than raising common equity. “There is a veritable plethora of strategies to deal specifically with capital before you get to the point of needing to get an investment banker to assist in raising capital,” said Bruss. “You may need a third party to objectively look at everything the bank is doing and advise the bank on what balance sheet maneuvers can be taken without the need to go into the market to raise more capital.”

One of these options Behringer recommends is for banks to regularly evaluate if they are effectively allocating their existing capital. This requires the bank to examine if it is investing in assets for which the return is not adequately compensating them for the corresponding regulatory capital requirement. An example of this involves lines of credit extended to C&I borrowers. BASEL III requires banks to assign a 20 percent risk weighting to unfunded commitments with an original maturity date of one year or less that is not unconditionally cancellable by the bank. For unused lines of credit banks should regularly evaluate to determine if these amounts are required by the borrower and to the extent they are not at the next renewal date the notional amount of the line should be adjusted or an unused line fee charged to compensate the bank for the “use” of their capital by the borrower.

If none of those options are viable and additional capital is required, Hovde recommends initiating conversation with an investment bank to explore a variety of options. “If a bank has readily available capital around the board table, that’s a great source to turn to first,” he said. “If that’s not readily available, an investment banker can help you gain access to a broader market, and therefore better pricing.”

A general guide to follow, the steps outlined in this article will not be a fit for every institution. The capital and strategic planning process should be tailored to each individual institution and its needs, as well as the unique makeup of its directors and management team. More importantly, the most successful strategy is one that allows for adaptation, especially in today’s capricious economic and regulatory landscape. “The key is to remember this is all planning,” Behringer advised. “It will provide a framework and roadmap, but it shouldn’t necessarily dictate your actions.”

By, Amber Seitz

The WBA filed the following comment letter on behalf of the industry. Below is the text of the comment letter which WBA members are welcome to use for their own letters.

August 8, 2016


Ms. Monica Jackson, Executive Secretary
Bureau of Consumer Financial Protection
1700 G Street NW.,
Washington, DC 20552
Docket Number: CFPB–2016– 0032

Re:    Annual Privacy Notice Requirement Under the Gramm-Leach-Bliley Act (Regulation P); Docket Number: CFPB–2016–0032

Dear Ms. Jackson,

The Wisconsin Bankers Association (WBA) is the largest financial trade association in Wisconsin, representing approximately 270 state and nationally chartered banks, savings and loan associations, and savings banks. WBA appreciates the opportunity to comment on the Bureau of Consumer Financial Protection's (Bureau's) proposal to amend Regulation P.

WBA recognizes that the Bureau's proposed amendment would implement the exemption from the annual privacy notice requirements to the Gramm-Leech-Bliley Act (GLBA) made by the Fixing America's Surface Transportation Act as implemented through Regulation P. WBA appreciates the proposed amendment's clarification of timing requirements when the exemption is lost and the elimination of the alternative method for delivery of the annual privacy notice, as doing so removes any confusion of having both an exemption from the annual privacy notice and an alternative to the delivery requirement. 

While WBA acknowledges the benefit of the proposed amendment, we would also like to take this opportunity to respond to the Bureau's request for comment in two areas. Specifically, WBA appreciates the opportunity to comment regarding disclosures of information to affiliates and potential harm to consumers.

In order to meet the exemption to the annual privacy notice, information provided under 1016.5(e)(1)(ii) may not change. The Bureau seeks comment on whether this information should include the disclosures of information to affiliates required by 1016.6(a)(7) and the Fair Credit Reporting Act (FCRA). The Bureau also asks whether changes to disclosures that are not required to be included in privacy notices by the GLBA or 1016.6 should cause an institution not to satisfy proposed 1016.5(e)(1)(ii). WBA believes such changes should not deem the institution to be non-compliant. When Congress eliminated the requirement for an annual privacy notice for financial institutions that meet the required two conditions the intention was to eliminate unnecessary disclosures. WBA believes that it would be costly and burdensome upon financial institutions to add additional, unnecessary disclosures which in turn would result in additional fees passed on to consumers.

To avoid additional costs and burden, WBA requests that financial institutions be afforded flexibility in choosing to include those disclosures outside of the scope of 1016.5(e)(1)(ii), such as FCRA affiliate notices, in their privacy notices or provide them separately. The privacy notice is intended for consumers to receive disclosures related to bank practices with regard to the disclosure of nonpublic personal information. Financial institutions provide disclosures unrelated to the disclosure of nonpublic personal information as required by separate regulatory requirements, and through customer service. WBA believes that the exemption requirements should remain within the scope of the disclosure of nonpublic personal information in order for financial institutions to benefit from the exemption, rather than face doubled disclosure requirements which may confuse consumers by providing redundant information.

Additionally, the Bureau analyzed potential benefits and costs to consumers and observed that any potential impact would depend on whether a given consumer prefers or would otherwise benefit from receiving an annual privacy notice that does not offer an opt-out and is largely unchanged from previous notices. The Bureau anticipates that many institutions would decide not to provide notices when meeting the exemption included in the proposed amendment. WBA believes that many financial institutions will appreciate and take advantage of the exemption, but it will not create additional costs or harm to consumers. 

Respectfully, we believe that while the Bureau regulates many large institutions, the Bureau may not be familiar with the practices of smaller financial institutions. Our financial institutions and bankers do not operate in a vacuum, and bankers are happy to discuss and answer any question for consumers, including practices related to the disclosure of nonpublic personal information. For consumers who would prefer or otherwise benefit from receiving the annual notices, it would be no more difficult to contact their banker or visit their local branch to obtain such information. The Bureau expresses concern that financial institutions may use less effective methods to convey opt-out rights under section 624 of the FCRA when deciding not to provide annual notices. WBA does not believe that the proposed amendment will result in less effective disclosures required under the FCRA if they are not incorporated into annual privacy notices. For example, if FCRA section 624 notice requirements are not covered by the exception under 1016.5(e), it does not automatically mean financial institutions will fail to follow the disclosure requirements of the FCRA itself or provide relevant information to consumers through customer service.

WBA appreciates the implementation of the GLBA amendment providing an exemption to the annual privacy notice requirement, clarification regarding timing for annual notices when the exemption is lost, and clarification with respect to removal of the alternative delivery posting. We believe that the Bureau's amendment will help financial institutions by relieving them of additional regulatory burden. Furthermore, WBA believes that if adopted, the proposal will provide clarity and save financial institutions time and money. Regarding the Bureau's request for comment with respect to affiliate notice requirements in relation to meeting the exemption to the annual privacy notice, WBA requests that financial institutions be afforded flexibility in providing such notices in order to continue to meet the exemption. Additionally, WBA does not believe that the exemption to the annual privacy notice would negatively impact consumers as bankers are more than willing to discuss questions and concerns with customers as they arise. 

By, Eric Skrum

The WBA filed the following comment letter on behalf of the industry. Below is the text of the comment letter which WBA members are welcome to use for their own letters.

October 4, 2016


Ms. Monica Jackson, Office of the Executive Secretary
Consumer Financial Protection Bureau
1700 G Street NW.,
Washington, DC 20552
Docket No. CFPB-2016- 0025

RE:     Payday, Vehicle Title, and Certain High-Cost Installment Loans: Docket No. CFPB-2016- 0025

Dear Ms. Jackson,

The Wisconsin Bankers Association (WBA) is the largest financial trade association in Wisconsin, representing approximately 270 state and nationally chartered banks, savings and loan associations, and savings banks. All of our members are insured depository institutions. WBA appreciates the opportunity to comment on the Bureau of Consumer Financial Protection's (CFPB's) proposed rule on payday, vehicle title, and certain high-cost installment loans.

WBA recognizes that the CFPB's intent is to provide consumer protections by regulating payday, vehicle title, and certain high-cost installment loans, but fears that the proposed rule's complex and burdensome underwriting and record retention requirements will result in unintended consequences, more specifically discussed below, that will cause many of our member institutions to exit the market entirely and cease to provide covered loans. We believe those financial institutions that do continue to make short-term loans under the proposed rule will face increased costs due to such factors as software and systems upgrades and training of personnel. These costs will, in turn, increase the cost of credit to consumers.

Unintended Consequences

Our members make short-term loans as an aspect of service to their community. Short-term loans covered by the proposed rule are not products created and offered by our member institutions as a means of profit; they are primarily provided for their customers to deal with financial emergencies. They are offered to customers with poor credit or limited means, who live on social security or disability, and others who truly need this funding. For example, financial institutions provide covered loans for customers with sudden car and home repairs and unexpected medical bills. Our member institutions firmly believe that this service is part of being a responsible and engaged member of the communities in which they operate and serve.

Under the proposed rule, financial institutions will be required to follow very rigid requirements to document, verify, and project the borrower's income, majority of financial obligations, housing costs, and basic living expenses prior to making the loan. WBA is concerned that this, combined with significant compliance risk, will require a complete overhaul of our members' processes and render short-term loans costly and impractical. We believe that imposition of such a significant regulatory burden upon insured depository institutions, which are all regularly examined, is unnecessary when they already follow self-imposed underwriting standards. These underwriting standards have been tested and reports from our members indicate low-to-nonexistent charge-off rates. Furthermore, these products have been tested by customers who understand the loan structure and are able to repay them consistently. WBA believes that the underwriting standards currently set by insured depository institutions are more than adequate, as evidenced by the extremely low charge-off rates for covered loans they already provide.

The CFPB estimates that the required ability-to-repay determination will take essentially no time for a fully automated electronic system and between 15 and 20 minutes for a fully manual system. WBA is concerned that while the CFPB's assessment may be accurate for larger institutions, it overlooks the burdens smaller community institutions will face. For example, it is not uncommon to find a community bank with a staff of five. If such a financial institution is required to follow the standards set forth under the proposed rule, WBA is concerned that the result will be a significant increase in costs that will increase the cost of credit to consumers. Even more likely, we fear that these financial institutions will simply stop offering short-term loans entirely because the burden of compliance will be too great for a smaller staff to absorb into an already complex and challenging compliance environment.

Many of our member institutions serve small communities where they are one of the few, and sometimes only, nearby options available for consumers in need of short-term loans. WBA fears that the proposed rule's unintended consequences will mean consumers living in those communities might be unable to obtain short-term loans altogether, or without significant inconvenience or additional cost. If the institution exits the market, we are very concerned that consumers in these small communities could be forced to seek credit from alternative lenders that are not regularly examined and perhaps less focused on consumer protection. The result of this situation will not only be inconvenient and more costly to consumers, but could also be harmful to consumers.

In addition, WBA understands that consumers of short-term loans come to our member institutions expecting to receive funds immediately, particularly in the case of an emergency. A customer is unlikely to bring the documentation required by the proposed rule during an emergency. Thus, if a financial institution offers covered loans at all, the customer would be sent home to retrieve documentation, further burdening and inconveniencing them and potentially delaying the process by which they are able to obtain funds that they need to avert or remedy an emergency.

While WBA appreciates the CFPB's efforts to create an exemption for accommodation loans, we do not find it to be a useful means to continue to make short-term loans covered by the proposed rule. Imposing a weighted annual default rate of 5% or less for short-term loans made under this exemption renders them inviable due to the potential costs resulting from the prohibition against set-off and potential refund of all origination fees. Furthermore, we do not believe that customers who repay a loan on schedule should be ineligible for a new loan. The proposed rule's restrictions on re-borrowing will harm customers who have demonstrated that these types of loans work for them.

WBA believes that in order for short-term loans to remain a viable option for our members while still meeting the CFPB's goal of consumer protection through regulation, the proposed rule will need to exempt insured depository institutions from the coverage of the proposed rule. Alternatively, we will request a de minimis threshold providing an exemption from the rule, for example, for insured depository institutions that make fewer than 100 covered loans per year. Such a threshold will make it possible for smaller community banks such as those discussed above to continue making covered loans as a service to their communities, using their already well established, tried and tested underwriting standards, and without causing unintended consequences that will be adverse to consumers. If the CFPB is unwilling to implement one of these alternatives, WBA requests that, at a minimum, the CFPB provide a more streamlined, less burdensome underwriting process for insured depository institutions.


WBA believes that the CFPB's proposed rule will force many of our member institutions to discontinue making short-term loans, or cause undue costs and burden that will then be passed on to their customers. Our members provide short-term loans as a service to their communities. Being insured depository institutions subject to regular examinations, and following underwriting standards set by their own policies and procedures which have resulted in very few defaults, we do not believe that such harsh restrictions on short-term lending are necessary for our members. Thus, as outlined above, we request that the CFPB include an exemption for insured depository institutions. To do otherwise will result in a curtailment in credit to consumers when they need it most.

By, Eric Skrum

Last week, WBA filed its comment letter on CFPB’s TRID amendments. Among its comments, WBA supported the elimination of the “black hole” problem and offered solutions on how to eliminate confusion regarding the cash to close table in TRID disclosures. WBA vehemently opposed requirements to update values for “non-tolerance” items on “informational” Loan Estimates and to provide disclosures for permanent financing of a construction loan when the consumer has only applied for a construction-only loan.

Below is the text of the comment letter which WBA members are welcome to use for their own letters.

October 18, 2016

Ms. Monica Jackson,
Office of the Executive Secretary,
Consumer Financial Protection Bureau
1700 G Street NW
Washington, DC 20552 

RE: Docket No. CFPB—2016-0038; RIN 3170-AA61

Dear Madam:

The Wisconsin Bankers Association (WBA) is the largest financial trade association in Wisconsin, representing approximately 270 state and nationally chartered banks, savings and loan associations, and savings banks located in communities throughout the state. In addition, WBA has a wholly-owned subsidiary, Financial Institution Products Corporation (FIPCO), which provides Loan Origination Software (LOS) solutions not only to lenders in this state but to lenders in the Midwest region. 

WBA is pleased that the Consumer Financial Protection Bureau (CFPB) recognizes there are several areas in the TILA-RESPA Integrated Disclosure rule (TRID) which will benefit from amendment or clarification. WBA appreciates the opportunity to comment on the proposed amendments to TRID. As a matter of convenience for all interested parties, WBA submits these comments today from the perspective of a financial institution trade association and an LOS vendor, as applicable.

Eliminating the “Black Hole” Problem

WBA appreciates the CFPB’s attention and care to resolving the so-called “Black Hole” problem, where technicalities of the new regulations force unnecessary, but often consequential, delays and postponements in settlements. The existing rule and commentary are very ambiguous with regard to the ability to update fee revisions, for tolerance re-set purposes, after delivery of a Closing Disclosure (CD). WBA’s concerns about this provision are focused on ensuring maximum consumer benefit and flexibility, and eliminating substantial and unwarranted liability for financial institutions. 

The simple and uncomplicated solution set forth by the CFPB is indeed welcome. It allows a creditor to use a corrected CD to re-set applicable good faith tolerances when there are fewer than four business days remaining before consummation or when the CD has already been issued, provided that the creditor also complies with the other requirements of § 1026.19(e)(4). 
The proposed comment in 19(e)(4)(ii)-2, which clarifies the issue states—

“If there are fewer than four business days between the time the revised version of the disclosures is required to be provided under § 1026.19(e)(4)(i) and consummation or the Closing Disclosure required by § 1026.19(f)(1) has already been provided to the consumer, creditors comply with the requirements of § 1026.19(e)(4) (to provide a revised estimate under § 1026.19(e)(3)(iv) for the purpose of determining good faith under § 1026.19(e)(3)(i) and (ii)) if the revised disclosures are reflected in the corrected disclosures provided under § 1026.19(f)(2)(i) or (2)(ii), subject to the other requirements of § 1026.19(e)(4)(i).”

We believe this language means that whenever a CD has been provided to the consumer and there is a subsequent valid changed circumstance (or customer requested change), the creditor would be allowed to provide the customer with a revised CD that would re-set the tolerances. The only stipulation to the creditor’s ability to re-set tolerance is that the revised CD must be delivered to the consumer within three business days of receiving information sufficient to establish a valid changed circumstance. The use of corrected CDs as a vehicle for correcting and “re-baselining” fee disclosures is the most straightforward approach to returning regulatory order and compliance clarity on this provision. WBA certainly supports this change, if the interpretation noted above is accurate.

Revised Disclosures for Informational Purposes 

The discussion of “re-baselining” of fees brings us to another proposed amendment about which WBA is very concerned. The proposal would add a new comment .19(e)(3)(iv)-5 to clarify that all cost disclosures included in a Loan Estimate (LE) whether provided for either tolerance re-set or for informational purposes, must be based on the best information reasonably available to the creditor at the time the disclosure is provided to the consumer. Currently, lenders are not required to update costs on the LE other than those that are to be re-set for tolerance purposes. 

Many LOS systems cannot hold values for fees and charges beyond the most recent fees and charges input to the system for the LE. Users that wish to issue informational LEs are aware that the most current values input into the LOS are the values retained by the system and the values used to calculate tolerance violations and refunds. LOS users are advised that if values used for informational purposes are entered after the original “set” values, the LOS cannot calculate tolerance violations because the “informational” value will over-ride the values previously entered (and on which the tolerance is “set”). As programmed, users are notified that if they enter informational only value changes, they will be required to perform manual tolerance comparison calculations. In most cases, users have neither the time nor the desire to engage in manual comparisons and so, do not issue informational only LEs. 

Further, when users re-set values as permitted by TRID, the tolerance calculations are made using the LOS. The LOS calculates the tolerance violation, and if a cure is necessary, is able to print the refund amount in the lender credit. Again, this won’t work if values that are not “re-set” are also updated. By limiting changes to those charges to be “re-set”, the LOS retains the “set” values for purposes of comparing the charges entered in the Loan Estimate against final charges entered for the Closing Disclosure. 

Proposed comment .19(e)(3)(iv)-5 would require changes to the LOS that would be extremely expensive and time consuming, if not impossible to create in any kind of timely or cost effective manner. Indeed, the technology required by the proposal is not currently a part of most LOS systems. The value to consumers to receive disclosures that are updated for all fees/charges, even when changes don’t reach tolerance violation levels, does not offer much of a trade-off for the extreme cost to the industry necessitated by this regulation change. The change also increases the risk that if the LOS cannot accommodate this change, which is likely, lenders will be required to do all of the refund calculations manually, resulting in greater numbers of errors in refund calculations. In addition, we are concerned that manual workarounds will negatively affect the secondary market’s willingness to accept loans for fear of errors and noncompliance. Thus, we urge the CFPB to continue to allow informational disclosures to be made, at the option of the lender, and not to require an update of all charges on a disclosure that is provided to “re-set” particular charges and not others. Said another way, the CFPB should clarify that non-tolerance items on re-disclosures remain absolutely optional.

Closing Cost Expiration Date and Rate Lock

The proposal addresses whether a creditor can re-set tolerances where the consumer indicates an intent to proceed after the 10-business-day period, but within a longer period for which the creditor promised to honor the estimated charges originally disclosed on the Loan Estimate. WBA supports the CFPB’s proposed solution, to be set forth in a new comment that where a creditor voluntarily extends the consumer acceptance period to a period greater than 10 business days, that longer time period becomes the relevant time period for purposes of using and delivering the revised estimates. 

The proposal would also require a blank expiration date on any LE issued after the consumer has indicated intent to proceed. An alternative proposal is to delete the expiration date sentence from the form following indication of intent to proceed. From an LOS perspective, either alternative will also require significant time and expense to program. We urge the CFPB to permit LOS providers to have the option to use either of the alternatives. In addition to these alternatives, we urge the CFPB to include an option where the notation “n/a” can be used to complete the sentence, which we believe would be less confusing to consumers than a blank space. 

Disclosure of Costs of Improvements. 

Currently, TRID does not provide direction on how to incorporate construction costs withheld by the lender into the cash to close table. As a result, one reasonable method of handling construction costs so that they are included in Cash to Close, is to incorporate them into the down payment/cash from borrower or funds for borrower calculations. Where there is a seller, add the purchase price plus costs of improvements and subtract the loan amount reduced by closing costs financed. If there is no seller, add costs of improvements to borrower’s payments to third parties and subtract the loan amount reduced by closing costs financed. Likewise, when calculating closing costs financed the costs of improvements are subtracted from the loan amount together with the purchase price and other payments to third parties. The cost of improvements may be disclosed on the borrower’s Summary of Transactions under K., Due From Borrower at Closing.

Proposed comment App. D–7.vii.A would explain the amount of construction costs is disclosed under the subheading ‘‘Other’’ under § 1026.37(g)(4), consistent with informal guidance provided by the CFPB and the proposed changes to § 1026.37(g)(4). Although verbal Webinar guidance by the CFPB had allowed creditors an alternative option for disclosing construction costs in the Calculating Cash to Close table (not as “Other” costs), the CFPB is now proposing a more definitive rule where creditors would be required to disclose construction costs under “H. Other.”

From the perspective of an LOS, the proposed addition of a specific required method of disclosing construction costs would require significant re-programming to both the cash to close calculations, Loan Costs, and Summary of Transactions. 

In this case, as in many others where the Regulation was silent as to how to address particular issues, LOS vendors and lenders found reasonable methods of handling the issues, so that the deadline for TRID could be met. These parties should not be required to change programming that is reasonable and that works for consumers, and for which significant time and expense was spent, for an alternative means of disclosure, with no positive gain for consumers. 

We request that the CFPB permit alternative methods of disclosing construction costs, so long as the method discloses the costs, and the cash to close table and summaries of transactions table balance. We also request the CFPB to advise that construction costs that are withheld may be disclosed on the alternative form in the Payoffs and Payments. 

Construction Lending: Financing By Same Creditor

The proposed rule appears to set forth a new requirement in instances where a creditor receives a credit application for construction loans. The proposed comment 17(c)(6)-6 would appear to define “may be permanently financed by the same creditor” as used in § 1026.17(c)(6)(ii) to mean, “if the creditor generally makes both construction financing and permanent financing available to qualifying consumers, unless a consumer expressly states that the consumer will not obtain permanent financing from the creditor.”  The proposal would also add comment 19(e)(1)(iii)-5, which would attempt to clarify the timing requirement for the initial LE that applies to such transactions. This comment essentially states that a loan subject to § 1026.17(c)(6)(ii) requires an initial LE to be disclosed for both the construction and permanent phases upon application, even if it is for “construction financing only.” The proposed comment provides an example under comment 19(e)(1)(iii)-5.i that states if a creditor receives an application for “construction financing only,” it “must” provide the initial LE for both a construction and permanent loan within three business days of receipt of the application for “construction financing only.” The only exception to the dual disclosure provision would be obtaining an express statement that the consumer will not seek permanent financing from that creditor, as described under comment 17(c)(6)-6. 
The CFPB described in the preamble that it proposed comment 17(c)(6)-6 because, “at the early stages of an application when the Loan Estimate is delivered, creditors usually would not yet have made a determination as to whether they will provide permanent financing to any given consumer,” and a determination when they decide they will “could be complex.” Further, the CFPB stated that it “does not believe it is appropriate to determine whether a creditor ‘may’ provide permanent financing based on the creditor’s actual determination as to any individual consumer.” 

For various reasons, we strongly oppose this new requirement. Adding this dual disclosure requirement would confuse consumers, complicate compliance for lenders, create internal conflict with other portions of the rule, and quite possibly, be unauthorized under the TILA and RESPA statutes. We offer the following comments to expand on these concerns.

The CFPB’s Reasoning is Unfounded

WBA believes that the CFPB’s stated reasoning for these proposed provisions is unfounded. The CFPB stated that it is difficult for creditors to determine when a loan may be permanently financed under the current provisions, and that it is inappropriate to determine whether a creditor may provide permanent financing based on the creditor’s actual determination as to any individual consumer. But this is how Regulation Z currently works, and there does not appear to have been any particular confusion with respect to this issue. Specifically, for a “construction only” loan, the consumer has not yet applied for a permanent transaction (even if he or she has not expressly stated they would not obtain a permanent loan from the creditor), and thus, no determination about possibly permanently financing the construction loan needs to be made. Once the consumer actually decides to apply for permanent financing, the creditor would have a firm date on which to base its timing requirement for the initial LE. 

Consumer Confusion

As a threshold matter, we believe that giving consumers a disclosure for a financial product that they are neither seeking nor applied for will overwhelm the shopper and quite possibly confuse their comparison analysis. The receipt of two loan disclosure packets will baffle a consumer that only asked for construction-related financing, and will undoubtedly lead a shopper to misunderstand which packet applies to the particular type of loan on which they are focused. Consumers will not understand the rule enough, if at all, to expressly state that they do not want construction financing, to avoid the duplicative paperwork. This will likely lead to excessive paperwork being provided to consumers for a loan they did not apply for, as the majority of institutions will want to treat the construction phase separately in their software systems to be able to move forward with that transaction only, since that is the loan for which the consumer “actually” applied. As a result, the institution’s LOS would need to be reprogrammed to would provide a separate disclosure package for a loan for which the consumer did not apply, burying the consumer in unnecessary paperwork during a critical time in their decision-making process. A key goal of the KBYO initiative, as well as the CFPB’s efforts to simplify the closing process, is to reduce the bulk and to simplify credit disclosures; this proposal would achieve the exact opposite. 

Relatedly, we also think that this requirement will lead to customer distrust towards the institution. Why, they will ask, is my institution giving me disclosures for additional loans that I did not request? Without a doubt, the additional unrequested disclosure package will feel like a marketing and pressure tactic to induce the customer to purchase more products than what they asked for. Explaining to the consumer that government regulations require such additional disclosures rarely eases the apprehension and coercion that customers sense towards institutions that overwhelm them with institution-related products. In this sense, and from the perspective of consumer expectation, the CFPB’s provision gets this completely reversed—the only time a lender should be obligated to provide permanent financing disclosures is when the consumer expressly indicates they, in fact, want permanent financing from that lender.

In addition, institutions may attempt to shield their customers from the unnecessary paper using various methods. Some institutions may add an explanatory disclosure to the disclosure package for the permanent loan for which the consumer did not apply, to explain why the second package of disclosures is being provided. Other institutions may be forced to require that the consumer sign yet another document that affirms that the consumer does not want an additional financial product before they actually accept any application information, to avoid a potential violation of the timing requirements for the initial LE, which cannot be cured under the rule. These approaches do not appear optimal, and the additional disclosures will just add to the paperwork that consumers receive as they wade through the application and origination process, also adding to the risk of “information overload.”

Consumer Harm and Legal Complications from Inaccurate Loan Estimates for an Inchoate Permanent Loan

Consumers who have only applied for construction financing may be harmed because the disclosures for the permanent loan may be at such an early stage that institutions will not be able to provide accurate pricing disclosures for the permanent loan. At an early stage, consumers only interested in construction financing may not have provided sufficient information or documentation with respect to the permanent financing.  In addition, many of the third party vendors involved in the settlement process will not have been identified, such that the accuracy of the cost estimates will suffer. Consumers may make financial decisions based on this early disclosure for the permanent phase for which they did not apply, which may not be the most accurate information. 

Further, there are legal complications to offering a Loan Estimate that carries legal liabilities and price guarantees under the tolerance requirements. A consumer who has not applied for the permanent loan product may not have the information or documentation necessary to provide accurate pricing disclosures. Although there may be the ability to revise estimates under § 1026.19(e)(3)(iv), the estimates are still subject to the “good faith standard,” which requires creditors to conduct “due diligence” to obtain the best information reasonably available. See comment 19(e)(1)(i)-1. This burden is made more difficult and the legal risk that much greater at this early stage. In addition, the credit and underwriting decisions necessary for a one or two-year construction loan differ substantially from considerations required for a 30-year loan. The former is likely to be held in portfolio and managed by institution experts that understand how to manage its procedures. The latter is likely to be sold to secondary market investors and therefore require completely different staff, third party relationships and back office coordination. In fact, the form production, compliance and underwriting systems for each of these types of loans will likely be different, and they cannot necessarily be ignited in tandem to achieve simultaneous assembly and delivery to the customer. In fact, we note that the laws that apply to each type of loan differ widely. Suffice it to note that construction loans are not covered by the ability-to-repay rules that generate a full body of compliance procedures that do not apply to other residential transactions.

Legal Questions Regarding the Proposed Provisions

In addition, this proposal is too muddled and complex, and extremely confusing for purposes of compliance. The full scope of the requirement can only be ascertained by reading through four separate interlocking provisions and examples. We respectfully submit that there are inconsistencies with this proposal and existing regulatory provisions. We note, as a general matter, that commentary provisions cannot override the regulatory text or create regulatory requirements. Commentary provisions only provide safe harbors of compliance for following the regulatory text. See App. C of Reg. Z, and the introductory comment I—1. It is therefore important that the regulatory language be fully consistent.

Section 1026.17(c)(6)(ii) states that when a construction loan “may be permanently financed by the same creditor,” it can be treated as either one or more than one transaction.  Existing comment 17(c)(6)-2 addresses when this option is available, in that it describes such transactions that “may be permanently financed” as when, “unless the obligation is paid at that time, the loan then converts to permanent financing in which the loan amount is amortized just as in a standard mortgage transaction.” The  word “converts” appears to assume that this conversion is built into the terms of the legal obligation. Most legal experts have assumed that this terminology has always meant that it did not apply to true separate “construction only” loans that do not have some conversion built into the note or other terms of the legal obligation. Most legal experts have assumed that Regulation Z has treated “construction only” transactions as separate transactions, meaning a subsequent permanent transaction has to be treated separately under Regulation Z.  This is also apparent from the regulatory text of § 1026.17(c)(6)(ii) which allows the disclosure of the construction and permanent “phases” of one, singular “loan” to be disclosed as combined or separate transactions. The regulatory text does not describe disclosing a separate “permanent loan” combined with a “construction loan.” Based on this analysis, most legal experts interpret the regulatory text and existing comment 17(c)(6)-2, which the CFPB has not proposed to amend or delete, to mean that truly separate construction and permanent transactions should be treated under Regulation Z as separate transactions. 

The CFPB appears to have attempted to create a legal requirement that applies to applications for "construction financing only" in proposed comment 19(e)(1)(iii)-5.i by using the word “must” and requiring a disclosure for an application that has not been submitted by the consumer, which appears to conflict with § 1026.17(c)(6)(ii) and existing comment 17(c)(6)-2, as well as the general tenets of Regulation Z. As stated above, the commentary cannot create regulatory requirements, and therefore, we believe this proposed commentary will complicate compliance, rather than provide greater clarity and certainty. 
Further, we note that the RESPA and TILA statutes do not support the new requirement set forth in this proposal. The definition of “application” under TILA and RESPA describe a process that intends to provide immediate and precise information on options that the consumer specifically solicits. 

In summary, this precise requirement should be removed from any final rule. The CFPB specifically sought comments on an alternative approach that would allow a creditor to provide the Loan Estimate only for the financing for which the consumer applied. We would support this option. Under the approach described by the proposal, if a consumer applied for construction financing only, a creditor would be required to provide the Loan Estimate for only the construction financing. If the construction financing may be permanently financed by the same creditor, the creditor would be permitted to provide the Loan Estimate for the permanent financing at the same time as the Loan Estimate was provided for the construction financing, but would not be required to do so. If the consumer applied for construction and permanent financing at the same time, the creditor would be required to provide the Loan Estimates for both phases within three days of receiving the application. If the consumer applied for construction and permanent financing separately, the creditor would be required to provide Loan Estimates within three days of receipt for each application. However, a Loan Estimate for the separately-applied-for permanent phase would not be required if the Loan Estimate for the permanent phase had already been provided because the transaction met the condition that the construction phase may be permanently financed by the same creditor. 

Loan Term for Permanent Phase when Separate Disclosures Provided for Construction/Permanent Loan Application

Continuing on in the construction loan realm, the proposal includes two new comments addressing the loan term for permanent financing when the permanent financing is disclosed separately from the construction loan. App. D Comment 7i.B. and .37(a)(8)-3. 

Under these comments, the Loan Term for the permanent phase is counted from the date that interest for the first scheduled periodic payment for the permanent phase begins to accrue. We point out that neither the Regulation nor Commentary addresses how to calculate the loan term for a standard 30 year conventional mortgage loan (a loan that is not a permanent loan taking out a construction loan). 

We encourage CFPB to clarify that comment .37(a)(8)-3 is consistent with the way in which the Loan Term for any conventional loan is calculated—that is from the date that interest begins to accrue for the first scheduled periodic payment. The comment could apply to the Loan Term disclosure, in general. It need not be limited to the loan term of a permanent loan that is disclosed separately from the construction phase in a construction/permanent loan.

Cash to Close Table – In General

We appreciate that the CFPB realizes the “calculating cash to close” table has been a source of confusion for the industry and consumers alike, and for that reason has specifically solicited comments on how to change or improve the table. The table is intended to maximize consumer understanding and offer a “reasonably reliable estimate of the cash due from or to the consumer at consummation.” However, we feel the table has fallen short of that goal.

First, the disclosed values in the cash to close table are determined by complicated formulas, all of which must be calculated by software because they are too complicated to be performed manually; thus, lenders and closers are unable to explain how the calculation is made to consumers, especially in a manner that is understandable to consumers. The best a lender or closer can do is to tell consumers that the calculations use the same figures that are included in the Summaries of Transactions, but puts them in different categories. Nothing is intuitive or transparent about the Cash to Close table. 

Second, consumers do not understand the categories or calculations used in the cash to close table. Consumers attempting to confirm totals in the cash to close table have no way of doing so other than by asking questions as to what is included and how the result was reached. The answers are not satisfying to consumers. This may not be overly significant when a consumer is collecting estimates relating to a loan, but the CD is now the settlement statement. A consumer must understand the details of the consumer’s settlement statement. This shortcoming in the Closing Disclosure is frustrating to all involved in the transaction.

As demonstrated by the number of proposals in these proposed rules addressing changes or additions to the formulas used for calculating cash to close, settlement agents, lenders and LOS systems have had to calculate cash to close totals by adjusting the original CFPB categories in order to make the table work and balance with the Summaries. Even if one lender can explain the formula for any particular cash to close category, the next lender, using a different LOS, may calculate the categories differently, though in a reasonable way, given the items that were not included in the formulas provided in the original TRID rule.

On the contrary, to the extent actual values are used in the Summaries of Transactions (which is the case, but for the disclosures for title insurance premiums), borrowers can look at the form and understand how money is coming into and going out of the transaction. The Summaries are the real settlement statement. Two different tables showing cash to close are not necessary, especially when one table is clear (the Summaries), and one is not (Cash To Close).

The CFPB’s stated purpose for including the cash to close table in the CD is to permit consumers to compare changes in applicable values from the Loan Estimate to the Closing Disclosure. However, the current proposal requires that the Estimate Column disclose amounts from the most recent Loan Estimate provided, which may include informational values rather than set values. .38(i)-5. If the comparisons between the Estimated and Final column disclosures are not the values that are used to calculate tolerance violations, but may instead be based on informational values, even the value of the comparison aspect of the table is negated.

We strongly encourage the CFPB to remove the cash to close table from the CD. The rule could require a direct disclosure of loan costs and lender credits, as set using the LE (or CD), and compare those values to the final loan costs and lender credits. The table could show applicable costs in sections specific to each tolerance category. The consumer would be able to see whether a tolerance is applicable, the amount of the tolerance and whether the difference between the values resulted in a violation by looking at the “set” costs and the final costs. This could be done by direct comparison of actual numbers that are understandable to consumers. 

In the alternative, the cash to close table could be expanded (like the Summaries of Transactions) to identify the formula used for each item, and to identify each value that is a part of each category in the table.

From the perspective of an LOS, any changes adopted, whether the changes are suggested by the CFPB or us, will require a significant amount of time for reprogramming and will impose considerable expense. Having said that, we urge the CFPB to amend the rule such that it actually achieves the desired effect—to maximize consumer understanding.

Cash to Close – Changes to Categories

The CFPB also proposes to specify the categories that Loans Assumed or Taken Subject To and the Sale Price of Personal Property are to be added to for the cash to close calculations. In the absence of guidance in TRID on how to disclose Loans Assumed or Taken Subject To, or the Sale Price of Personal Property, some LOS systems have included these items in Adjustments and Other Credits, as applicable, to balance cash to close calculations. This works. The proposed changes for these items will cause significant programming changes costing significant time and expense. Consistent with our other comments, moving these items to other categories will not matter to consumers because consumers are not given information to know where any particular item is considered in the Cash to Close table. We repeat our request that the CFPB remove the table from the CD. If however, it is not removed, we request that the CFPB add a provision providing that for any item not specifically required to be included in a particular category, the rule provides flexibility, and, that as long as the cash to close balances, items may be added in any category that reasonably reflects the item. 

Total of Payments – Tolerance

As stated by the CFPB, prior to TRID, the only error that would likely be made in the Total of Payments would be an error in the finance charge that would have flowed from the Finance Charge disclosure. Post-TRID, with the inclusion of Loan Costs in the disclosure, the creditor is open to the possibility of an inaccurate Total of Payments for reasons beyond the finance charge. 

As proposed, if the finance charge is accurate, the proposal will permit applying the tolerance to other Loan Costs. The proposal recognizes that a tolerance is appropriate for Loan Costs, but only to the extent that the finance charge is accurate. However, if the finance charge is inaccurate, there is no additional tolerance for Loan Costs. If the CFPB believes it is appropriate to provide a tolerance for Total of Payments when the finance charge is correct, we believe the CFPB should extend an additional tolerance to the Total of Payments for errors in Loan Costs when the finance charge is not correct.

We request the CFPB consider an additional tolerance for the total of payments, above the proposal to apply the existing tolerances (adopted prior to TRID) to the new TRID Total of Payments. An additional tolerance would recognize that additional errors can be made in the Total of Payments because of the addition of all Loan Costs in the total of payments calculation.

Total of Payments – Loan Costs but no General Credit Reflected

The CFPB acknowledges in the proposed amendment to comment .38(o)(1)-1, that general lender credits are not taken into account in the Total of Payments. We suggest that the CFPB change the calculation of the total of payments on the CD so that the total of payments takes into account general lender credits. Currently, the total of payments is absolutely inaccurate if lender credits apply to the transaction, because lender credits are not taken into account in disclosing the total of payments. 

If general lender credits continue to be excluded from the total of payments, a consumer cannot use the TRIDs to compare loan packages among lenders. A loan that provides a general lender credit to offset costs discloses the same total of payments as a loan that does not provide a general lender credit. The purpose of allowing consumers to compare the costs of varying loan products is negated.

We acknowledge that this request would cause additional programming for LOS operators. However, this change would have the added benefit of creating a level playing field among financial institutions in their total of payments disclosures. We think this benefit is significant and, therefore, repeat the request to provide sufficient time for any programming changes, if adopted. 

Estimated Taxes, Insurance and Assessments 

The CFPB proposes to permit the word “Some” to be included in the disclosure for property taxes and homeowner’s insurance under proposed comment .37(c)(4)(iv)-2. We agree that this is a good change that will be helpful to consumers. However, the CFPB should bear in mind that the change will add to the time LOS vendors need for programming.

Prepaid Interest Disclosure on the Closing Disclosure

The CFPB proposes to revise comment .38(g)(2)-3 to require placement of $0.00 in the line if no per diem interest is collected. Why is this line treated differently than other prepaid items that are left blank if the line is not applicable? See .38(g)(1)-1 and .37(g)(1)-4. This differentiation creates lender and consumer confusion. We believe a consistent format for all the disclosures in this section of the form better serves lender and consumer understanding; therefore, we do not support this proposed change.

Alternative Form -Payoffs and Payments Table 

We commend the CFPB for permitting credits to be disclosed in the payoff and payments table on the alternative form. Given the secondary market’s impending requirement to use the alternative form for all refinancing transactions, all aspects of a refinancing transaction must be accommodated by the alternative form, including all manner of credits and adjustments. However, given that this is a new provision, and that alternative forms are currently not programmed to permit credits as negative amounts, we again implore the CFPB to permit sufficient time before the effective date for all LOS users to take advantage of using the alternative form when the transaction involves credits and adjustments. 


Current section .37(o)(4)(i)(A) clearly provides that per diem interest and monthly escrows “are not rounded.” Current programming, based on the current rule, provides for these two items to be disclosed to two decimal places, dropping digits beyond the two required because partial cents are not disclosed. The proposal to round to the nearest cent and disclose to two decimal places is another change to the rule, again with no competing benefit to consumers. 

Escrow Accounts Disclosures

The CFPB proposes to change the escrow account tables to include mortgage insurance premiums in the escrow table. We disagree with this proposed revision. The escrow table currently matches, to some extent, the values on p. 1 of the CD disclosed for “Estimated Taxes, Insurance & Assessments”. Like the escrow account disclosure, the Estimated Taxes, Insurance & Assessments does not include mortgage insurance. If the lender indicates on p. 1, for example, that property taxes and homeowner’s insurance are $100 per month, and indicates that “YES” these amounts are in escrow, the $1200 (assuming 12 payments in the first year) or $1100 (assuming 11 payments in the first year) shown in the escrow table, is consistent with the Estimated Taxes, Insurance & Assessments table. We recommend retaining this consistency. 

If there is an escrow account, the proposal also changes the amounts to be disclosed for the one year time period, to be based on the escrow analysis required under Regulation X, rather than to require a 12 payment calculation for some loans and an 11 payment calculation for others, depending on the number of scheduled payments in the first year. This proposal makes sense and would be more intuitive for consumers and lenders. We have had many inquiries from lenders and consumers trying to understand why the disclosure includes less than 12 monthly escrow payments. 

If the escrow change is adopted for escrowed amounts, we recommend making a change for the calculation of property costs over one year where there is no escrow, to allow lenders to disclose the non-escrowed amounts shown in the “Estimated Taxes, Insurance & Assessments” by multiplying the monthly amount shown on p. 1 that is not in the escrow, by 12 (assuming these are monthly payments). Lenders and consumers assume, when the disclosure includes a reference to one year, that the reference is to a period equaling 12 payments (if monthly).

Recording Fees on the Closing Disclosure

The Regulation continues to provide under the heading “Taxes and Other Government Fees”, that there should be an “itemization of each amount that is expected to be paid to State and local governments for taxes and government fees . . . .” .38(g)(1).  However, the Regulation does not permit an itemization of each such item. All recording fees are added together, and the only recording fees that are itemized, are fees for deeds and security instruments. We suggest modifying the Regulation to reflect the stated requirement. The proposed clarifications are confusing given the “itemization of each amount” standard currently in the Regulation.

Rescindable Parties named as “Borrower” on Closing Disclosure

The proposed new comment .38((a)(4)-4 requires that rescindable parties, even if they are not obligors (“borrowers”), must be named as borrowers on the Closing Disclosure. This proposal is contrary to the ordinary use of the word “borrower.” If all parties to a transaction are to be named, the word “Borrower” on the CD should be changed to another term, such as interested persons or, even, consumer. A non-obligor rescindable party would be properly shocked and upset to find himself or herself named as a “Borrower” on a document that reflects loan terms, such as an LE or CD. The change required by this comment results in the misrepresentation of the parties and their roles in the transaction, and is one that could cause grave concern for the party whose role is so misrepresented, as well as for the actual borrowers. Again, this change would result in significant additional programming of both forms and/or software. 

Privacy and Delivery of Closing Disclosure

The CFPB proposed new comments .38(t)(5)(v)-2 and -3, providing examples of situations permitting the creditor to provide separate CDs to the consumer and seller. Under the current Rule, the obligation to provide the CD to the seller is solely that of settlement agent. But, the new comment addresses modifications that may be made “by the creditor”. Subsection (iii) of the new comment states that the creditor may “provide to the seller, or assist the settlement agent in providing to the seller, a modified version of the form H-25(I). 

We request clarification that these proposals do not impose any new obligation on financial institutions, and that the settlement agent remains the party responsible to provide the seller’s CD to the seller. 

Effective Date and Optional Compliance

The CFPB has proposed that the amendments be effective 120 days after publication in the Federal Register. Based upon our experience with designing and programming software in connection with past regulatory changes such as RESPA, MDIA, DFA Title XIV and, most recently, TRID, 120 days is woefully inadequate for LOS vendors to make the changes necessitated by the proposed changes, if finalized. While we all wish that programming changes in technology could be made with a proverbial “flip of a switch”, that simply is not the case. Programming code is extremely complex and interweaves the requirements of a multitude of legal and regulatory requirements rather than having separate code for each law or regulation that impacts a transaction. It takes an extremely high level of painstaking scrutiny and analysis to determine how code must change in order to implement the new regulatory requirements without disturbing preexisting code that must remain unchanged for regulatory requirements that likewise remain unchanged. This analysis, of course, cannot effectively be done until careful analysis of the regulatory changes has been thoroughly undertaken. We strongly believe that the proposed changes will require an implementation period of 18 months, at minimum. This period of time will give an LOS vendor the time necessary to design, develop and program software to implement the changes and will give lenders adequate time to receive training needed to understand the final regulatory changes and the resulting changes made to their LOS systems.

We also urge the CFPB to consider providing a period of optional compliance. In the past, Regulation Z and other federal regulations often included a compliance deadline, but in many cases, compliance was optional before the final effective date. The optional compliance period allowed an LOS to “roll–out” changes to systems prior to the final compliance deadline, without violating the rule for coming out before the final effective date. We request that the final regulation include an optional compliance period prior to the final effective date so that all LOS changes do not have to occur on one day. This will ease the transition process for not only an LOS but for the users of the LOS who must learn about and understand the changes being implemented.

Finally, we strongly urge the CFPB to take into consideration other recent rulemaking when finalizing an effective date and optional compliance date. The final rules on HMDA and Mortgage Servicing are two recent examples of significant rulemakings for which LOS vendors and lenders alike are making preparations. These two rules, in and of themselves, are currently requiring substantial resources and devotion of time. We are very concerned that a convergence of preparation and deadlines for these rules along with the TRID amendments will overwhelm all LOS vendors, lenders and other segments of the mortgage lending industry. Thus, we respectfully repeat our request for the CFPB to be mindful of these various rulemakings in setting an effective date and optional compliance date for the proposed rule we comment on today.


WBA commends the CFPB for acknowledging and addressing many areas of the TRID regulation that are in need of clarification or revision. As the largest financial institution trade association in the State of Wisconsin, representing over 270 banks, savings banks, and savings and loan associations, and an LOS vendor serving the Midwest region, we very much appreciate the opportunity to express our views on this very important proposed rulemaking.

By, Eric Skrum

Personalized Strategic Plans
To manage board and shareholder expectations, design a strategy that fits the unique composition of your institution

Balance sheets are healthier than they've been since pre-recession years, yet earnings remain stubbornly elusive for most financial institutions. In some cases, the challenge of achieving high-performance in a banking landscape that features persistently low rates, extreme regulatory burden, and intense competition on multiple fronts creates friction in the board room. If bank management, directors and shareholders don't share expectations for the bank's performance, time and energy will be wasted on efforts that don't drive the institution toward that unified goal. The bank's strategic plan is more important than ever as it serves as the bedrock and written understanding of that shared vision and the steps to achieve it. In order to maintain buy-in with the strategic plan over the course of its three- to five-year life, the plan must reflect the unique perspectives and priorities of the bank's shareholders, directors and management.

Start with a Shared Strategy

The best – and perhaps only – way to keep management, directors and shareholders on the same page as the institution moves into the future is for all three stakeholders to start with the same goals, risk tolerance and vision for the bank. The strategic plan can be a powerful tool in clearly defining those elements, especially when all parties do not have the exact same vision. "You don't need 100 percent agreement, but you do need 100 percent buy-in," said Thom Back, senior manager at Wipfli. Ken Johnson, principal of Ken Johnson Consulting, recommends all bank directors participate in an anonymous questionnaire prior to the strategic planning process; not only does this demonstrate how the board as a whole feels about the bank's current situation, but it also allows for discussion of any items where there is a large discrepancy. "It's helpful to have everyone grounded to what others' perspectives are," Johnson explained. "That starts you off in the same place and helps you set realistic goals."

In drafting the specifics of the strategic plan, management must balance the board's performance goals with the institution's clearly defined risk tolerance. "You have to ensure that there's a balance between growth desires, capital levels, and dividend targets and understand which of those goals is the highest priority," said David Koch, president/CEO of Farin & Associates. On a more granular level, Cass Bettinger, president of Cass Bettinger and Associates, explained that strategic planning should involve the board setting a target return on equity range and capital ratio based on the bank's risk management strategy, which then enables management to calculate what the bank's target return on assets must be. It is essential for management to have a crystal clear understanding of the board's risk tolerance in order to successfully balance that equation. "If the board and management work together on that basis, at the end of the day you'll have a strategic plan that is very clear about what it's designed to produce for shareholders and what all the objectives and strategies are," Bettinger said. 

Ultimately, both the goals and risk tolerance of the bank are guided by the directors' shared understanding of the institution's mission, which should be defined with input from directors, management and shareholders. "Good strategic plans are about a lot more than just the numbers," said Elliot Berman, principal of Bowtie Advisors. "There needs to be a strategic planning process, not just a budgeting process," Berman continued. "The board should get involved at the front end of that process. At the outset, they need to provide a high-level sense of direction for management, and at the end need to approve the plan."

Understand Your Key Stakeholder Groups

While each bank has a unique composition of key stakeholders, most have three main groups: directors, executive management and shareholders. All three contribute different perspectives and skillsets to the creation of the bank's mission and the strategic plan built on that mission. Directors connect shareholder interests with management's tactics by guiding the institution at a high level. "It requires business acumen and understanding to lead the organization toward a vision that will improve the financial performance of the bank," Johnson explained. The board's role is also to use their business acumen and leadership abilities to represent the shareholder's interests. "The board's responsibility to shareholders for strategic planning is the single most important responsibility the board has," Bettinger pointed out. Paying attention to increasing shareholder value can help mitigate investor dissatisfaction with the bank's performance as well as provide management with actionable guidance. "Management gets the most out of the board when they spend 70 percent of the time looking forward," said Berman. 

Management's role is to convert the board's vision for the institution with the specific tactics bank staff will need in order to accomplish that mission, as well as to ensure that the board is properly equipped to guide the bank. "Understand the strengths, skills and relationships that each director brings to the table," said Koch. "Strengths-based management is key to a successful, engaged board." The CEO needs to be the driver in aligning the expectations of directors and shareholders to the bank's performance. "The strategic planning process has to engage the board and management, working together to fulfill the mission of the bank," said Bettinger. The best way to accomplish that, according to Johnson, is for the CEO to ensure that the bank's strategic planning process includes the right people and the right information. "It's not easy, but the CEO is the one who is charged with organizing it," he said. 

Part of ensuring the right people are included is cultivating a thorough understanding of the bank's shareholder base. "The board and management need to have an understanding of what their shareholder base is looking for, because that will influence the strategic plan," said Mark Koehl, CPA, partner at Wipfli. "Knowing the shareholder group is key to helping the bank's plan be successful." It's unwise to generalize with shareholders, and each bank will have a unique mix of investors depending on its size and ownership structure. However, there are a few categories of shareholder that many banks share: 1) mature shareholders who may be nearing retirement, and therefore are looking for dividend growth and liquidity, but also community involvement; 2) second- or third-generation shareholders, who may no longer be based in the community and therefore are primarily interested in earnings per share growth and return on equity; 3) mid-life investors who may feel disillusioned with community banking due to current political and economic headwinds, and therefore wish to maximize the bank's sale price and look for a partner. 

In addition, from each of these groups (or others that exist at your institution), sometimes activist investors arise. Between 2012 and 2014, only 8 percent of SEC filings showing at least 5 percent ownership and "activist intent" came from financial institutions. However, in 2015, that jumped to more than 17 percent. "Activist investors see the value of the bank differently than the board and management," Back said. "It doesn't translate to 'wrong,' they just have a different vision for the bank." The best way to prevent this dissonance is through consistent and clear communication between all stakeholder groups. "Activist investors make noise either because they see a financial opportunity being missed or because they care about the bank but feel like they aren't being heard," Koch explained. "Shareholders need to feel that the strategic plan reflects their needs and their input and their priorities, and the only way to do that is to engage them in the process," Bettinger agreed.

Keeping In Step

Communication and transparent monitoring are the two essential drumbeats that management should use to keep all stakeholders in step for the duration of the strategic plan. "Transparency is a very key aspect," said Back. "Not transmitting exactly what your intentions are can sometimes paint you into a corner worse than laying out the plan. It also maintains trust, which is critical." Koch also said transparency on the key goals and objectives of the plan should be a top priority. "Senior management's role comes down to consistent positive messaging with the board and staff," he said. "There's no magic there, just understanding the audience and being honest, and if the message isn't positive speak to what can be done to turn things around." Another part of management's role in open stakeholder communication is to solicit input from large shareholders on a consistent basis, especially as it pertains to the strategic plan. "CEOs and directors aren't performing their job properly if shareholders are not involved in the strategic planning process," said Johnson. This doesn't need to occur monthly, or even quarterly, but the lines of communication should never be closed. "You're not necessarily seeking out input from shareholders who aren't on the board on a frequent basis, but you have to always be open to answering questions," said Koehl. 

While responding to shareholder questions and expectations for bank performance is a complicated interaction that involves a lot of different factors, not just the strategic plan, Berman suggests using the strategic plan as a framework when communicating with shareholders. "You don't have to get into details, but use the plan and what you're doing with it as the outline," he advised. The most important feature of stakeholder communication, especially to shareholders, is the effort you put into it. "If you focus on your communication with your shareholders in the same way you focus on communication with major customers or prospective customers, you'll see results," said Berman. 

The other vital aspect of transparency is how stakeholders monitor the bank's progress in accordance with the strategic plan. This requires clear communication timing, specific numerical goals and metrics for measurement. "It's really important that management and the board discuss the timeframe," said Bettinger. "For community banks in particular, it's not about short-term profits but long-term value." Specific numerical goals can help avoid rewarding a focus on short-term gains by providing specific long-term targets. "Once you define the mission or vision, the CFO needs to put it down on paper as a pro forma balance sheet and income statement. Then you know what's supposed to be happening," Johnson advised. "While the numbers are not the plan, there do need to be specific, measurable goals," Back agreed. 

Measuring the institution's performance against those goals requires metrics and testing, because no institution will ever be in total alignment with their strategic plan at all times. "Every plan is wrong in some way," said Koch. "If it's not, your plan either isn't specific enough or you're very lucky." One popular way to quantify the alignment between the plan and performance is found by examining the key assumptions that may not be right via stress testing. "It's not about sticking one number out there as your plan. It's also about knowing the three or four most important factors in getting there," Koch explained. "In the risk management process we tend to focus mainly on what might go wrong, but it is only useful to the extent that it helps you identify what needs to go right in order for you to hit your goals." Those benchmarks and milestones are crucial signs on the roadmap of your strategic plan, so all stakeholders should be able to identify them. 

Clear communication of the bank's strategic objectives and how to track them is also how the bank leadership determines when it's time to reassess the strategic plan as a whole. "The strategic planning process isn't an annual event," said Bettinger. "It's ongoing. You always have new opportunities and new threats emerging." As those new opportunities and threats arise, it is inevitable that the strategic plan will adapt accordingly. With the joint efforts of shareholders, directors and bank management, the bank will also rise to meet them.

By, Amber Seitz

Responsive by Design
Strategic Plans Must Allow for Detours on the Road to Success

You're on a road trip, and the GPS on your dashboard (or smartphone) assures you that you're following the right path. Then, you hit road construction. You can't follow the path you originally mapped out. What happens? "Recalculating…" Your GPS guides you down a different road that leads you to your intended destination. Your bank's strategic plan should follow the same philosophy: create a plan, but allow for detours. "High-level, when you're looking at the strategic plan and where you're going, you have to be open to modification," said Marc Gall, vice president at BOK Financial Institutional Advisors. "The strategic plan is a roadmap, but you need to react to the environment, too."

Plan for Spontaneity 

The key to designing flexibility into your strategic plan is to avoid pouring time and effort into creating one, only to have it collect dust on a shelf somewhere. "Get away from thinking of the strategic plan as a standalone item," advised Ed Depenbrok, principal at dbrok group, LLC and a director at Ridgestone Bank, Brookfield. "It is a part of how you run the organization." In other words, there must be a connection between the strategic plan and day-to-day activities at the bank. To forge that connection, clearly lay out the specific tactics of how each larger strategic goal will be achieved. "It's a top-down, bottom-up process," said Nate Zastrow, executive vice president – chief financial officer at First Bank Financial Center, Oconomowoc. "You have a macro strategy and the micro-strategies beneath it. It keeps us fluid and flexible." Identifying the specifics beneath the overarching goals links the strategic plan to operational items like short-term budgets.

Executing your strategic plan in this manner may require a shift in both thinking and culture at your institution. "When you're trying to work from a place of being nimble, responsive and efficient, your team has to internalize those characteristics," said Jim Perry, senior strategist at Marketing Insights. "You can't just pick those attributes off the shelf. They have to be supported in your culture." However, making the change to a responsive plan often has a positive impact on bank staff. For example, if the original plan called for an increase in agricultural business lending, but the current market doesn't allow for that, adjusting the plan prevents your lenders from feeling pressured to do the impossible. "Don't make loans just because your strategic plan calls for it," Gall advised. "The worst thing you can do for morale in an institution is stick to goals that have become unachievable regardless of what's possible in the current market."

Identify Bellwether Metrics

So how do you determine when to call an audible? The metrics laid out in your strategic plan are the road signs that tell you which way to go and when to turn. "Without fundamental information about where your market is headed, you really can't make the right strategic choices," said Perry. "Making knee-jerk reactive decisions rather than basing those decisions on timely, accurate information makes it much harder to achieve your strategic goals." Monitor the economic and demographic shifts happening in your market and compare them to your original plan. This provides the perspective you need to make the determination of when to adhere to the strategic plan and when to take a detour. "You can't just put in your strategic plan that you're going to grow loans by six percent over the next three years," said Depenbrok. "You need to know if that's possible in your market, and whether you need additional talent or products."

That perspective is why identifying key metrics and monitoring them frequently is critical to having a successful, responsive strategic plan. For example, according to Zastrow, FBFC's process involves a monthly meeting to highlight areas where benchmarks were not met, identify why, and then adjust accordingly. An investment in business intelligence technology facilitates that process. "We leverage that technology from a management standpoint so that we're not driving blind," Zastrow explained. "We have a very robust business intelligence program with analysts who can generate reports that allow us to compare and contrast where we're at with where we want to be." That analysis will also help management and the board find the right balance between following the original plan and pursuing new opportunities. "There's a balance between striking while the iron is hot if opportunities are identified, and following the strategic plan and your risk tolerance," said Gall.

Watch the Road Ahead

In today's rapidly changing banking environment, a responsive strategic plan is essential for institutions to adapt quickly and reduce overall risk, particularly with regards to technology and compliance. "You have to assess technology and regulation in your strategic plan because they're part of the world we operate in," said Depenbrok. "There are so many more fixed costs today to operate a bank, and if you don't plan for them, it's going to be even worse." A responsive strategic plan will outline when the bank needs to invest in certain areas, and allow for allocation adjustments as customer and staff needs change. "Industry-wide, if you look at the high-performing community banks, they're investing in order to grow their business and build scale," said Perry. "They know that by expending capital to bring in new technologies that will reduce expenses long-term, they're positioning themselves for growth."

Bank staff can help identify areas where operational changes can be made to increase the institution's overall productivity, according to Gall. "Many times staff haven't been given the incentive or charge to think about how they can do their daily work differently to help the bank reduce expenses and operate more efficiently," he said. In addition, a responsive plan should allow for new ways of executing the same strategy, i.e. adjusting internal processes. "When looking at what you have to shift moving forward, look first at areas where either people or processes need to be adjusted in order to improve results," said Perry. "The people and processes are the things you can immediately control, rather than external market conditions."

Finally, a responsive strategic plan should accommodate increased spending in areas banks can't control, such as regulation. "Once the rules are made, you can fight to try to change them, but that takes a lot of time and energy that could be reallocated to being the best at playing by the new rules," said Zastrow. With all of the recent change in the industry, an investment in third-party advice can be a competitive advantage, according to Depenbrok. "Change is happening so quickly in our industry from a technological point of view and a regulatory point of view, figuring it out on our own is very difficult," he said.

By, Amber Seitz

Making More from Less
Five ways banks can enhance the value of their branch network

Between products like mobile and online banking, ATMs, fintech solutions and digital wallets like PayPal, it's no wonder some people are questioning whether brick-and-mortar bank branches are still relevant. However, consumers still crave the trust and assurance that comes with human interaction, especially when it comes to their finances. Bank branches aren't on the brink of extinction; they're evolving. Here are five key actions banks can take to transform their branch networks and enhance their value: 

1. Focus on Customer Needs and Behaviors

Consumer demands will drive nearly every aspect of branch transformation in the future, so identifying exactly what your customers want and need is critical. "Branch transformation is not up to us, it is up to the customers," explained Darren Dewing, senior vice president, director of retail distribution at Associated Bank, Milwaukee. "Their behavior will determine the future of the branch network." Dewing noted that while direct customer feedback is important, it's also essential to measure their actions. With the current upheaval in the financial services industry, bank branches will need to transform in order to survive; it will be the customers, not the banks, who ultimately define what they turn into. "It comes down to what customers demand of us and adapting accordingly," said Jeff McCarthy, vice president – marketing director at First Bank Financial Centre, Oconomowoc and a member of the 2016-2017 WBA Marketing Committee.

2. Re-Think Technology 

Many bank executives still consider technology to be a threat to the banking business model, either because of its potential for security gaps or because it eliminates many traditional customer touchpoints. However, customers who utilize digital banking products typically develop a deeper relationship with the bank, and technology can also greatly reduce a branch's cost per transaction. "Transactions are cheaper without employees handling them," explained Jennie Sobecki, owner of Focused Results, LLC and a speaker at the recent WBA Branch Manager series. "In order to leverage your investment in your branches, you need to also invest in technology to make those branches more efficient." When reconsidering how your branch network leverages technology, keep the customer (and customer service) front-and-center. "We view technology as another way of serving the customer," said McCarthy. "We want them to be able to bank with us when and where they want to." 

However, while technology allows banks to expand their markets well beyond their branches, most institutions will find they cannot bolster one at the expense of the other. "Customers don't want either technology or branches," said Sobecki. "They want both." The best way to ensure that your branch network gets the most value possible out of any technology investments is to constantly encourage customer adoption. "Make sure your customers are using the technology!" said Dewing. "You've spent the money, so make sure you're optimizing your investment by showing the customers the value you've created for them." That can be as simple as training front-line staff to demonstrate online or mobile transactions for customers when they come into the branch, or as complex as remodeling the branch to include tech stations and teller pods. 

3. Leverage the Value of Physical Space

One of the most valuable elements of any branch network is the physical branch buildings. Even with today's real estate market, that is a tangible value that banks can enhance in a variety of ways. Some banks choose to purchase their branch spaces, rather than lease them. "Our philosophy is to find great real estate and own it if we can," said Dewing. "That is not always possible or practical, but it's preferred." Whether you own or lease, many of today's bank branches are larger than they need to be to support current foot traffic. Sobecki suggests "right sizing" existing branches by walling off unused space and either leasing it out or converting it into a community room for the bank's commercial customers to use as meeting space. Make sure your branch buildings do a good job of promoting your brand, as well. Signage and décor both make a difference. "Potential customers don't walk in the front door if they don't know you're there," Dewing pointed out. Seeing the branch also keeps the bank top-of-mind for customers. "There's a real sense of strength and security for customers when they see a physical branch," said McCarthy. "There's still a sense of reassurance when you drive by the branch and know, that's where my money is." 

4. Update your Metrics

Before making any changes to your branch network, it is important for bank management to update the metrics that will be used to measure the success of those changed branches. Some of the traditional measures are not as valuable as they once were. "Sometimes we spend too much time on lagging indicators, like transactions and/or net income, and not enough time on leading indicators of future value," said Dewing, specifying that branches that add or deepen quality household relationships will provide that future value. Sobecki recommends measuring wallet share, product penetration by branch – that is, identifying which branches are the top sellers for the most profitable products – and revenue per square foot. "Retail bankers need to think of themselves as retailers," she said. "Revenue per square foot is how retailers evaluate their space." She also recommended measuring your mobile banking platform as a branch in addition to physical locations.

5. Recognize Each Branch is Unique

When planning changes to your branch network, it is crucial to recognize that every branch is as unique as the community and clientele it serves. "There isn't one silver bullet to make this work," Sobecki said. "Each individual bank needs to find out what works for them and their culture." Market research is an essential tool here, but so is individual involvement. "You have to understand the needs of the community if you're working there every day," said McCarthy. "We encourage our branch staff to be involved in the community, so we make sure that we have the right people in the right place." Ultimately, each branch within the network will operate according to the needs of its community and customers. Some will focus on wealth management and host community events, while another will primarily serve commercial customers and drive online usage. "The most important thing a community bank can do is make sure they have the right type of branch in the right market," Sobecki explained. 

No matter what you may have read on the internet, rumors of the Bank Branch's death have been greatly exaggerated. "When people are going through major life changes, whether it's buying a house, getting married, or retiring, they still want to come in and talk to an expert face-to-face," said McCarthy. "Branches are still alive and well, and still serve a purpose for customers."

By, Amber Seitz