By Dave Oldenburg
Financial institutions have reported incidents where a new or seasoned customer is instructed to open an IRA account, with a fake check, disguised as a rollover. Criminals who orchestrate these crimes hope that front lines staff will be fooled into believing that IRA accounts are not typically associated with fraud. Unfortunately, this type of fake check scam has gained traction and has the potential to inflict substantial losses when not detected early. Although some account holders are aware that they are negotiating a fake check, others do not realize that they are being manipulated as part of a relationship or similar fraud scheme.
How Does the Scam Work?
Similar to other fake check schemes, the purpose is to falsely inflate the balance of an account and withdraw funds as quickly as possible. Funds are often transferred internally, followed by outgoing wires, BillPay, or other electronic payment methods, before the check is returned unpaid.
How Do I Spot a Fake IRA Check Scheme?
It is important to note that criminals generally use accurate information from compromised accounts such as a bank’s ABA, account number, and approximate check range to create and distribute the checks. Some may go further and use convincing check stock, bearing a quality signature of an authorized signer to increase the likelihood that the check will be negotiated.
With that in mind, it’s important to recognize common red flag indicators associated with this type of fraud:
- The check is made payable to an individual. As a rule of thumb, legitimate Traditional and Roth IRA rollover checks are generally made payable to the financial institution, for benefit of (FBO) the account holder
- The check doesn’t appear to be drawn on a qualified retirement plan. Many fake checks are drawn on a law firm, cashier’s check or what appears to be a general business operating account.
- The check is sent directly to the branch by an unknown third party with instructions to deposit the check into a new or existing IRA
- A memo line with vague instructions to deposit the check into an IRA account
- The customer seems concerned when funds will be made available
- The account holder wants to disburse funds shortly after the account was opened
When in doubt, it’s best not to accept the check and follow your bank’s procedures on suspicious account activity.
Oldenburg is a fraud officer, Bank First, Manitowoc and member of the WBA Financial Crimes Committee.
By Jenny Jereczek, Security Financial Bank, Durand
ESG. . . yet another acronym to add to the ag lender’s vocabulary! Environmental, social, and governance (ESG) reporting requirements have been a topic of discussion for several years now, and these discussions continue to gain headwind. Rather than regulatory reporting requirements focusing strictly on financial considerations, investors and regulatory agencies are now considering a broader set of decision-making criteria, which includes ESG ratings. Most recently, bond investors have begun to question ESG ratings for producers who received financing with the bonds the investors are purchasing.
While regulators have not yet standardized ESG reporting, these ratings may have significant impacts on ag banks and their clients. A few things to keep in mind when discussing ESG ratings within your institutions or with your ag clients:
- Currently some ESG frameworks only mandate reporting of emissions and energy consumption. Going forward, financial performance and ESG ratings may also be impacted by the following:
- Changes in water availability, sourcing, and quality
- Tillage practices and their impact on soil health
- Use of chemicals, fertilizers, and solid waste disposal
- Consumer groups continue to use ESG ratings to pressure companies along with lenders to be “green” even though metrics to determine what “green” really means have not be identified or standardized.
- Often the focus of agriculture’s environmental impact is negative, focusing on things such as risks from deforestation, pesticide usage, fertilization application rates, animal welfare, and manure disposal. Yet the agricultural sector can also have a positive environmental impact, such as the creation of alternative fuels — as we have seen with ethanol and biodiesel production as a means reduce the total consumption of fossil fuels. Education and communication with the consumer should be a primary focus for producers, lenders, and all that partner with the agricultural community. The American public cannot support what it does not understand.
- Most producers are already deeply committed to improving sustainability as well as using technology to reduce inputs and costs. With fertile land availability outpacing demand and freshwater needs exceeding supply, the importance of sustainability should not be driven solely by reactions to investor attitudes, but more so from a place of improving efficiency and profitability to ensure longevity of the operation.
- ESG ratings are driven by governmental entities — therefore without clear objective standards — and ESG regulations within the looming 2023 farm bill or federal financial regulations could be of concern and could affect farm bill and federal crop insurance payments.
While the impacts of ESG ratings are not totally known today, we can be certain that there will be impacts to our producers and our institutions. As lenders, we need to keep up with developments regarding potential legislation surrounding ESG ratings. We also need to encourage education amongst not only consumer groups but our producers to be proactive in our approach to dealing with future ESG requirements.
Jenny Jereczek is market president and director – ag banking with Security Financial Bank in Durand. Jereczek currently serves on the WBA Ag Section Board of Directors.
By Rose Oswald Poels
Last week, the Wisconsin Bankers Association (WBA) was pleased to welcome over 500 attendees to our annual Bank Executives Conference. In addition to the many opportunities to gain insight from speakers and network among peers, attendees experienced WBA’s first FinTech Showcase.
The hour-long session, held in conjunction with the conference, was an overwhelming success, and many bankers left the event inspired for the future of their business. As our industry continues to evolve and technology grows increasingly important in the daily operations of banks, the Association is pleased to announce that this April 17, we will host our first full-day FinTech Showcase Event!
In an effort to demonstrate the power of FinTech and assist bankers in staying up to date on technology solutions related to the industry, the day-long event will feature two keynote presenters and eight FinTech vendors. Providers will demonstrate their solutions live in 20-minute intervals, and attendees will have the chance to ask questions and network in the Showcase Hall.
I encourage Wisconsin bankers to utilize this opportunity to develop relationships and explore the ways in which their organization can benefit from new efficiencies and solutions. Registration for this inaugural event is now open at wisbank.com/FinTech.
In addition to this new event, WBA has also partnered with the Arizona and Colorado Bankers Associations and CCG Catalyst Consulting, an Associate Member, to create the Bankers FinTech Council. The Council, initiated to help develop new opportunities for financial institutions and selected FinTechs to connect with each other, launched last year.
WBA members will not only enjoy this opportunity to connect with their banking peers from a variety of banks across the state and country, but bankers will also learn of new and emerging FinTech companies looking to connect with the banking industry. The goal of the Council is to meet three or four times a year at different locations with one likely being held in Wisconsin in August.
For those interested in developing strategic partnerships with FinTech providers, or for those simply interested in learning more about the types of technology products available to the banking industry, both the WBA FinTech Showcase in April and the Bankers FinTech Council will help WBA-member banks form the connections and see for themselves how new technological efficiencies will help banks remain competitive.
Banks should consider document type, purpose, relevant issues
By Scott Birrenkott
Q: What name should banks use for customers when completing documents?
A: The name that should appear, and be signed, on documents depends on a few things. Primarily, the type of documents being signed, the purpose for which the customer’s name is appearing, and any relevant rules.
Typically, a customer has a single, consistent name which will appear on documents, disclosures, and other communications and match their signature. However, there are situations where this is not the case. A customer might use inconsistent capitalization, or go by different names, such as a “nickname,” or perhaps use their middle initial in some situations, or a “Jr.” or “Sr.” designation. There may also be situations where a customer changes their name, either because of a marriage, or other situation — such as a change in identity or gender transition — and a change from an individual’s “deadname.”
Banks should consider how various types of documentation can be affected. For example, if opening a checking account, the specimen signature is important to verifying transactions on the account. If a customer provides a specimen signature which does not match the signature they intend to use on checks, that can result in a question as to whether certain items are authorized. For this reason, the signature card should match the name the customer intends to use when authorizing transactions and should be updated if a change occurs.
When entering into a contract, best practice would be using the customer’s legal name, as provided by customer. The customer should sign in a manner by which they intend to be bound. There are no specific standards for a signature, other than that it reflects the party’s intent to be bound. For example, a customer might sign in a manner different from the way their name otherwise appears on documentation, such as whether they use a middle initial in their signature or not. Or how they capitalize their signature, or whether they are able to sign their name at all and perhaps can only make a mark or symbol such as a checkmark or “X.”
Banks must consider whether the documents properly identify its customer, and whether the signature affixed to the document reflects a valid contract. In this regard, it is ultimately a matter of policy and preference, but a best practice recommendation would be for the bank to be consistent in how the name appears throughout all the documentation, and the signature itself.
However, when it comes to Uniform Commercial Code (UCC) financing statements, there are specific rules which must be followed. This article does not delve into the specifics, but banks should consider that for filing UCC financing statements, the filing should reflect the debtor’s exact name as required by Wis. Stat. section 409.503.
For any questions regarding customer names, accuracy of UCC financing statements, or other topics, contact WBA legal. Additional compliance resources can be found at wisbank.com/resources/compliance.
By Rose Oswald Poels
A key component in the success of the Wisconsin Bankers Association’s (WBA) mission to educate, support, and advocate on behalf of banks throughout the state is the involvement of our membership. Each year, thousands of bankers enjoy various opportunities to develop their careers, access resources, and expand their professional networks. Many of these invaluable connections between WBA members are formed and fostered in our various committees and sections. I invite you and your staff to volunteer your talents and knowledge with the Association in the coming fiscal year by completing the form.
Bankers will find that joining a committee, section, or advisory group not only allows them to network among their peers, but also access growth and leadership opportunities as well as receive special discounts on select educational programs. These incredible benefits are in addition to providing a space in which bankers have the ability to explore their interests and expand their careers in a variety of specialties. From areas of focus ranging from mortgage lending, human resources, and combating financial crimes to fostering diversity, equity, & inclusion (DEI) — your bank’s seasoned professionals and emerging leaders are sure to find an opportunity that suits their interests.
Members of all WBA committees and sections play an incredibly active role in shaping the future of the Association and the industry. Between lending their knowledge, which has helped produce WBA’s Best Practices Library, to influencing the legislation WBA staff lobby for and what educational programs and events are most beneficial to the membership — our volunteer’s efforts in diversifying our knowledge and ideas assists WBA staff in providing the most valuable and relevant resources, information, and events.
With applications for the 2023–24 committees and sections now open through Monday, March 13, I encourage each of you to share this opportunity to engage with WBA widely among your staff. In addition to building long term connections with their peers, working alongside your Association to create tangible and meaningful change throughout the banking industry is an extremely rewarding experience!
By Lance Lansing, Wisconsin Bank & Trust
While many of us were alive when interest rates reached the record high of 20% in March of 1980, not many of us were in lending at that time. According to bankrate.com, the inflation rate at the time was 14.6% and Fed used their main tool and increased interest rates to combat inflation. As a result, the U.S. central bank manufactured a recession to bring prices back down. Although I have never claimed to be an economist (or played one on TV), it does not take a Harvard grad to see that the Fed is once again using its main tool to combat inflation. The current Fed, instead of wielding a sledgehammer on rates, is much more subtle by slowly and gradually moving rates in one direction. However, desperate times…etcetera.
The Fed has chosen to raise interest rates six times over the past year with four straight three quarter point increases pushing borrowing costs to a new high since 2008. The March 2022 hike of a quarter point was the first hike since 2018. The Fed has chosen to raise interest rates with the objective of reducing the total amount of money circulating through the economy, called the money supply. The Fed also tries to control the money supply through quantitative easing, which is the process of buying and selling Treasury Department backed assets. Both tools are used by the Fed to try to reduce inflation. Inflation can be caused by many factors. It is generally the result of too much demand and insufficient supply, leading to high prices. Many people received excess funds during the pandemic and along with supply chain disruptions, this has resulted in rising demand for items, an inability to get those items and an increase in the cost for those items.
A Fed manufactured recession will affect us all in many ways personally and professionally. High inflation and rising interest rates will likely erode a farm business’ liquidity. While our producers have been paying attention to the increase in commodity prices and resulting revenue, they have also noticed the quickly rising input costs due to increased inflation. Should commodity prices start to decline, costs may remain elevated and be slow to go down. Profit margins will be compressed, and some may even become negative. The Ag economy will see new risks with the rising interest rates and input costs. The direct impact on farmers that are borrowing money will be significant. For example, a line of credit that has risen 3.75% from 4.75% to 8.5% since March of 2022 with an average balance of $1,000,000, will require a monthly interest payment of $7,083 vs. $3958, adding an additional $37,500 per year interest expense to their cash flow. This will, of course, impact repayment capacity, liquidity, and depending on the operation, increase cost of production to a level that will compress margins and seriously impact their operation’s profitability.
Many operations chose to increase their liquidity during the pandemic through higher commodity prices and government program payments to pay down dept. However, rising input costs and possible tax liability will increase demand for short-term borrowing. With the increased demand of short-term loans comes the risk of increased variable rates. If margins compress, more operations will seek out loans to compensate for the short falls.
Another risk from higher interest rates is the impact on expansion. When a neighbor’s farm comes up for sale, the cost per acre of owning that land has jumped significantly. A loan early in 2022, with a fixed rate at 4.25% over a 20-year amortization would now hold an interest rate of 8%. Most producers would be tempted to jump at an opportunity to buy 100 acres of adjacent land for $10,000/acre. Since most operations are asset rich and cash poor, the producer in this example will opt to finance 100% of the purchase. The total cost of $1,000,000 for 100 acres, would equate to an annual cost per acre of $747 at 4.25% vs. $1,012 at 8%. This $265 cost per acre increase would impact repayment capacity and margin. The impact of record high land values and increase in interest rates may result in producers passing on expansion opportunities and focusing on deleveraging and positioning themselves for a change in the economy.
Producers and lenders will be affected by the rate increases in several ways. The profit margins for both could be adversely affected as well as the number of opportunities for new loans and growth. Navigating this time will depend on how much higher the rates will increase and for how long before a hiccup in the economy brings them back down.
Lance Lansing is vice president of commercial and ag loans with Wisconsin Bank and Trust in Monroe. Lansing also currently serves on the WBA Agricultural Bankers Section Board of Directors.
By Rose Oswald Poels
As part of WBA’s Diversity, Equity, and Inclusion (DEI) plan, I have been hosting monthly Employee Resource Group (ERG) calls allowing member bankers from historically underrepresented groups to have a forum to share ideas, issues, and advice in a safe, confidential environment. The meetings are never recorded to help ensure that conversations are kept private among those attending. Attendees from past ERG meetings — which began last June — are from all size banks across the state, including some that have their own ERG program.
Each meeting, I receive feedback on the structure, content, and timing of the meetings so that they evolve to be meaningful and relevant for the attendees. I leave each meeting feeling that we’ve provided value to the participants even when the conversations may have been difficult.
WBA’s monthly ERG meetings will continue in 2023 and, with the input from the participants, they will be a little more structured so they are meaningful, and bankers know in advance the topics that will primarily be discussed. I encourage you to share this opportunity with anyone in your bank who is in a historically underrepresented group as I know they will find value in the discussion.
For our January meeting, I am very excited to announce that Judge Derek Mosley, director of the Lubar Center for Public Policy Research and Civic Education at Marquette University Law School, will be joining us as our guest speaker. Judge Mosley recently spoke for WBA during a complimentary all-member webinar on Unconscious Bias and was very well-received. He will open the ERG meeting with a presentation on black history, focusing on the Things Your History Teacher Didn’t Tell You followed by time for open Q&A with forum participants.
The January ERG meeting will be held via Zoom on Friday, January 27 from 1:00 – 2:00 p.m. and there is no charge to participate. Please share the following link with your historically underrepresented staff and encourage them to sign up for the meeting: wisbank.com/community/dei/erg-signup/.
If the timing does not work for this meeting, WBA ERGs are held monthly and information regarding future meeting dates and topics is shared through our Wisconsin Banker Daily e-publication. I am incredibly proud of all the work WBA has been doing with guidance from our Board of Directors in the DEI space, and very excited about the mission of WBA’s ERG to date. With your encouragement to your staff to take advantage of this opportunity, I look forward to its continued growth and success this year!