Tag Archive for: Compliance

Posts

Triangle Background
,

Executive Letter: CFPB Wins Section 1071 Case. Plaintiffs Plan to Appeal. WBA Continues to Fight!

By Rose Oswald Poels

Federal Judge Randy Crane made his decision last week in the much-anticipated case Texas Bankers Association v. CFPB, S.D. Tex., Docket No. 7:23-cd-00144, 8/26/24, that CFPB did not violate the Administration Procedure Act (APA) when it finalized the small business data collection rule (Section 1071) last March. Section 1071 requires banks that make at least 100 small business loans a year to collect and report certain data about the small business borrower, application information, and loan terms. In his decision, Judge Crane wrote: “It may well be that the Final Rule proves ill-advised as a policy matter, but that possibility does not itself make the Final Rule unlawful under the APA.”

I am certainly disappointed with the decision. WBA, and the industry as whole, continue to be gravely concerned over the cost of implementing the rule and most importantly of the privacy concerns of our small business community borrowers. It is expected that the plaintiffs will appeal the decision.

As a result of the decision, WBA will continue our efforts on the federal level to persuade our congressional delegation of necessary changes. Last summer WBA worked to encourage our Wisconsin congressional delegation to pass Congressional Review Act (CRA) resolutions in both the U.S. House and Senate to disapprove the Section 1071 rule. Under the CRA, if Congress enacts a joint resolution of disapproval, a rule promulgated by an agency does not take effect. Unfortunately, President Biden vetoed the joint resolution of disapproval, and the Senate fell short in its vote with the necessary two-thirds vote to overturn the veto. But our fight continues.

WBA also plans to once again communicate industry concerns directly with CFPB staff in our upcoming fall Washington, D.C. Regulatory Trip where myself, and a dozen Wisconsin bankers, will meet directly with CFPB and other federal banking agencies to express specific regulatory concerns and advocate against excessive regulatory burden.

While WBA continues to fight implementation of Section 1071, CFPB continues to work towards implementation. CFPB previously issued an interim final rule to extend mandatory compliance dates given the court case mentioned above and has recently opened a beta platform for Section 1071 data collection.

Being mindful of the possibility of having to implement a rule as robust as Section 1071, WBA has provided Section 1071 training in past WBA Compliance Forums and through past webinars. Past toolkit materials will be reposted shortly to the WBA Compliance Resources page given the recent court decision. Additionally, WBA will be hosting a Section 1071 workshop, Friday, October 18 in a hybrid format. To further assist with implementing the rule as cost effectively as possible, WBA will continue to create other educational Section 1071 resources.

/by
Triangle Background
, ,

Executive Letter: Retention of PPP Loan Records is Now 10 Years

By Rose Oswald Poels

In an interim final rule published in the Federal Register this past Friday, August 23, SBA announced it has lengthened the required records retention for lenders that made loans under the Paycheck Protection Program (PPP) to ten years from the date of final disposition of each individual PPP loan. The interim final rule was issued without advance notice or public comment. The rule is effective August 22, 2024.

SBA stated that the interim final rule was necessary to harmonize PPP lender records retention requirements with subsequent legislation extending the statute of limitations for criminal charges and civil enforcement actions for alleged PPP borrower fraud to ten years after the offense. In particular, the Bank Fraud Enforcement Harmonization Act was signed into law in August 2022 which amended section 7(a) of the Small Business Act to provide, for both First Draw PPP Loans and Second Draw PPP Loans, that notwithstanding any other provision of law, any criminal charge or civil enforcement action alleging that a borrower engaged in fraud with respect to a PPP loan guaranteed by SBA shall be filed not later than 10 years after the offense was committed.

SBA further provided that the majority of lenders that participated in PPP are federally-regulated lenders having participated under existing SBA Form 750 (Loan Guaranty Agreement (Deferred Participation)) or by signing Form 3506 (CARES Act Section 1102 Lender Agreement). Under the Consolidated Forgiveness and Loan Review Interim Final Rule, federally-regulated lenders that participated in the PPP Program are currently required to retain their PPP loan records in accordance with the records retention requirements imposed by their federal financial institution regulator. SBA has determined that there do not appear to be any consistent or specific time requirements imposed by federal financial institution regulators that are applicable to PPP records retention as a whole. Instead, federally-regulated PPP lenders may implement and follow general internal records retention policies that are acceptable to their regulators. SBA believes it is likely that many of these general internal records retention policies allow for periodic destruction of certain records after a loan is paid in full, which for PPP would include payment in full through forgiveness or otherwise. SBA has extended the record retention period to allow law enforcement to continue to investigate fraud cases.

The interim final rule applies to all PPP lender loan records. This includes PPP loan applications that were withdrawn, approved, denied, or cancelled, and all other PPP lender loan records for PPP loans with an outstanding balance, PPP loans that have been forgiven, and PPP loans that are in repayment or have been paid in full by the borrower as of the effective date of the interim rule. To the extent that a federally-regulated PPP lender destroyed any PPP loan records before the effective date of the interim final rule in accordance with a general internal records retention policy that was acceptable to the PPP lender’s federal regulator, SBA will not enforce compliance by that federally-regulated PPP lender with respect to the PPP loan records that were destroyed before the effective date of this rule.

The extended records retention requirements apply equally to federally-regulated lenders (including lenders that executed an SBA Form 3506) and SBA Supervised Lenders (including lenders that executed an SBA Form 3507).

/by
Triangle Background
,

Preparing for the Future of Compliance

By Jeff Schmid, CRCM

Jeff Schmid

It has been five years since FIPCO started the ShareFI services, and things have come a long way in compliance management. No sooner did our Shared Compliance Officer and consulting services get started, than we were met with a pandemic and a new way of managing regulatory compliance as we knew it. While community banks were adjusting to remote work and electronic delivery of loan and deposit forms, the volume of transactions continued to soar, new regulatory interpretations were delivered, and the industry was faced with large scale changes, some of which happened overnight. Back then, things really took a toll on bankers, and compliance professionals were no exception. So, it was no wonder that when things began to return to normalcy, we began to see attrition in compliance officers and compliance staff. This dynamic shift in staffing has hit compliance management even harder than most banking positions due to the limited number of staff assigned to this role.

While larger banks need and can afford an entire compliance team, most small community banks rely on just one or two individuals to carry the regulatory burden. It is not like a bank can just hire anyone off the street these days. They need to acquire and retain professionals who require continuous education, an analytical mind set, and a great degree of diplomacy. Certainly, they are specialists in their field and today they are even harder to come by.

Over the last five years, our ShareFI team has experienced both the highs and lows of compliance management with our clients. Whether it was collaborating with community banks on regulatory orders, filling gaps in compliance staffing, assisting with compliance examinations, or simply providing remote support services, one thing for certain is the need to plan for the future of your compliance program. And it all starts with staffing. Even examiners are now asking the question “what succession plan does the bank have for compliance management?” This is because they have recently rolled out their own succession plan with a new batch of compliance examiners.

Planning for your future compliance officer and compliance staff should be happening now or at least five years before any planned exodus. As mentioned earlier, these compliance professionals are specialists in their field and the education alone takes many years to absorb all the nuances of regulations. Not to mention, a good succession plan includes handholding through the next examination, while your current staff is still on board. Management should be looking internally for potential candidates who are seeking to advance their banking career and desire to play a larger role in the overall business strategy of the bank. And do not forget, your Wisconsin Bankers Association has numerous training and networking opportunities to help you mentor these candidates.

Five years ago, FIPCO had a vision to anticipate the future of compliance management (we just never envisioned a pandemic). Through our Shared Compliance Officer roles, we have been successful in delivering value-added solutions, including filing the gaps and helping bank management develop future compliance officers. While an outsourced, shared solution may be a good fit for your organization, not all banks are alike and having a future compliance officer candidate identified now may prove to be a brighter future for your compliance program. For more information on our shared services, to help your bank plan for compliance succession management, or to learn more about client success stories, please contact me at jschmid@fipcom.com

Schmid is director of compliance and management services at ShareFI. FIPCO is a subsidiary of WBA and a WBA Gold Associate Member.

 

 

/by
Triangle Background
,

Executive Letter: Reminder of July 1 Effective Date of DOL New Salary Levels — Pending Court Injunction

By Rose Oswald Poels

As reported in the “Regulatory Spotlight” section of the May 2024 WBA Compliance Journal, the Department of Labor (DOL) issued a final rule to revise the regulations issued under the Fair Labor Standards Act (FLSA) to implement the exemptions from minimum wage and overtime pay requirements for executive, administrative, professional, outside sales, and computer employees. Significant revisions include increasing the standard salary level, increasing the highly compensated employee (HCE) total annual compensation threshold, and adding to the regulations a mechanism that will allow for the timely and efficient updating of the salary and compensation thresholds.

The final rule revises the salary thresholds for the exemption under FLSA referred to as the “white collar” exemption. This exemption is comprised of a salary threshold and a “duties test.” The final rule did not change the current duties test. Under the final rule, as of July 1, 2024, the salary threshold to consider an employee exempt from FLSA overtime rules is raised to $844 weekly, up from $684/week. The weekly salary level will increase again to $1,128 weekly on January 1, 2025.

The final rule also revises the total annual compensation threshold for the HCE exemption. As of July 1, 2024, the annual compensation threshold requirement for the HCE exemption increases to $132,964 annually, up from $107,432/year. The annual compensation threshold under the HCE exemption will increase to $151,164 annually on January 1, 2025.

The final rule provides that future increases will occur for both exemptions every three years, beginning January 1, 2027.

Several lawsuits have been filed against DOL regarding the final rule, including one by the Texas Attorney General who with the filing requested the court to grant an injunction to stay the implementation of the final rule until the court decides the merits of the case. A hearing on the motion is anticipated for late June.

As there has been no court injunction yet to stay the effective date of the final rule, banks need to prepare to implement the adjustments effective July 1. Banks should have identified those employees impacted by the final rule and should consider whether to have those exempt employees who fall below the new salary thresholds reclassified as non-exempt or increase the employee’s salary. WBA will continue to monitor the court case actions and alert the membership of any injunction. Without an injunction, the DOL final rule remains effective July 1, 2024.

The DOL final rule may be viewed at: https://www.govinfo.gov/content/pkg/FR-2024-04-26/pdf/2024-08038.pdf

/by
Triangle Background
,

Executive Letter: Be Aware of AI Used by Your Third-Party Vendors

By Rose Oswald Poels

Banks have long had the ability to utilize the services of third-party vendors to assist in daily operations. Such use provides many efficiencies for the bank and often additional services for customers. However, banks must remain diligent in the overall management of a third party, as the use of a third party does not reduce the bank’s responsibility to follow state and federal laws and regulations, or to operate in a safe and sound manner. To assist with the management of third parties, the agencies have issued interagency guidance (recently updated in 2023) and have provided a guide for community banks of third-party risk management.

Oversight of third-party vendors is particularly crucial for any area in which there may be bias for discrimination, including in real estate evaluations or appraisals, for credit underwriting or other loan qualification or approval programs, and for marketing and advertising. An additional layer of risk can arise for the bank when artificial intelligence (AI) is used by a third party in these settings given the concerns by regulators of discrimination within AI logic. The FDIC, OCC, FRB, and CFPB have each been clear that banks are the parties responsible to ensure AI used complies with law.

This week, I have learned that in recent FDIC examinations banks have been scrutinized for not being aware of the use of AI by their third parties. Awareness is critically important to the bank for proper risk management of the third party, especially if AI is used in any area in which there may be bias for discrimination. As the use of AI continues to rise, banks must remain aware of any use of AI by their third parties. Identifying and monitoring how third-parties utilize AI will better assist banks in managing risk of their third-party relationships. Should an examiner determine a bank’s third-party AI tool violated a compliance or other consumer-protection law, the bank will most likely be cited for the violation given that banks are responsible for the actions or inactions of their third parties.

While on the topic of automation, I also wanted to remind banks to review their use of any chatbot on their website to ensure questions submitted via the tool are being answered correctly and timely. Regulator expectation is that any answer provided by the chatbot be accurate and timely. More complex or nuanced customer questions likely need to be answered by bank staff rather than by the chatbot AI.

This article is not intended to deter the use of AI since it can be used in many helpful ways. After recently learning, though, that bankers were unable to answer during examinations whether AI is even being used by their third-party vendors, or unable to explain how it is used by third-party vendors, I thought this reminder would be timely. If you have questions on vendor management issues, you may contact WBA’s Legal Team at wbalegal@wisbank.com.

/by
Triangle Background
, ,

Now Available On Demand: WBA Loan Documentation Webinar Series

WBA’s  Loan Documentation Webinar series, which was broadcast live on four dates in April, is now available on demand. The four-part series discusses unique customer due diligence scenarios, the impact of cross-collateralization clauses in loan documents on requirements under the Flood Disaster Protection Act and HMDA, and other business and ag-loan related topics, including nested entities and section 1071 considerations.

Loan officers, loan processors, loan administrative assistants, compliance officers, bank legal counsel, as well as those who are new to lending can benefit from viewing the comprehensive and informative on-demand webinar series.

Session 1:
WBA Fundamentals of Loan Documents
This webinar reviews in detail the importance of the many components of loan documents, and the significance of security interests and priorities in collateral.

Session 2:
WBA Introduction to Commercial Loan Documentation
For commercial loans, this webinar reviews proper documentation of a loan to a limited liability company and a loan to a sole proprietor, each with various types of collateral including business assets and equipment, life insurance, stock, brokerage accounts and a home. Guarantors will also be discussed.

Session 3:
WBA Introduction to Agricultural Loan Documentation
For agricultural loans, this webinar reviews proper documentation of a loan to an individual to buy a tractor and a loan to a married couple secured by all farm collateral where the loan is repaid from milk sales.

Session 4:
WBA Discussion of Miscellaneous Business and Ag Loan Considerations
This webinar reviews unique ag loan considerations such as statutory ag liens. It reviews proper documentation of such loans through an example of a loan to an individual to buy a tractor and a loan to a married couple secured by all farm collateral where the loan is repaid from milk sales.

Speakers: WBA Legal Department

On-Demand Access:
To purchase the on-demand webinar series contact: wbaeducation@wisbank.com

If you were a registered attendee for the live webinar series, you will have on-demand access to the recorded webinars through August. To access the on-demand sessions, log-in to the browser-based platform using prior emails from Sessions 1, 2, 3 or 4.  Look for the button which reads “Go to My Event” – you will then enter your name and the email address you used during registration process. You will receive a verification code to complete log-in. If you need assistance accessing the on-demand sessions, please feel free to contact: wbaeducation@wisbank.com

/by
Triangle Background
, ,

May WBA Compliance Journal

The May 2024 WBA Compliance Journal is now available. This month, readers will find an article regarding the just released Interagency Third Party Risk Management: A Guide for Community Banks and a review of the new state law, Wisconsin Financial Exploitation of Vulnerable Adults. In the “regulatory spotlight” section read summaries of recently published agency rules and notices, including SEC’s delay of the effective date for climate-related disclosures. And, about upcoming agency webinars and new Fannie/Freddie policies for reconsideration of property values in the “compliance notes” section.

/by
,

Become a Compliance Forum Member

Connect with peers, expand your compliance knowledge

As the Wisconsin Bankers Association (WBA) enters the 2024–2025 fiscal year, do not forget to renew or join the membership of the WBA Compliance Forum. WBA’s annual Compliance Forum membership provides numerous opportunities to expand your network and further develop your understanding of state-specific and national compliance matters.

“WBA’s Compliance Forum is the place to get updates on recent trends, hear from experts on emerging topics, and connect with other compliance professionals,” says Scott Birrenkott, WBA director – legal and June session speaker. “Each session provides great networking opportunities and the ability to share experiences.”

“As a subject matter, banking compliance is unique in that it manages to be simultaneously vast, yet also nuanced. It can be tough to sift through, which is why opportunities to meet, stay abreast of trends, and discuss with peers are so valuable,” adds Birrenkott.

Membership includes:

• Attendance for any two bank staff members at each of the three Compliance Forum sessions throughout the year. Additional bank staff may register for an individual session for an additional single-session registration fee.
• In-depth information on key compliance issues, including state-specific matters.
• Networking opportunity with other compliance officers.
• Access to the WBA Compliance Forum email group for connecting with other forum members throughout the year.
• Available credits: CLE and other compliance certifications.*

WBA’s Compliance Forum is WBA’s premier Wisconsin-specific program focused on presenting updates and addressing the latest hot topics in compliance for all Wisconsin bank compliance  professionals and bank legal counsel.

The first session, to be held on June 25 at Chula Vista in Wisconsin Dells, will feature the following speakers: Scott Birrenkott, Director – Legal, WBA; Heather MacKinnon, VP – Legal, WBA; Linda Albrecht, Principal, Eide Bailly; and Stephanie Jennings, Manager, Wipfli LLP.

The following topics are scheduled to be addressed during general sessions of the June meeting:

  • Fair Credit Reporting Act
  • A to Z of SAR Completion
  • Banker-to-Banker Peer Group Discussions

The topics for each session will vary, which is why your team is given the flexibility to send different staff to the different sessions, or to add additional staff to certain single sessions based on topics as needed by your bank.

Session 2: November 5, 2024 at Glacier Canyon Conference Center in the Wisconsin Dells
Session 3: February 18, 2025 at the Holiday Inn and Convention Center in Stevens Point

Those interested in joining a passionate group of compliance bankers or renewing their membership for WBA’s 2024–2025 Compliance Forum should visit: WBA 2024-25 Compliance Forum

*Submission of education program material to the Board of Bar Examiners does not guarantee CLE credit will be granted. Bankers with the CCBCO designation can self-submit this program for credit using the agenda provided at the forum.

Register here.

/by
, ,

Has Coverage Increased for the Wisconsin Public Deposit Guarantee Fund?

By Scott Birrenkott

The short answer is yes, but before we discuss that further, it’s worth addressing another question: what is the Wisconsin public deposit guarantee fund?

Wisconsin Chapter 34 establishes a public deposit guarantee fund which exists for the repayment of losses by public depositors in the event of a public depository institution’s failure. A public depositor is an entity such as a county, city, village, and town, among others. The fund includes a static amount, meaning it will not be refunded should it run out. The Department of Administration manages the fund, and the Wisconsin Department of Financial Institutions (DFI) provides a listing of the balance.

The public deposit guarantee fund covers a single public depositor up to $1,000,000. This amount is in addition to any Federal Deposit Insurance Corporation (FDIC) coverage. Note, however, that it isn’t broken into categories or separate coverage like FDIC insurance is. The $1,000,000 amount is an increase from $400,000 as a result of 2023 Wisconsin Act 128, which is the recently enacted WBA-supported financial institutions modernization bill.

This increase will mean that public depositors will have increased coverage for their deposits at Wisconsin financial institutions. Because many public depositors can only make deposits dependent on coverage amounts, this is a significant change. While the increase is a great opportunity for public depositors, do note that coverage is a fact-specific determination. Meaning, if a depositor has specific questions as to coverage, such as assurances as to precise amounts, they may need to consult with their attorney.

For additional information see the links below:

If you have any questions regarding Wisconsin’s public deposit guarantee fund, or 2023 Wisconsin Act 128, please contact WBA legal at wbalegal@wisbank.com or call us at 608-441-1200.

 

Birrenkott is the WBA director – legal

/by
, , ,

April 2024 Compliance Journal

The April 2024 WBA Compliance Journal is now available. In this edition, readers will find a summary of recent enacted state legislation. The “regulatory spotlight” section sets forth summaries of recently published agency rules and notices, and the “compliance notes” section provides other important compliance-related updates for bankers.

/by
WBA logo

questions@wisbank.com

608-441-1200

4721 S Biltmore Ln.
Madison, WI 53718

Get our Newsletter!
Subscribe