Archive for category: News

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Scam Warning – IOLTA Accounts

Bankers are often adept at spotting scams and quick to identify a suspicious situation. There are many different schemes designed to target bank customers, and maintaining an awareness of such methods is important not only to recognizing scam attempts, but also helping customers to do the same before it’s too late. The Wisconsin State Bar recently warned that attorneys should be on the lookout for scams targeting lawyer trust accounts. As such accounts must be maintained at insured financial institutions, it is important for banks to be aware of such scams in order to help thwart these attempts. 

Under rules of the Wisconsin Supreme Court, lawyers and law firms are required to establish interest-bearing “Interest on Lawyers Trust Accounts” (IOLTA) for client funds that are so nominal in amount or which are expected to be held for such a short period of time that it is impractical to earn and account for income on individual deposits. The lawyer or law firm determines whether the account should be established as an IOLTA account, or other — so take note that you may see other types of lawyer trust accounts as well. 

WBA has heard stories from lawyers and its members of scammers attempting to infiltrate these types of accounts. Typically, these schemes are directed at the attorney or law firm and involve email correspondence representing itself as a legitimate business. The scammer requests assistance with a transfer of funds (this could be for purchase of goods, outstanding debt or other collection, etc.) from another party, in exchange for a fee. 

Because these scammers correspond with the attorney or law firm, it can be difficult for banks to spot. However, if bank notices something suspicious, it can help combat these schemes by communicating with its customers and providing further education about common trust account scams. For example, a simple phone call from the attorney to the alleged representative might reveal the nature of the scam quite blatantly. Note that not every scam will follow the same pattern, however, and WBA has heard of scams of varying degrees of sophistication. 

Lastly, another method that might help bank’s lawyer and law firm customers combat these scams, is to clearly communicate its policies and procedures for remitting trust account funds. For example, if a law firm remits payment pursuant to the instructions of a scammer, and your institution has a policy of making lawyer trust account funds available immediately, there is little time to respond. If bank’s customer understands its funds availability policy, it might be better able to establish procedures of its own for processing client funds. 

In conclusion, the best way to combat scams of all kinds is to be aware of common schemes, signs, and how to spot them. Communication and education with bank customers is an important aspect in stopping scammers. 

If you have any questions on this topic or other matters of compliance, contact WBA’s legal call program at 608-441-1200 or wbalegal@wisbank.com. 

Birrenkott is WBA assistant director – legal. For legal questions, please email wbalegal@wisbank.com. 

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

By, Cassie Krause

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Executive Letter: Celebrating and Supporting Black-Owned Businesses

Rose Oswald PoelsBy Rose Oswald Poels

In honor of August being Black Business month, I’d like to highlight some of the ways Black-owned businesses contribute to our economy and communities throughout the year. Historian John William Templeton and engineer Frederik E. Jordan, Sr. founded National Black Business Month in 2004, and Governor Tony Evers has proclaimed August as Black Business Month throughout the state of Wisconsin.

Wisconsin is home to thousands of Black-owned businesses, and as you savor the last moments of summer, there’s no better time to add some new favorites to your list of places to eat, drink, shop, stay, and do business. Travel Wisconsin has compiled a gallery of over 200 photos of Black-owned businesses across the state to get you started. If you’re in the Madison area, be sure to check out the ConnectBlack business directory, which was developed by Park Bank in partnership with Madison365. MKE Black is another resource to find Black-owned businesses in the Milwaukee area.

To provide some context on the impact of minority-owned businesses in our state, a UW-Extension analysis of U.S. Census Bureau data shows that there has been tremendous growth in minority-owned businesses in the United States. In 1992, 2.149 million minority-owned businesses accounted for 12.5% of the total U.S. businesses. By 2012 (the most recent year the survey was conducted), there were 7.952 million minority-owned businesses, an increase of 270 percent. In 2012 in Wisconsin, 9.4% of the total 433,000 businesses in the state were minority owned. A more recent survey showed that there are approximately 124,550 Black-owned businesses in the U.S., with about 28.5% of these businesses in the health care and social assistance sector, the highest percentage of any minority group. In Wisconsin, there are currently over 400 members of the African American Chamber of Commerce.

Black-owned businesses — which, on average, are smaller than non-minority owned businesses in terms of number of employees and revenue — face unique challenges and have been disproportionally hit by the pandemic. In spite of that, there are many Black-owned Wisconsin businesses that continue to succeed and play an important economic and cultural role. Yelp reported earlier this year that consumer interest in diverse businesses is up, and there was a 3,085% YoY surge in searches for Black-owned businesses from February 2020 to February 2021.

Beginning in January, several bankers joined me in a special working group organized by the Wisconsin Economic Development Corporation (WEDC) focused on developing solutions to help BIPOC (Black, Indigenous, and People of Color) business owners with revenues of $250,000–1,000,000 receive continued technical assistance along with more direct access to the banking system. Some of the focus areas identified include creating centralized resources and directories for business owners and bankers. Our work with WEDC on these initiatives is ongoing. Improving access to capital is a critical step in closing the racial wealth gap, and this group is just one of the examples of how bankers are promoting equity and financial inclusion.

There is a lot to celebrate about Wisconsin’s Black-owned businesses, from the products and services they offer to the jobs they create and the ways they give to their communities. Thank you for all you are doing to support and celebrate with these businesses.

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Calling on Wisconsin Employers To Join Automatic Saving Movement

By Rose Oswald Poels

A new employee-focused automatic savings initiative called the Wisconsin Saves Automatic Saving Initiative has launched in Wisconsin and is looking for employers to participate.

This effort is part of a national pilot project designed to encourage millions of Wisconsinites to establish emergency savings accounts through the automated saving strategy of split deposit. The pilot is focused on encouraging small- and medium-sized employers to motivate their employees, particularly those in the lower-to-middle income wages, to save automatically, especially for emergencies.

Employers can sign up for the program and get more details at autosave.wisconsinsaves.org. To date, more than 60 employers in the state have made the commitment to educate their employees about split deposit and encourage the use of the strategy.

On behalf of WBA, I have teamed up with Wisconsin State Treasurer Sarah Godlewski, Wisconsin Department of Financial Institutions Cabinet Secretary Kathy Blumenfeld, President of the Wisconsin Women’s Business Initiative Corporation Wendy Baumann, and America Saves to lead this initiative.

“Wisconsinites fear unexpected expenses because they lack savings for an emergency,” said Wisconsin Department of Financial Institutions Secretary Kathy Blumenfeld. “Unfortunately, we know that 27% of Americans do not have enough savings to cover a $400 emergency, and almost half of employees who are worried about their financial health are less productive at work.”

Employees can build emergency savings to help alleviate financial stress and improve productivity through the simplest of strategies — saving automatically with split direct deposit.  America Saves provides employers with the following free resources after signing up online for Wisconsin Saves.

  • Three easy-to-use tools requiring minimal effort to educate your employees about split direct deposit.
  • Digital items to support your communication efforts such as video, blog articles, and a participation badge.
  • A Wisconsin Saves participation badge to proudly display to your employees, potential employees, and business partners.
  • Please consider signing up your bank to participate in this program for your employees and also encouraging your business customers to do the same.

For questions regarding Wisconsin Saves, please email Carolyn Pemberton at cpemberton@consumerfed.org.

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Identity Theft Notifications from DOR

The Wisconsin Department of Revenue recently mailed identity verification (PIN) and grant denial letters to individuals and businesses related to the Wisconsin Tomorrow Small Business Recovery Grant. Many who received these letters did not apply for the grant, making it likely those applications were submitted fraudulently by ID thieves.

For reference, attached are examples of the letters DOR has sent:

Grant PIN Verification Letter
Grant Denial Letter
Grant Denial Letter Page 2

We understand citizens receiving these letters are contacting local law enforcement agencies to report identity theft. Please refer to the Wisconsin Tomorrow Small Business Recovery Grant link for additional information related to the grant program and resources available for victims of ID theft.

The citizen, or their authorized representative, may make a request for a copy of the fraudulent grant application by contacting DOR customer service at (608) 266-2772.

If you have any questions, do not hesitate to reach us at (608) 266-2772. We appreciate your assistance with this important issue.

By, Ally Bates

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The Fed’s FraudClassifier Model — A Powerful Tool for Countering Fraud’s Increasing Threat

The global pandemic has created many hits to the financial system. One of these is rising fraud rates, which could create unrecoverable losses to banks of all sizes. Suspicious Activity Report (SAR) filings for all types of fraud are up substantially, with wire transfer fraud filings rising almost 40% last year over 2019 (FinCEN SAR Stats). Managing this risk means strengthening the control environment — improving policies and procedures, beefing up and targeting employee training, and implementing effective monitoring and reporting to executives and the board of directors. Making these efforts successful requires an accurate risk assessment, necessitating accurate and complete fraud data across all channels and payment rails. Building better fraud data is where the FraudClassifierSM Model can help. 

Each type of payment has its own rules and methods for identifying fraud and resolving cases, making the tabulation of fraud across an institution, or even defining what is or is not fraud nearly impossible. As envisioned by multiple Fed districts and built with the help of a broad workgroup of industry thought leaders, including banks, third parties, government agencies, and others, FraudClassifier solves this problem. The Fed released the final model in summer 2020, and adoption has begun at financial institutions of all sizes. By allowing for the proper measurement of fraud risk, the model significantly strengthens the risk assessment process. The model categorizes fraud across all payment methods, creating a broad, holistic look across an entire organization.  

The model begins by asking who initiated the payment, unlike the rules of payment associations, which focus on who committed the fraud and how. The benefit is categorization becomes agnostic of the payment rail. By dividing categories between authorized and un-authorized parties, and in the next step asking about the method of fraud, the model delineates meaningful categories, eight for authorized parties and four for unauthorized.  These fourteen categories are the finished product and describe the fraud committed — what and who — providing powerful insights into fraud trends by creating standard definitions across all payments. 

FraudClassifier is entirely voluntary and for internal use. There is no mandate that a bank adopt the model and no fixed time frame to do so. The data generated is for a bank’s internal use, not for law enforcement or industry statistics. A bank could choose to share FraudClassifier data, but there is no intention to make it mandatory. After the model becomes widespread, it could become more common for examiners to ask for resulting data, but there is no intent to require it. 

While core providers and other processing platforms have begun discussing incorporating the model into their products, none has to date. For now, tracking the model’s results and tabulating categories will rely on homegrown solutions — a spreadsheet or a more full-featured reporting and analytics solution. Depending on the size of the bank and rates of fraud, a spreadsheet could work just fine to start. 

The Fed has established a timeline for implementation, targeting 2022 and 2023 for widespread adoption. Depending on a bank’s size and complexity, it could take a few months or more to implement the model, and for data management purposes, year-end is a convenient time to do it. So, for many, it’s not yet too late for 2022. Such a project would require buy-in from the board and senior management, setting up a team to work out the details, solving the tracking problem, and training the appropriate staff. Ongoing requirements likely mean evolving the implementation team into a more permanent workgroup. Periodic meetings, perhaps quarterly, would ensure that things stay on track. And, of course, someone needs to be the internal champion for the model. The right person for that role will vary, possibly from the back office, a compliance person, or another appropriate resource. An employee that already has responsibility for fraud monitoring at the bank is an obvious choice. 

FraudClassifier is the first industry-wide attempt to improve risk management by making fraud classifiable across all payment types. Banks that use the model will establish better controls and manage real risks by compiling complete, meaningful fraud data. While the use of the model will remain voluntary, its benefits may become clear enough that one day it may be unusual to find a bank that has not implemented it.

Bauer is FVP/Compliance, BSA & Security at Bankers' Bank, a WBA Gold Associate Member.

By, Cassie Krause

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Bank On Greater Milwaukee Program Aims To Bring Unbanked People Into the Mainstream Financial System

There are a lot of reasons people give for not having a bank account. 

“Everything from not having enough money, to a mistrust of financial institutions, high fees, lack of identification, credit history problems,” said Kathy Blumenfeld, secretary of the Wisconsin Department of Financial Institutions. 

The trouble is, not being part of the mainstream financial system then leaves many who can least afford it paying check-cashing outlets to get their own money, and often doing transactions in cash or buying money orders. For some, it becomes tougher and tougher to ever get ahead. 

But a growing program in metro Milwaukee is making it easier for people who are unbanked and underbanked to join the system. The Bank On Greater Milwaukee initiative is addressing the concerns of people who don’t have a banking relationship and taking away barriers to opening a transaction account with a bank or credit union. 

Blumenfeld said having such a program operating in Wisconsin’s biggest metro area is a way to help more people improve their personal financial situation. 

“Really, having a bank account is the first step in establishing a pathway to financial wellness,” Blumenfeld said. “And so when we look at the numbers of unbanked and underbanked people, especially in Milwaukee and Milwaukee County right now, this is just a terrific program with open arms and gives them the opportunity to have that stability and have that access to basic financial accounts.” 

Constance Alberts, program manager for Bank On Greater Milwaukee, said the effort is part of a national coalition, called Bank On, that connects consumers to safe and affordable banking products.  The program certifies bank and credit union accounts that comply with its standards for product offerings. 

“One of the most important things is that there’s no overdrafts. You can’t opt out or opt in. The accounts that are available, you cannot overdraw these accounts at all,” Alberts said. “If you don’t have the money in the account, you’re not going to get charged for trying nor are you going to get a fee.” 

The Cities for Financial Empowerment Fund (CFE) set up the standards used to certify checking accounts for the Bank On program. Among other requirements: 

  • Minimum deposit of $25 to open an account 

  • No non-sufficient fund fees or inactive account fees 

  • Monthly maintenance fee of no more than $5 if not waivable 

  • Free use of in-network ATMs and maximum $2.50 for use of out-of-network ATM 

  • Debit card/pre-paid card for point-of-sale capability. 

Jeff Langkamp, chief compliance officer for Bank Five Nine, said the key feature is no overdraft fees. 

“Most of the stories that you hear — and stats back it up — people don’t have trust in the banking system, and usually it’s because they’ve been burned by fees, in particular overdraft fees,” said Langkamp, whose bank offers its Achieve Checking program as a Bank On-approved product. 

With Achieve Checking, a debit card purchase will be declined at the point of sale if the balance is inadequate. 

“They don’t have check-writing capability. They have online banking so they can use bill pay and all that other stuff,” Langkamp said. “There isn’t an overdraft fee that can be charged. We return everything.” 

Langkamp said Bank Five Nine began offering the account aimed at unbanked and underbanked people in 2020 because it fit into the bank’s stated mission to “make lives better.” It has about 30 such accounts now. 

“I know a lot of banks will freak out, that, ‘Oh, we’re going to lose income — that’s one of our drivers.’ We really, in a year and a half, have had limited customers that have even overdrawn their account,” Langkamp said. 

The Federal Reserve’s “Economic Well-Being of U.S. Households in 2020 – May 2021” report showed that about 5% of the adult population did not have a bank account. Another 13% had bank accounts but still used alternative financial services such as check cashing, money orders, payday loans, pawn shop loans, and tax refund advances. 

Eighty-four percent of all unbanked adults had income below $25,000, and 94% had income below $50,000. 

Alberts said metro Milwaukee has “a large number of people who are not accessing or don’t have access to safe and affordable banking products.” 

Bringing them into the system through Bank On Greater Milwaukee can give them a fundamental building block for financial wellness, she said. 

The program is intended for people of all ages, not just heads of households. 

“When you look at youth, getting that first job, it’s really crucial to have that bank account,” she said. “It starts you off with a solid foundation.” 

Alberts said Bank On Greater Milwaukee works with a network of community organizations, local governments, businesses, and others to help get the word out to people who would benefit from an account with one of its participating banks. 

The Urban Economic Development Association of Wisconsin formed Milwaukee’s Bank On working group in late 2017 with help from the CFE Fund, Milwaukee’s Alliance from Economic Inclusion, local funders, and more than 30 partners from the private, public and nonprofit sectors. 

When Bank On Greater Milwaukee started in 2018, there were six certified accounts available from financial institutions in the area. Now there are 14. They are: Bank Five Nine, Achieve Checking; BMO Harris Bank, Smart Money; Chase, Secure Banking; CIBC, Easy Path Access; The Equitable Bank, EZ Checking; First Federal Bank, Fresh Start Checking; First Midwest Bank, Foundation Checking; Old National, EZ Access Checking; PNC Bank, Foundational Checking, and Smart Access Prepaid VISA Card; Self Help Credit Union, EZ Access Checking; Summit Credit Union, Balance Account; US Bank, Safe Debit; and Wells Fargo, Clear Access Banking. 

There will be more, Blumenfeld said. 

“Even organizations — banks and credit unions — that aren’t certified yet are really making strides to get there and to meet the requirements to become a certified Bank On program,” she said. 

It will take commitment and persistence, though, to persuade some of the unbanked population that a new account will benefit them. 

“It’s hard,” Langkamp said. “It’s a population that would prefer not to have a bank. To try to change that mindset to that a bank is a friend and a partner and can help you out, it takes a little while.”

Paul Gores is a journalist who covered business news for the Milwaukee Journal Sentinel for 20 years. Have a story idea? Contact him at paul.gores57@gmail.com.

By, Cassie Krause

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Creating Innovation – A Post-Pandemic Imperative

Nearly every banker I’ve spoken with in the past few months has posed the same basic question: What’s next? With the promise that the pandemic will eventually be behind us, everyone is trying to predict the “next normal” and imagine if they have what it will take to succeed — or even survive — in a post-pandemic economy.  

Obviously, there are many factors that will determine the answer to those questions. But if you pay attention to some of our industry’s favorite buzzwords, there are many characteristics that bankers will have to master in order to succeed. Agility. Adaptability. Empathy. I’d say yes to each one. But the core competency that will be critical for every bank’s long-term survival is a familiar term: innovation. 

I know what you’re thinking. Innovation has always been key to sustained success. Yes, that’s true. But if you don’t count big banks and fintechs, you’d rarely find banks on the list of the most innovative companies. Admittedly, this past year saw banks of every size innovate quickly in order to meet the crisis brought about by the pandemic. And while there are many banks that can point to instances where operational efficiencies were achieved or new ideas were implemented, it is important to remember that these innovations were not routine — and they were not always enterprise wide. Too often, innovation is seen as a short-term assignment rather than a long-term mindset.  

Moreover, banks usually equate the term innovation with technology and digital transformation. You may consider yourself innovative if, as an example, you brought in ITMs before your closest competitor or armed your personal bankers with iPads. But innovation must reach way beyond technology. Future success in financial services will require innovation in all areas: customer experience, staffing, remote work, marketing, even business models will need to evolve. In fact, our industry could learn from former Starbucks CEO, Howard Schultz, who said “innovation must be disruptive. And by disruptive, I mean disruptive. You gotta fracture and break the rules.” Let’s face it, banking has a lot of rules. 

But why is innovation so critical now? The answer is found at the intersection of at least three trend lines: humanity, diversity and technology. Let me explain. 

Humanity — I use the word humanity to express the idea that innovation becomes critical as shifts in human needs and human behaviors continue to accelerate. The pandemic and the subsequent recession have prompted changes in human needs on physiological, socioeconomic, and psychological levels. Social isolation, unemployment, and economic uncertainty influence most financial decisions — from daily to long-term. Will the 25-year-old customer need a car loan? Will the 65-year-old be able to retire?  

Think for a moment about how the pandemic caused customers to quickly adopt the digital and mobile behaviors that bankers have been promoting for years. Early indications are that customers have assimilated these new behaviors well and they’ve done it long enough now that new long-term habits are being formed. According to a 2009 study published in Psychology Today, the average length of time required for a new behavior to become a habit is 66 days. The pandemic has gone on for nearly a year and your customers have been making deposits with their mobile app, paying bills online, applying for loans without entering a branch. They have been using your drive through and other self-service options on their terms, often 24/7. What makes you think they will return to pre-pandemic ways of banking?  

Depending on your community, it may take some time before the profile of your average customer returns to pre-pandemic levels. And regardless of demographic profile or degree of affluence, the pandemic has influenced perceptions about convenience, health, safety, and simplicity and consumer needs and behaviors will be in flux for months, if not years, to come. Will your institution be able to adjust products and customer experience to align with those new needs and behaviors? When was the last time you connected with your customers and sought their input in the product development lifecycle? A bank’s ability to provide contextual, personalized, and relevant products and services will require more than collecting Net Promoter Scores and attempting infrequent improvement. 

Diversity — both inherent (ethnicity, gender, etc.) and acquired (life/professional experience) — unlocks innovation by creating an environment where different opinions can be expressed, and new ideas pursued. Diversity enhances creativity. It provides different perspectives and promotes better problem-solving. Diversity helps banks become much more dynamic and able to understand their customer base. Research from Harvard Business School found that a team with a member who shares a customer’s ethnicity is 152% likelier than another team member to understand that customer.  

Technology — Rapidly maturing digital technology will keep pushing the industry forward. The rapid improvements in artificial intelligence for fraud detection, credit risk modelling, etc. will reinvent how banks operate and how bankers spend their time. Enhancements to mobile technologies and expansion of 5G networks will compel banks to find newer, faster ways to bring mobile updates to market. Open banking and blockchain integration will restructure the banking landscape. These are just a few examples of how technology will shape future innovation.  

Netflix is a perfect example of a company that discovered customer-focused innovation at the intersection of humanity, diversity, and technology. As the pandemic hit and shelter-in-place orders were issued, people were looking for entertainment and escapism to get through the early days of the pandemic. They were already in a strong position to meet that need, but they quickly adjusted marketing, repurposed content and added more original programming for streaming. Early in the crisis they launched a $100 million coronavirus relief fund for out-of-work creatives to help ensure their content pipeline. As subscription numbers grew, they adjusted their technological capacity to meet demand and made news when they announced plans (at the height of civil unrest in the US) to put up to $100 million toward financial institutions and other groups that directly support Black communities in the U.S. It is no surprise they were among BCG’s list of the Most Innovative Companies of 2020. 

In the past 23 years, Netflix has gained nearly 200 million subscribers in 190 countries. That growth is directly attributed to their innovation-oriented culture of reinvention. So how can your bank become more like Netflix? Start by creating an innovation culture. When you elevate innovation to the status of a core value — an organizing principle for your bank — you begin to change the outlook and culture of your organization; and you transform the conversation in your board room, and your break room. 

As you begin to consider your institution’s capacity for innovation, take an honest look at how your current culture reflects these four characteristics: 

  • Innovative cultures encourage autonomy. From day one, Netflix focused the culture on employee empowerment and independence. The typical banking leadership style of command-and-control is difficult enough with five generations in the workforce and a talent crisis on the way; and is certainly less viable in the work-from-home era. Let go of the reins and create an environment where individuals and cross-departmental teams have freedom to express ideas, experiment and make decisions. Try identifying one customer-facing problem and give 3-5 people a budget and a deadline and then get out of their way.  
  • Innovative cultures also foster alternative solutions. You have likely heard the old saying that the definition of insanity is doing the same thing and expecting a different result. That thinking is the antithesis of innovation, and unfortunately it is alive and well in banking — but it doesn’t have to be. Tried and tested practices may feel safer, and trusted partners feel comfortable. But new solutions are often found by exploring new approaches and engaging new partners. When was the last time you asked a front-line employee, rather than a senior manager, how they would solve a particular problem?  
  • Innovative cultures give people permission to fail. Your team members will try new things when they know that they will not be fired or reprimanded for giving something a try. Once again, Netflix offers an interesting example. When an employee makes a mistake, they are encouraged to let it be known so fellow employees can learn from the errors and new ideas can be stimulated. Permission to fail allows employees to step outside of their comfort zones, to take more risks and to bring forth an innovative idea.  
  • Innovative cultures promote action. Decisions need to be made quickly and the right actions (based on data, customer feedback, analytics, etc.) must be taken, acknowledged and celebrated. Fast and effective decision-making structures exist, and fast and efficient communication supports implementation.  

A recent report from Accenture noted “Yesterday’s expectations for innovation are out the window. Even though the stakes for innovation in banking were rising even before the coronavirus arrived, now a true culture of innovation is a matter of survival through, and beyond, the pandemic.” 

I’ve used Netflix as an example of an innovative company, but there are leaders in our industry who have focused their banks on finding innovative solutions for their customers. And it isn’t just the large national and regional banks. Take the time to learn about institutions like Cross River Bank in New Jersey and discover how they reinvented themselves and deployed APIs to originate loans for Affirm or Rocket Mortgage. Or discover the innovative leadership at Citizens Bank in Oklahoma, who partnered with Shark Tank’s Mark Cuban to create the nation’s first bank exclusively to originate and fund PPP loans for businesses across the country.  

As you take the time to consider your own institution’s capacity for innovation, ask yourself “Do I have it in me?” Innovation requires fearless leadership that doesn’t use legacy technology as an excuse for maintaining the status quo. The pandemic has created an opportunity to break the inertia that has kept innovation from flourishing. Now is the time to commit to innovation and begin the work of reinventing your institution. I’ll admit, some consumers will return to pre-pandemic behaviors, and so will some banks. But given the changes we’ve already seen, I’m confident that banking will continue to evolve as consumers demand more innovation. 

Sullivan will be a keynote speaker at the WBA Management Conference, September 13–14 in Green Bay.

About the Author 

Joe Sullivan is CEO and founder of Seattle-based Market Insights, a consultancy with expertise in strategic planning, delivery optimization, culture transformation and leadership coaching. He can be reached at jsullivan@formarketinsights.com, or on Twitter — @mi_sullivan.

By, Ally Bates

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Considerations When Banking Minors

There are several banking relationships that might involve minors. Be it an adult who wants their child to learn about finances through a deposit account or even a loan, a fourteen year old who just got their first job at the local grocery store, or a custodial account set up by Grandpa and Grandma for college savings, banking relationships involving minor customers is no minor matter. With that pun out of the way, this article will discuss the serious considerations that bank must make, depending on the nature of the account relationship. 
 
The first question that WBA often receives regarding minors is: can minors open an account? Or to phrase it more broadly: can minors enter into a contract? The answer to both is: yes, banks can do business with minors, including opening deposit accounts and extending credit. Minors can enter into a contract. However, a minor can escape liability under the contract. Meaning, a minor could avoid liability from a bank seeking to hold a minor accountable for terms under the contract. This means that while a bank can contract with minors, doing so presents unique risks and liabilities. 
 
The ability of a minor to escape, or void, liability under a contract is often referred to as the doctrine of incapacity. Generally speaking, the theory is that a minor has not developed enough to understand the significance of contracting and thus, may void the contract. It is also worth mentioning that a court could find that someone who has attained the age of 18, or older, still hasn't matured enough to understand that significance and might be permitted to void the contract. For the above reasons, banks should consult with their policies and procedures regarding contracting with minors. 

When setting such policies, banks should consider the risks associated with opening accounts for minors. This is a matter for every bank to decide, as a matter of business. Perhaps this means that the bank does not contract with minors. Or, perhaps the bank is willing to open accounts for minors, under certain circumstances, and does so on a case-by-case basis. The bank might also find a compromise and require an adult joint owner. The theory of joint ownership would be that even if the minor can void the contract, the bank might be comfortable seeking to hold the adult liable, if the account agreement provides for joint and severable liability. Again, this is a matter that the bank must decide based upon how comfortable it is entering into contract. 

When it comes to minor accounts, WBA generally recommends that banks consider the use of a WUTMA account. A WUTMA account is created under Wisconsin’s Uniform Transfers to Minors Act, which provides certain requirements, procedures, and responsibilities. Thus, it creates a means for a bank to open an account with an understanding of what rules apply to the relationship between the minor, the adult custodian, and the bank. While WUTMA provides for this certainty, banks should be careful before opening custodial accounts which are not governed by WUTMA, as it would leave questions as to how the account would be handled. 

WUTMA describes certain types of transfers which may be made under the Act. Generally speaking, it is the custodian’s responsibility to understand the nature of the transfer, and when the funds should be released to the minor, not the bank’s. That said, there may be certain situations that a bank may need to evaluate. For example: payroll. Because payroll is income, it would not be appropriate for payroll to be deposited to a WUTMA account. 

Additionally, payment to a beneficiary who is a minor payable on death (P.O.D.) beneficiary must be done under WUTMA. Thus, banks must be aware that if a minor is named as a beneficiary, then upon death of the owner(s) of the account, the transfer must be made under WUTMA. If a custodian is not named, or is deceased with no successor custodian, then in most situations, a specific procedure must be followed. Generally speaking, in such a situation, if the minor has attained the age of 14, he or she may appoint a custodian within 60 days. If there is no custodian or successor custodian and the minor is not 14 or did not appoint a conservator within 60 days of the custodian's death, an individual must petition the court for appointment as custodian. 
 
Because the law requires P.O.D. funds to a minor to be paid under WUTMA, WBA recommends that banks encourage their customers who make such designations to indicate a custodian and potentially even a successor custodian upon designation.  

If you have any questions on this topic or other matters of compliance, contact WBA’s legal call program at 608-441-1200 or wbalegal@wisbank.com. 

Birrenkott is WBA assistant director – legal.

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

By, Cassie Krause

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Proposed Interagency Guidance on Third-Party Relationships to Replace Existing Guidance

As previously reported on in WBA’s Wisconsin Banker Daily, FRB, FDIC, and OCC have collectively proposed to update interagency guidance on managing risks associated with third-party relationships. The proposal is significant as final guidance will replace each agency’s existing guidance: FRB’s 2013 guidance, SR Letter 13–19/CA Letter 13–21, “Guidance on Managing Outsourcing Risk’” (December 5, 2013, updated February 26, 2021);  FDIC's 2008 guidance, FIL–44–2008, “Guidance for Managing Third-Party Risk” (June 6, 2008);  and OCC's 2013 guidance and its 2020 FAQs, Bulletin 2013–29, “Third-Party Relationships: Risk Management Guidance” and OCC Bulletin 2020–10, “Third-Party Relationships: Frequently Asked Questions to Supplement OCC Bulletin 2013–29.”  

Third-party vendor management is a significant part of most banks’ risk management efforts so as to protect against harm caused to bank customers or the bank itself as result of actions taken, or failed to be taken, by third-party vendors. Third-party vendor management is also a significant area of review by examiners. Depending upon how the agencies finalize the guidance, banks may need to update their third-party vendor management policies and procedures in the near future. Banks should be aware of what the agencies have proposed and should consider sharing comments with the agencies of where the guidance need be improved upon, further clarified, or narrowed in scope or coverage.  

The agencies intend the proposed guidance to provide a framework based on sound risk management principles that banks may use to address the risks associated with third-party relationships. The proposed guidance describes third-party relationships as business arrangements between a bank and another entity, by contract or otherwise. As is currently agency expectation, the proposed guidance stresses the importance of banks appropriately managing and evaluating the risks associated with each third-party relationship. The proposed guidance also continues existing agency expectations that banks’ use of third parties does not diminish their responsibilities to perform an activity in a safe and sound manner and in compliance with applicable laws and regulations.  Banks are to adopt third-party risk management processes that are commensurate with the identified level of risk and complexity from the third-party relationships, and with the organizational structure of each bank.  

The proposed guidance is intended for all third-party relationships and is especially important for relationships that a bank relies on to a significant extent, relationships that entail greater risk and complexity, and relationships that involve critical activities. The proposed guidance defines “critical activities” as significant bank functions or other activities that: (a) could cause a bank to face significant risk if the third party fails to meet expectations; (b) could have significant customer impacts; (c) require significant investment in resources to implement the third-party relationship and manage the risk; or (d) could have a major impact on bank operations if the bank has to find an alternate third party or if the outsourced activity has to be brought in-house. 

The proposed guidance provides examples of third-party relationships, including the use of independent consultants, networking arrangements, merchant payment processing services, services provided by affiliates and subsidiaries, joint ventures, and other business arrangements in which a bank has an ongoing relationship or may have responsibilities for the associated records.  

The agencies seek comment on all aspects of the proposed guidance, including responses to the several specific questions throughout the proposed guidance. Comments are due Sept 17. The proposed guidance may be viewed here.

WBA will be commenting on the proposed guidance. Please share your suggestions, concerns, or other general thoughts regarding the proposal with WBA Legal at 608-441-1200 or at wbalegal@wisbank.com.

By, Cassie Krause

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Document Imaging Considerations

Has your bank been wondering what to do with all those old boxes of documents in storage? Perhaps you’ve decided to go digital, and scan all those old files, or perhaps you already have, and are now wondering what to do with the originals. WBA has recently received a number of questions regarding record retention, specifically, when it comes to deciding what to keep and what to destroy. While this decision is largely one that should be made as a business decision, there are some legal aspects to consider, as well as practical matters, that are discussed below. 
 
As a starting point, if your bank is considering scanning certain documents and destroying the originals, it should consider Wisconsin Statue sections 220.285. Within that section, you will find a rather broad grant that banks may use a variety of means to image any or all records, and dispose of the originals. Furthermore, the Wisconsin Department of Financial Institutions has given blanket permission to destroy its records, so long as reasonable precautions have been taken with respect to confidentiality, and the destruction is done in a manner consistent with prudent business practices (See DFI-Bkg 9.01). In summary, bank is permitted to make a business decision as to what originals it wishes to keep or destroy. 
 
So, theoretically, any document could be imaged, and the original destroyed. However, the analysis doesn’t end there. In making this assessment, bank should consider that at time of publication of this article, WBA is not aware of any Wisconsin case law which tests or otherwise discusses the admissibility of documents stored on electronic, optical disks, etc. after destruction of the original. This leaves open the possibility that a court may be persuaded in the future that the original paper document should be produced. For example, perhaps because a question may be raised about the authenticity of the original, about the validity or accuracy of the copy, or because it would be unfair to admit the duplicate in questions of fraud or in cases where the signature is at issue. 
 
Thus, a bank must make a risk-based business decision regarding whether it wants to destroy an original and rely on a reproduction from its imaging system. Banks might consider the matter on a per-document basis. For example, certain documents might carry higher risk, a higher chance of liability, or a higher probability of litigation, where bank should consider whether it would prefer to keep the original in order to prove an issue, or whether it would be comfortable relying on an optical image or duplicate as sufficient. 
 
As a practical matter, banks should also consider the aspect of how well it is able to reproduce an image. This will depend upon the quality of the original, the type of technology available, and the process used for reproduction. It should also consider what its policy covers. Staff will need to be trained to understand what should be destroyed and what should be kept, and how the technology is used, in order to create an accurate copy. For example, if some process or technology results in a blurry, distorted, or otherwise misrepresented image, that could create issues if the original was destroyed. 

In conclusion, the decision of whether to image and destroy documents, or to keep the original, is a matter of making a risk assessment on a per document basis. The thoughts above are presented as general considerations, but don’t necessarily consider every aspect of the decision. For that reason, banks should give careful thought to those originals they do decide to destroy. 
 
For additional record retention resources, WBA has created a revised, 2021 version of its Record Retention Guide here.

If you have any questions on this topic or other matters of compliance, contact WBA’s legal call program at 608-441-1200 or wbalegal@wisbank.com. 

Birrenkott is WBA assistant director – legal. For legal questions, please email wbalegal@wisbank.com. 

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

By, Cassie Krause

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