The August 2017 edition of the WBA Compliance Journal has been published.

This month's Special Focus article is about demand letters from FCRAs. Regulatory Spotlight features final rules on HMDA reporting thresholds and recordkeeping requirements for Qualified Financial Contracts, as well as a request for comment on the Volcker Rule. Information regarding CFPB's online portal for informal regulatory guidance can be found in the Compliance Notes section.

Click here to download the full issue.

By, Ally Bates

The July 2017 edition of the WBA Compliance Journal has been published.

This month's Special Focus article is an update on loan renewals in Wisconsin. Regulatory Update features final rules on arbitration agreements, TILA-RESPA amendments, and Regulation CC. Information regarding the suspension of the Medicaid Asset Verification Data Matching Program can be found in the Compliance Notes section.

Click here to download the full issue.

By, Ally Bates

“This is the first case of a bank closure in Wisconsin since 2013 and is a rare case where an institution was unable to recover as the rest of the industry has over the past few years. Recent numbers from the FDIC show Wisconsin banks continue to improve and grow in the role of helping businesses grow and families prosper. The industry as a whole is very strong and stable.

The most important thing for the public to remember is that insured deposits are safe through the Federal Deposit Insurance Corporation’s (FDIC) Deposit Insurance Fund which is 100 percent funded by the banking industry, not taxpayers.

Bank depositors are protected from losses up to $250,000, and in many instances in excess of that amount, by the Federal Deposit Insurance Corporation (FDIC). Underscoring this point is the fact that North Milwaukee State Bank customers will have uninterrupted access to their deposits via existing branch locations or by writing checks or using their ATM/debit cards.

No one has ever lost a penny of FDIC insured deposits in the 80-year history of the agency.

Wisconsin’s banking community expresses its support to the affected employees of the North Milwaukee State Bank.”

North Milwaukee State Bank is the sixteenth Wisconsin-based federally insured depository to be seized by regulators since the financial downturn began in 2008. The others are: Prime Financial Credit Union, Cudahy, March 2009; Bank of Elmwood, Racine, October 2009; First American Credit Union, Beloit, September 2010; Maritime Savings Bank, West Allis, September 2010; First Banking Center, Burlington, November 2010; Evergreen State Bank, Stoughton, January 2011; Badger State Bank, Cassville, February 2011;Wisconsin Heights Credit Union, Ogema, March 2011; Legacy Bank, Milwaukee, March 2011; Wausau Postal Employees CU, Wausau, May 2012; A M Community Credit Union, Kenosha, August 2012; and New Covenant Missionary Baptist Church Credit Union, Milwaukee, January 2013; Banks of Wisconsin, Kenosha, May 2013; Bank of Wausau, Wausau, August 2013; and CTK Credit Union, Milwaukee, February 2016.

By, Admin

The November 2016 edition of the WBA Compliance Journal has been published.

Read Special Focus for an article on preparing for large-scale changes to HMDA. Next, turn to Regulatory Spotlight for CFPB's final rule amending their mortgage servicing rules. Finally, turn to Compliance Notes for DFI's recently announced interest rate requirements for escrow accounts through Dec. 31, 2017.

Click here to download the full issue.

By, Amber Seitz

(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.

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“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.

Discovery

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.”

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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.

Tools

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.

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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

VIA EMAIL

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

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

VIA EMAIL

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

Conclusion

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