Archive for category: Products

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Steps to Help Avoid Wire Transfer Fraud Targeting HELOC Accounts

Home Equity Line of Credit (HELOC) scams continue to be a costly and challenging issue for financial institutions. Wire transfer fraud can easily reach millions of dollars, and with advancements in technology, such as online databases for county clerk records, online banking and online title searching, data commonly used by financial institutions to verify customer identity for wire transactions is routinely and easily compromised.

Several financial institutions have fallen victim to losses arising out of wire transfer and check forgery schemes targeting HELOC accounts and have taken action to mitigate the risk of future loss experience. Institutions that place a high value on their customer service and customer confidence in the institution’s security against wire transfer fraud have implemented risk mitigation upgrades to their operations to help solidify customer confidence. According to Travelers, the following steps are initiatives that can help to avoid, or at least significantly reduce, losses arising out of HELOC fraud scams:

  • Place greater emphasis on getting full account numbers from callers;
  • Phrase verification questions so that the caller is providing the information, rather than simply confirming what the financial institution has on file;
  • Remove items from the list of authentication options (such as mother’s maiden name and date of birth) that have become “public information” through social media websites and venues;
  • Train employees who field calls to verify authentication items in a specific order and not skip to other items if the caller cannot verify the requested information;
  • Train personnel with an updated full fraud-awareness module to help employees identify warning signs of fraud;
  • Encourage customers to set up PIN numbers if the automated phone system allows it;
  • Update customer account files with driver’s license numbers, if not copies of the entire driver’s license (or other government-issued ID if there is no driver’s license);
  • Utilize a mandatory callback procedure for all customer-not-present wire transfer requests;
  • Use a password to authenticate customers rather than commonly compromised information and only allow in-person modification of passwords and key account information;
  • Consider requiring full balance transfers (or transfers up to a certain percentage of the available funds) to be made in person while placing a reasonable monetary limit (or percentage limit) on customer-not-present wire transfer requests;
  • Establish a reporting procedure which refers all suspicious wire transfer requests to a higher level of authority for confirmation/processing;
  • Require a dual telephone confirmation procedure where the financial institution calls the home phone of the customer as well as an alternate number, such as a mobile phone or work phone;
  • Establish an automatic two-day holding pattern anytime a request is made to initiate a wire transfer from a HELOC account to a foreign bank account within which time the financial institution ensures accurate verification and deters fraudsters seeking immediate processing;
  • Verify change of address or phone number requests with a call to the customer’s phone number on file;
  • Customize specific and unique verification questions and procedures with an account holder/customer that can only be modified in-person.
  • Consider performing a verification call back when a purported customer calls the bank to set up on-line banking for the first time.

Technology has made it easier than ever for bad actors to obtain data that is commonly used by financial institutions to verify the identity of their customers. That’s why financial institutions must utilize robust

authentication procedures to protect their customers – and themselves – from wire transfer fraud. This includes greater awareness, updated and vigilant policies, procedures and training, and implementing imaginative and unique verification procedures to help reduce the risk of loss arising out of wire transfer fraud targeting HELOC accounts.

Travelers, a WBA Associate Member, is committed to managing and mitigating risks and exposures, and does so backed by financial stability and a dedicated team — from underwriters to claim professionals — whose mission is to insure and protect a company’s assets.

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Are You Ready For 1071?

By Kristen L. Eustis, Wipfli

Have you and your commercial lending team started preparing for implementation of the long-anticipated Section 1071 small-business lending data collection requirements?

If you currently meet, or expect to meet, the transaction thresholds, the time is now to begin tactical steps for compliance.

Part of the Dodd-Frank Act of 2010, Section 1071 amended the Equal Credit Opportunity Act (ECOA), which will now require financial institutions, FinTech companies and other lenders to begin collecting and reporting small business lending data.

While the implementation date is about a year and a half from now for large lenders and almost three years for small lenders, it will sneak up on everyone pretty quickly.

Here are some important considerations in preparing for the changes:

  • Get your loan application in shape

If your commercial lending team is not currently using a loan application or inquiry form, implementation may become a necessity. If an application is being used, analyze the data being collected to ensure it’s sufficient to meet the new requirements.

Your financial institution will need to capture a lot of information about the application, the action taken, the loan terms, the business and the principal owners.

Some of this information may be available from other sources, but identifying the fields that are not currently captured will help you determine what will need to be collected at application.

Also, consider how your financial institution plans to define an “application,” which will trigger the requirements for data collection, reporting and related requirements.

If your institution allows the opening of online accounts, you’ll need to consider how the required information will be captured in the online application process.

  • Is your data collection process adequate?

Consider your current capacity for capturing this data. Will your current system have the capability to assist with the collection of additional data? If not, contact your vendor to see whether updates will be made or if you will need to consider a manual collection process or even a new loan origination system.

Don’t forget about geocoding. You’ll need to determine whether your system can handle it or if this will also be a manual process.

Be sure you’re set up for the collection of demographic information in the application process, both in person and online, since it must be obtained at the time of application.

Accounting for applications that do not result in a loan

Just as in the Home Mortgage Disclosure Act world, applications that do not result in a loan will need to be reported. Because these require a unique identifier, you’ll need to determine whether the loan origination system will generate a number or  if it will require a manual process.

If your financial institution does not currently keep a pipeline of pending applications, consider how you will be able to ensure all applications that did not result in a loan are accounted for and reported.

Along with applications denied, you’ll need to include those that are withdrawn, incomplete or approved but not accepted. Your institution will need to consider how to capture the approved loan and pricing information. Therefore, you’ll need to determine where the source of this information will be housed.

  • Establish clear source documentation

Consistency is needed in noting where information is coming from. Your institution will need to consider the source documentation for areas such as loan approval information, amount approved, pricing information, guarantors and the date of action taken. Documenting your source of information for each type of action will provide the consistency required and reduce errors.

  • Assess your administrative needs

The process of gathering, inputting and reviewing the loan application register (LAR) will need to be administered by a person or group. The volume of lending activity may determine the needed staffing level.

Prior to submitting the LAR, a determination will need to be made about whether a second review of the information will occur (it’s a good idea) and whether that can be accomplished in house or if it will need to be outsourced.

Simply ensuring the format of the LAR is correct and accepted is not sufficient as a review. Examiners will have procedures to require correction and resubmission based on established error rates, so ensuring your data is accurate will be important.

Training will need to happen sooner rather than later to ensure all staff involved in any part of the process, from gathering to reporting, know what is expected and how to obtain and document the required information.

  • Establish your firewall procedures

The new rules contain a firewall provision, which states that employees or officers of the financial institutions or its affiliates who are involved in making a determination about the application should not have access to the demographic information of the principal owners, including whether the business is minority owned, women owned or LGBTQI+ owned or the ethnicity, race and sex of the principal owners.

To comply with this provision, you will have to determine how you will keep the employees or officers involved in the credit decision from seeing this information, unless you meet the exception, and provide the required notification to the applicant at the time the information is collected. Procedures for handling the firewall provision should be established.

Look at fair lending implications

Fair lending should be considered in every aspect of the lending process. Your institution should consider how or if you are going to analyze the data that is collected for fair lending implications and whether this can be conducted in house or through assistance from a third party.

  • Get a change management system in place

To manage regulatory change, especially one as impactful as 1071, financial institutions should have an effective change management system. You need to analyze and understand how the new requirements affect your existing processes and make modifications as appropriate.

This level of change is difficult to handle alone, making a team approach advisable.

The first step is determining who should be part of that team. Members of compliance, operations, small business lending and potentially information technology should likely be part of your team. Every institution’s structure varies, so selecting the team based on the roles and implementation needs is key.

Next, you’ll want to look at your product offerings to determine the scope of impact. Determine what lines and products this new rule will affect. You don’t want to realize too late that you missed someone or something.

Analyze your current systems. What pitfalls are there to hinder the data collection process? Make sure you are keeping up with what your vendor has in their pipeline to facilitate your data collection and reporting.

Finally, perform a gap analysis. Evaluate your covered transactions and data collection process against the requirements of Section 1071 to determine what areas are not working and where enhancements are still needed.

How Wipfli can help

While 1071 is similar to HMDA rules in some respects, the requirements constitute a significant change. Don’t navigate this complex process alone. Wipfli professionals can guide you through the implementation process to help ensure you are in compliance.

Content Sponsored by Wipfli, a WBA Silver Associate Member.

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May/June 2023 Wisconsin Banker

From the WBA Associate Member Directory to partnering with Wisconsin’s oldest Black-owned bank, the May/June Wisconsin Banker is sure to feature something of interest for every member of the bank.

Learn more about the 2023–2024 BOLT Section Chair, the requirements for flood insurance force placement, and how you can make a difference by getting involved with the Association.

Featured inside are the chair’s column by Dan Peterson, current WBA chair and president and CEO of The Stephenson National Bank & Trust, Marinette; the Community Advocate, Emily Dahl, executive vice president, chief financial officer at Bank of Ontario; and Ashley Clemons, vice president – marketing at The Peoples Community Bank in Mazomanie.

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Slips, Trips, and Falls

According to the National Safety Council, slips, trips, and falls are the third leading cause of injury in the workplace. Some of these incidents occur at banks with employees or customers. While these mishaps might be commonplace, there is a proactive approach banks can take to help reduce the risk of their employees and customers being injured in a slip, trip, and fall. A smart place to start: analysis of both the physical conditions of the premises and usage and traffic flow patterns, which can often identify potential hazards that should be addressed.

Some of the accident causes are well known: wet spots on floors, uneven walking surfaces, dirty doormats. Other factors, such as poor lighting, might not be as noticeable but can be equally dangerous.

“Banks should be aware of the potential for people falling and getting injured, and should take steps to ensure the premises are as safe as possible,” said Laura Lundin, vice president of financial institutions P&C at Travelers. “There are many ways to do this — maintain clean floor surfaces, ensure the space is well lit, schedule regular maintenance during low traffic times, and conduct periodic walkthroughs to confirm everything looks safe. A little attention can go a long way.”

Working with an insurance carrier is also recommended. Insurance providers can work with banks to:

  • Help identify and assess exposures;
  • Develop loss control strategies and improvements to minimize the frequency and severity of slip, trip, and fall incidents;
  • Provide training to help with slip, trip and fall prevention efforts.

If an accident does take place, be sure that it is documented and reported. This information can help prevent future incidents, and may be essential if a claim is filed against the bank. A standard, printed incident report is helpful in ensuring that all details are recorded. Documenting the details of the incident, collecting the names and a brief statement from the injured party and any witnesses, even taking photographs of the incident site can help. Slips, trips, and falls rarely “just happen.”

Implementing effective slip, trip, and fall improvement requires the right tools, people, and communications. The right insurance carrier can help your slip, trip, and fall prevention team define and document the policies, procedures, roles, and responsibilities needed to effectively reduce these incidents. They also can help your team develop the tools and communication materials needed to implement this process.

Travelers, a WBA Associate Member, is committed to managing and mitigating risks and exposures, and does so backed by financial stability and a dedicated team — from underwriters to claim professionals — whose mission is to insure and protect a company’s assets.

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Wisconsin Banks Receive $28,845 in Distributions from American Bankers Mutual Insurance, Ltd.

$97.3 million has been declared in total distributions since 1991.

American Bankers Mutual Insurance, Ltd., the reinsurer for the directors and officers (D&O), bond and cyber insurance program co-endorsed by American Bankers Association (ABA) and Wisconsin Bankers Association (WBA), declared a $3 million distribution to be shared by qualified ABA member banks insured through ABA Insurance Services, a member of Great American Insurance Group.

This is the 33rd consecutive year that the industry’s leading professional liability and bond insurance provider has declared distributions to eligible ABA member banks, bringing the total to $97.3 million since the program’s inception. ABA member banks that purchase their directors and officers (D&O), bond, cyber and related insurance from this program are eligible to receive a distribution.

“The American Bankers Mutual Insurance program is a fantastic way for institutions to maximize the value of their ABA membership,” said Rob Nichols, ABA president and CEO. “On top of offering high-quality insurance products, the program has reliably paid out distributions for more than three decades. We hope members will consider participating as they evaluate their insurance needs.”

“For the 33rd year in a row, this program has delivered for its participating members. It provides the banking industry with a long-term, stable source of insurance and risk services, as well as meaningful distributions for eligible ABA member banks,” said Gary Hemmer, chairman of American Bankers Mutual Insurance Ltd. and chairman of the board of First National Bank of Waterloo in Waterloo, Ill.

To receive a distribution, a bank must be a member of ABA and have D&O, financial institution bond, and/or cyber insurance with ABA Insurance Services on Tuesday, January 17, 2023. Distributions will take place mid-February 2023.

About American Bankers Mutual Insurance, Ltd.
American Bankers Mutual Insurance, Ltd. is a bank-owned, mutual insurance company that reinsures policies written for the ABA-endorsed insurance program.

About ABA Insurance Services
ABA Insurance Services, a Member of Great American Insurance Group, serves the banking industry by offering D&O, bond, cyber, and related insurance to financial institutions across the country. Co-endorsed by American Bankers Association and Wisconsin Bankers Association, this unique insurance program has been a market leader since 1987 and is recognized by insurance and banking professionals as a secure, stable, and affordable source of coverage.  For more information about ABA Insurance Services, call 800-274-5222 or visit www.abais.com.

About American Bankers Association
The American Bankers Association is the voice of the nation’s $23.6 trillion banking industry, which is composed of small, regional, and large banks that together employ more than 2 million people, safeguard $19.4 trillion in deposits and extend $12 trillion in loans.

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Building a Strong Credit Culture

By Eric E. VanDoren, CRC, Director, Wipfli

Building and maintaining a strong credit culture at your financial institution is no easy task. But that culture will go a long way in affecting the long-term success, or lack thereof, of your organization.

The COVID-19 pandemic brought with it plenty of stresses as lenders navigated various challenges and solutions. However, banks are coming out of a period in which credit losses are at historic lows, and problem loan reports and watch lists are about as small as they ever were.

Most lending institutions ended 2022 in a strong capital position (notwithstanding unrealized losses in the securities portfolio) with minimal credit issues, regardless of the strength of the institution’s credit culture.

However, current economic uncertainties are a reminder of the need to revisit your lending approach. Your institution needs a strong credit culture to weather volatility in market conditions and the economy going forward.

Here are the key components of a strong credit culture and some changes you may need to adopt to build yours.

An Effective Loan Policy

It starts with an effective, well-defined loan policy. This is not a one-size-fits-all document. The policy should be tailored to the institution based on the local area and economy, as well as the characteristics of your institution: size, strength, expertise, types of lending offered and the borrowing needs in the local economy.

This policy document should provide for effective supervision by senior management and the board of directors. It should not be a static document and should be reviewed and approved on an ongoing basis as the circumstances of borrowers, the economy and the institution itself change. The policy also provides guidance and outlines expectations for loan officers and staff.

Careful Underwriting

Gone are the days of the handshake loans with minimal to no underwriting. Effective loan underwriting is critical in understanding the risks in a borrowing relationship. Detailed underwriting and risk analysis will help management determine whether the level of risk in each credit application is acceptable given the expected reward.

Effective loan underwriting analyzes and discusses the five Cs of credit: character, capacity, capital, collateral and conditions (and some also add control and common sense). In most instances, underwriting is performed by the credit department, providing a view independent from loan production — although in some smaller institutions this may not be possible due to limited staffing.

Credit personnel should be knowledgeable and well-trained to provide the proper analysis and uncover the risks lurking within a credit and loan request and be able to effectively articulate any concerns held by internal staff, the credit committee, board of directors or others.

A Grading Matrix

To determine and quantify the level of risk in a credit application, a clear, measurable and objective-based loan grading system should be used. A grading matrix is a great tool to assist in determining the proper loan grade and helps provide consistency in grading throughout the organization.

While a perfect grading matrix does not exist, these key objective criteria carry the most weight:

  • Debt service ability
  • Collateral coverage
  • Leverage
  • Liquidity

Other criteria — including industry, type of collateral, guarantor strength and payment history — also matter but are typically weighted less.

Once the matrix determines the score, consider whether it seems appropriate. (If it doesn’t, an adjustment to the weightings or risk factors should be considered, and an adjustment may be appropriate.

Possible reasons for an adjustment might be the sudden loss of a significant customer or the untimely death of an owner or key employee.

A grading matrix is not a one-size-fits-all tool. The expectations for a commercial real estate credit may be different than a commercial and industrial credit. Underwriting and grading an agricultural borrower would not be the same as it would for a construction or development borrower. An institution may want to consider having three or four (or even more) different grading matrices in its arsenal.

A Diligent Credit Committee

The credit committee reviews new credit requests as well as previously approved and funded loans not just for approval but also to ensure the depth and detail of the credit underwriting and analysis is commensurate with the subject request. Is the type and structure of the loan appropriate and within policy parameters as dictated by senior management and the board?

If there are exceptions to policy, are they appropriately mitigated so the level of risk in the credit is reasonable given the risk appetite of the institution? The credit committee is also frequently a learning opportunity for junior personnel to become further immersed in the credit culture of the institution.

Proper Credit Administration

Another important but often overlooked part of the credit process is loan documentation and administration. This effort includes pre-lien searches, proper titling, approved terms and conditions and accuracy of documentation. Proper checks and balances and review of loan documents are needed prior to closing. It is too easy for something to slip between the cracks due to pressure from a loan officer, borrower or attorney, as well as myriad other distractions that administrators must face.

After the loan is properly booked and funded on the system, there may be follow-up filings and post-lien searches.

Thorough Portfolio Management

Effective loan portfolio management is imperative. More than just monitoring payment performance, it involves keeping in touch with the borrower performing a site visit, if appropriate. The institution may need to obtain and review periodic financial reporting from the borrower and/or guarantors as required in the loan agreement.

Check whether the financials raise any red flags or trip any covenant requirements. If so, investigate and find out why. Do not wait until a loan becomes past due to raise concerns with the borrower.

Effective loan portfolio management goes beyond individual loan monitoring. Is the level of risk in the portfolio changing and, if so, why? Stress testing is an important tool in determining the potential risk in individual credits as well as the portfolio.

Concentration levels need to be monitored. Are the various loan types within the concentration parameters outlined in the loan policy? If not, what is the plan to return to the policy threshold? Are those threshold levels still appropriate? If exceptions are made to the policy, consider whether the level is appropriate and be sure the exceptions are being tracked and reported to senior management and the board.

Another important aspect of loan portfolio management involves the management of problem loans. Even an institution with a strong credit culture will have the occasional hiccup. The question becomes how does the lender deal with the hiccups. The earlier the loan officer can identify a potential problem, the easier it is to consider more potential solutions.

Many pieces must come together to build a strong credit culture. For management to be diligent in its oversight, having the right people in place is critical. The quickest route to financial decline for a lender is to allow complacency to take hold in any critical aspect of the lending process. While every loan is a good loan at the point of origination, a strong credit culture improves the chances it remains so.

How Wipfli Can Help

At Wipfli, we are tuned into the concerns of financial institution clients on underwriting risks. The appropriate policies help build lasting relationships and create a positive impact. Our team’s seasoned lending professionals are ready to provide guidance on best practices and help your organization achieve its goals.

Contact us today, so that we can help gain confidence in the integrity of your loans.

Content Sponsored by Wipfli, a WBA Silver Associate Member.

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Association Update: Thank You for Choosing WBA EBC in 2023

Bankers insure locally with trusted professionals

By Daryll J. Lund

In 1982, the Wisconsin Bankers Association Employee Benefits Corporation, Inc. (WBA EBC) was formed to provide flexible, high-quality health benefits and insurance coverage exclusively to members of the Wisconsin Bankers Association (WBA). As our corporation moves into its 41st year, I thank each WBA member bank that has entrusted our team with their insurance needs.

As our organization continues to expand, it remains a top priority of our team to ensure that WBA members receive the options and preferred pricing that is typically reserved for large employers. Since 2018, WBA EBC has offered a statewide Association Health Plan (AHP) to all members. The AHP, administered by UnitedHealthcare (UHC), has saved WBA-member banks over $2.1 million in the last five years. By spreading the risk over large numbers we have been able to help nearly 50 banks and over 2,200 members.

By joining the WBA AHP, bankers enjoy benefits such as working with a dedicated, local association team; opportunities for cost savings; more plan options; a strong national network; and convenient resources.

Whether your bank is looking to add coverage to dental, medical, prescription drug, vision, or life and disability — WBA EBC is the one-stop-shop in providing your employees with afford- able, high-quality benefits for their well-being. Additionally, WBA EBC’s online portal allows for member-driven control of enrollment or changes, provided transparency with costs and expenses, as well as ensured banks have the ability to control administrative costs in the future.

Thank you to the 100+ banks throughout the state that have chosen the WBA-EBC for their insurance programs for 2023. With your enrollment, nearly 4,000 members have gained access to affordable insurance. WBA EBC Vice President Brian Siegenthaler, our dedicated team, and I look forward to continuing to provide flexible plans and wellness solutions to you and your employees.

Please visit wisbankins.com or contact Brian Siegenthaler at 608 441-1211 to learn more about the advantages we offer.

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FIPCO Serves Compliance Concierge® Customers With Software Updates

By Annette Witkowski

Customers have always been, and will always be, top of mind for FIPCO staff members. That is why we continually revise the Compliance Concierge® software with updated documents, regulation changes, and user enhancement requests.

Some of the items we have released lately are:

  • HOEPA/HPM rates, so Compliance Concierge® notifies when users are outside of their range;
  • Reg Z threshold amount, so Truth-in-Lending documents appear when required;
  • Bank holidays that allow Compliance Concierge® to calculate rescission;
  • Over 40 secondary market documents that the GSEs have changed;
  • Updated Ascensus* IRA documents;
  • User-requested warning messages on certain screens;
  • Factual Data by CBC interface;
  • Revisions to WBA 382 P.O.D. Beneficiary Designation document;
  • User-requested commercial application document; and
  • Updated Automatic Payment Authorization to comply with NACHA rules.

We continue to distribute timely information through software release notes, notices, and the monthly FIPCO Focus e-publication. If you are not receiving these items and would like to, please visit fipco.com and edit your profile or, if you are not registered with our website, click “Sign Up” to request these items.

As always, FIPCO staff members are here for you. If there is anything we can help with, please contact our business development team at fipcosales@fipco.com or fipcosupport@fipco.com.

*Ascensus is a WBA Associate Member.

 

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questions@wisbank.com

608-441-1200

4721 S Biltmore Ln.
Madison, WI 53718

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