Tag Archive for: Compliance

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New Guide for Community Banks: Conducting Due Diligence on FinTechs

The Federal Reserve Board (FRB), Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) jointly issued a new guide created with the intention to help community banks conduct due diligence on financial technologies companies (a/d/a fintechs). Use of the guide is voluntary and it does not anticipate all types of third-party relationships and risks. Therefore, a community bank can tailor how it uses relevant information in the guide, based on its specific circumstances, the risks posed by each third-party relationship, and the related product, service, or activities offered by the fintech company. While the guide is written from a community bank perspective, the fundamental concepts may be useful for banks of varying size and for other types of third-party relationships.  

Due diligence is an important component of an effective third-party risk management process, as highlighted in the federal banking agencies’ respective third-party, vendor guidance. During due diligence, a community bank collects and analyzes information to determine whether third-party relationships would support its strategic and financial goals and whether the relationship can be implemented in a safe and sound manner, consistent with applicable legal and regulatory requirements.  

The scope and depth of due diligence performed by a community bank will depend on the risk to the bank from the nature and criticality of the prospective activity. Banks may also choose to supplement or augment their due diligence efforts with other resources as appropriate, such as use of industry utilities or consortiums that focus on third-party oversight. The guide focuses on six key due diligence topics, including relevant considerations, potential sources of information and illustrative examples. There may be other topics, considerations, and sources of information to consider, depending on the unique relationship and the role of the fintech company.

Access the Guide on the Fed's website.

By, Cassie Krause

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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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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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Legal Q&A: Use of Bank Name, Logo, or Symbol in Marketing Material

Q: May a Person Use the Name, Logo, or Symbol of a Bank in Marketing Material?

A: Not if it is deceptive. More specifically, Wis. Stat. section 221.0404 provides, in summary, that no person may use the name, logo, or symbol of a bank, or such that is deceptively similar to that of a bank, in any marketing material provided to another person in a manner that a reasonable person may believe that the marketing material originated from the bank.

WBA is aware that potentially deceptive letters have recently circulated. Such letters often take the form of mortgage relief offers, solicited by individuals unassociated with the bank. Similar letters have also been seen by Paycheck Protection Program participants. Depending on the nature of these letters, they may violate section 221.0404. The Wisconsin Department of Financial Institutions (DFI) has enforcement authority over this section, including the ability to issue cease and desist orders, and penalties. Banks that encounter such letters are encouraged to contact WBA, and DFI.

Note that to be a violation, the letter must be deceptive, meaning that a reasonable person reading the letter could believe it originated from the bank. A letter is not a violation if a reasonable person should recognize that it did not originate from the bank. This includes letters which display a disclaimer, such as to indicate that the sender is not affiliated with the bank. WBA has also spoken with DFI recently and learned that a letter might be deceptive based upon its envelope. Specifically, envelopes with a “window,” which reveals a portion of the letter including bank’s name. Even if there is a disclaimer in the letter inside, if it’s not visible on the envelope or through the “window,” it could be considered deceptive.

Even if a letter is not deceptive, banks might hear complaints from their customers. In such situations, banks might consider discussing with its customers how and when it will issue correspondence. This way, customers can easily identify what originates from the bank. Additionally, banks might consider discussing this matter with its customers at time of loan closing so they can be better prepared to identify these letters as not originating from the bank.

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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Woman working on laptop overlaid by icons relating to compliance
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Executive Letter: Regulation Z Ability To Repay: Revised General QM Loan Definition Toolkit

By Rose Oswald Poels

As many of you may already know, I began my career as an attorney on WBA’s legal team over 30 years ago. Lightening the burden of ever-changing regulations on member banks is a priority of the association that I continue to have a keen appreciation for in my role as president and CEO.

In addition to our Legal Call Program, WBA works to provide members with resources including articles, training events, and webinars to help you to stay compliant with regulations and perform your work efficiently.

The latest resource WBA’s legal team has compiled is the Regulation Z Ability to Repay: Revised General QM Loan Definition Toolkit, which is designed for use by financial institutions in understanding the 2020-2021 revisions to the Regulation Z general qualified mortgage (QM) definition. WBA aims to provide readers with a perspective of the rule change in relation to their operation, and prepare for implementation of revised loan policy and underwriting procedures, both in terms of practical and compliance considerations.

The toolkit serves as a template for banks to customize to their specific situation prior to its implementation and use.

As always, WBA is here to support our members with regulatory compliance, so you are able to dedicate more of your focus directly to serving your customers and communities.

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Gavel, legal papers, and statue arranged on table with books in background
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Recent WI Supreme Court Cases Affirm DNR Authority to Place Permit Restrictions on Farms and High-Capacity Wells

The Wisconsin Supreme Court (Court) recently decided two cases to allow the Wisconsin Department of Natural Resources (DNR) to place permit restrictions on large livestock farms and high-capacity wells as a way to protect Wisconsin’s water. The issue in both cases is whether DNR had the authority under Wisconsin law to issue permits with conditions. 

In both cases, the Court looked to language used in Sec. 227.10(2m) Wis. Stats. and determined that (1) agencies’ actions under administrative law need be supported by explicit, not specific, statutory or regulatory authority; and (2) that explicit authority can be broad in scope. As a result of the two decisions, DNR was given broader authority than many believed was permissible since enactment of 2011 Wisconsin Act 21 (Act 21) because the agency actions authorized by the Court are not specifically stated in the statute sections in question. The following is a summary of the two cases.   

Kinnard Farms  

In the first case, Kinnard operates a large, concentrated animal feeding operation (CAFO). Kinnard wanted to expand its dairy operations by building a second site and adding 3,000 dairy cows. The expansion required Kinnard to apply to DNR for reissuance of its Wisconsin Pollutant Discharge Elimination System (WPDES) permit to include both the original site and the proposed expansion. DNR approved the application and reissued Kinnard’s WPDES permit.  

Persons (petitioners) living near the CAFO sought review of the reissued WPDES permit because of their proximity to the farm, had private drinking wells, and were concerned the proposed expansion would exacerbate current groundwater contamination issues. The petitioners alleged that the reissued WPDES permit was inadequate because, among other things, it did not set a “maximum number of animal units” or “require monitoring to evaluate impacts to groundwater.”  

DNR granted the petitioners a contested case hearing and the matters were referred to an administrative law judge (ALJ). Kinnard filed for summary judgment alleging DNR lacked statutory authority to impose the conditions, citing Act 21. The ALJ denied the motion and conducted a four-day evidentiary hearing during which community members who lived or worked near the CAFO testified about contamination of well water and the impact the contamination had on their businesses, homes, and daily lives. Based upon evidence presented by residents and experts, the ALJ determined that DNR had “clear regulatory authority” to impose the two conditions disputed upon Kinnard’s reissued WPDES permit.  

Ultimately the matter was argued to the Court. The issue in the case involved sec. 227.10(2m), Wis. Stats., which dictates that “[n]o agency may implement or enforce any standard, requirement, or threshold…unless that standard, requirement, or threshold is explicitly required or explicitly permitted by statute or by a rule that has been promulgated in accordance with this subchapter.” (emphasis added). The parties disputed the meaning of “explicitly required or explicitly permitted” in the context of DNR imposing conditions upon Kinnard’s reissued WPDES permit.  

Kinnard asserted that explicit means specific, and that in the absence of statutory or administrative authority, DNR must first promulgate a rule in order to impose the conditions upon its reissued WPDES permit. The DNR and petitioners counter that such a reading of “explicitly required or explicitly permitted” was too narrow, and that Kinnard had overlooked the explicit, but broad, authority given to DNR in Secs. 283.31(3) – (5) Wis. Stats. to prescribe such conditions.  

The Court first looked to dictionary definitions of the term “explicit” and revised Sec. 227.10(2m) in context and determined explicit authority can be broad in scope. The court next examined the text of Secs. 283.31(3) – (5), and related regulations, to determine whether DNR had explicit authority to impose an animal unit maximum and off-site groundwater monitoring conditions upon Kinnard’s reissued WPDES permit. The Court held that while the statute sections do not specifically state an animal unit limit or off-site ground water monitoring, DNR did have explicit authority to prescribe both conditions when it reissues the WPDES permit.  

The Court determined that (1) agencies’ actions under administrative law need be supported by explicit, not specific, statutory or regulatory authority; and (2) that explicit authority can be broad in scope.   

High-Capacity Wells 

In a second case, the Court also reviewed whether Sec. 227.10(2m) Wis. Stats. allowed for DNR to consider the potential environmental effects of proposed high-capacity wells when such consideration is not required under Sec. 281.34(4) Wis. Stats.  

For some types of wells, DNR is required to follow a specific process in its environmental review of a well application. For other types of wells, a specific process is not required; however, DNR often still considers the potential environmental impact of a proposed well when considering a well application. Eight well applications in dispute in the case where the type that no specific environmental review was required. DNR did have information that the wells would negatively impact the environment. DNR approved the eight applications knowing of the wells impact having concluded it did not have the authority to consider the proposed wells’ environmental impact. 

Clean Wisconsin and the Pleasant Lake Management District (collectively, Clean Wisconsin) appealed DNR’s action arguing DNR’s decision was contrary to the Court’s decision in the Lake Beulah Management District v. DNR (2011 WI 54, 335 Wis. 2d 47, 799 N.W.2d 73) case. In Lake Beulah, the Court held that DNR had the authority and discretion to consider the environmental effects of all proposed high-capacity wells under the public trust doctrine when it determined that a proposed well would harm other waters in Wisconsin.  

DNR argued the Lake Beulah court case was no longer good law because Act 21 had since become law and the law limits an agency’s action to only those “explicitly required or explicitly permitted to state or by a rule.” The eight well applications were for the type of wells for which there was no formal environmental review under Sec. 281.34 Wis. Stats. DNR had also relied on a past Attorney General opinion which stated the agency could not rely on the public-trust authority and could not rely upon the Lake Beulah case as that would not withstand the requirements under Wis. Stats. Sec. 227.10(2m) (OAG-01-16).   

With respect to the high-capacity well applications, the Court ruled in favor of Clean Wisconsin having determined DNR has explicit authority, based upon its broad public trust authority under Secs. 281.11 and 281.22 Wis. Stats., to determine the environmental impact of high-capacity wells despite the fact that Sec. 281.34 does not specifically state such requirement. The Court’s finding reaffirmed the Court’s Lake Beulah decision despite enactment of Act 21.  

Take Away from Cases 

The interesting and concerning parts of the decisions is that after the passage of Act 21, many took the revised language of Sec. 227.10(2m) Wis. Stats. to mean that for an agency to act, the action had to be specifically stated or provided for within statutory language or administrative rule. If the action was not within such language, the agency would first have to promulgate a rule or otherwise change statutory language for the agency to take the actions desired.  

However, given how the Court has interpreted “explicit” in the two cases, that may not be the case. It is possible that because of the two Court decisions, an agency make act regardless of the action not being stated within statutory language or administrative rule. Instead, it is possible an agency may rely on its broader authority for action.  

Financial institutions should keep the decisions of the two Court cases in mind when considering whether an agency has the authority to act in a particular manner. Financial institutions should be cautious that just because an action is not specifically found within statute or rule, the action may still be authorized under a broader, explicit authority. Despite the passage of Act 21, agency action could be broad.  

As is often the case, one should read the dissenting opinions of both cases. The dissenting opinions outline the concerns of many regarding how broad an agency may act despite Act 21, despite the fact the agency’s actions were not specifically stated within statute or administrative rule in connection with reissuing an WPDES permit or when approving the type of well applications involved in the high-capacity well case, and despite the Court’s previous decision under Tetra Tech EC Inc. v. Wisconsin Dep’t of Revenue, 2018 WI 75, 373 Wis.2d 2387, 890 N.W.2d. 598. The decisions appear to give back to agencies potentially broad authority.  

Conclusion 

In both cases, the Court looked to language used in Wis. Stats. Sec. 227.10(2m) and determined that (1) agencies’ actions under administrative law need be supported by explicit, not specific, statutory or regulatory authority; and (2) that explicit authority can be broad in scope. As a result of the two decisions, DNR was given broader authority than many believed was permissible since enactment of Act 21 and Tetra Tech. Financial institutions need be aware of the Court decisions and be cautious that just because an action is not specifically found within statute or rule, the action may still be authorized under an agency’s broader, explicit authority. 

Clean Wisconsin et. Al v. Wis. Dep’t of Natural Resources, 2021 WI 71 (Kinnard Farm) decision may be viewed at: https://www.wicourts.gov/sc/opinion/DisplayDocument.pdf?content=pdf&seqNo=386188  

Clean Wisconsin and Pleasant Lake Mgmt. Dist. v. Wis. Dep’t of Natural Resources, 2021 WI 72 (High-Capacity Wells) decision may be viewed at: https://www.wicourts.gov/sc/opinion/DisplayDocument.pdf?content=pdf&seqNo=385454  

By, Ally Bates

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What’s in Your TRID?

Or better yet, what’s not in your TRID?  It’s the never-ending saga between a mortgage lender who is trying to keep the customer happy, the mortgage processor who has nightmares about LE’s and CD’s, the auditor who plays the “gotcha” game, and the applicant who is trying to make sense of it all.  Therefore, it becomes imperative that all information contained in these complex disclosures are complete and accurate as possible. And whatever is not in your TRID can get you in trouble.

It has only been a few short years ago, five to be exact, when TRID was first introduced.  One would think after this year’s onslaught of mortgage refinances, mortgage processing staff would be experts in this regulatory field, but recent findings by the FDIC suggest otherwise. In fact, 86% of all compliance exams in 2019 (WI) had violations of TRID. Everything from loan costs, general information, calculating cash to close and closing cost details is fair game when it comes to making inadvertent mistakes.

So, what is a banker to do? First, select the best LOS system and test your defaults for accuracy including fees and third-party providers, including any updates considering our new era of refinance business. Building your system to be bulletproof from clerical errors may be your first line of defense.  Second, look for red flags within your disclosure that are relevant. For example, are you disclosing estimated PMI premiums on the initial LE when the estimated value exceeds 80%? Does the LE figures on your CD match the last revised LE issued to the customer? Third, be aware of when Taxes and Home-Owners Insurance is due and possibly considered a pre-paid, especially for loans that will close in the coming weeks. Lastly, don’t let your processor(s) make any changes to TRID documents that don’t follow the protocols of your LOS system. While bankers are always looking for workaround solutions, making hard changes to a TRID document can have negative and costly effects. 

Choosing the right LOS, being fully trained on TRID and utilizing resources to review your TRID documents and processes may keep your bank out of the 86% of financial institutions struggling to comply.  What is in your TRID (or not in your TRID) will make all the difference.  For further assistance on complying with this regulation, please contact me at jschmid@fipco.com.

By, Ally Bates

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Update on Consumer Fraud, Including Imposter Scams and Money Mule Schemes

Consumer fraud has been on the rise amid the COVID-19 pandemic. WBA has become increasingly aware of unemployment, EIDL, and PPP fraud. On July 7, 2020, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to alert financial institutions to potential indicators of imposter scams and money mule schemes. 

The advisory contains descriptions of imposter scams and money mule schemes, financial red flag indicators, and information on reporting suspicious activity. Generally, fraudsters are targeting customers, and financial institutions are advised to remain alert for potential suspicious activities. For example, a customer may be in contact with criminals impersonating organizations such as the Internal Revenue Services (IRS), the Center for Disease Control and Prevention (CDC), the World Health Organization (WHO), and other healthcare or non-profit groups, looking to offer fraudulent services to victims. 

In addition to imposter scams, FinCEN outlines money mule schemes whereby a person, either knowingly or unknowingly, transfers money that has been acquired illegally, on behalf of another. An individual may either be motivated by ignorance, a romance scam, or be complicit, with expectations of profit. For example, a financial institution may notice transactions that do not fit a customer’s history, suspicious new accounts, or otherwise atypical transactions. 

In particular, there have been schemes detected related to unemployment fraud. Financial institutions may notice a customer who receives multiple state unemployment insurance payments. The United States Secret Service has identified a crime ring behind a large volume of fraudulent unemployment claims being filed with State departments across the country. As discussed above, participants may be complicit, or unknowing of their involvement, financial institutions should remain vigilant to identify potential fraud. 

Similar to unemployment fraud, financial institutions have begun identifying fraud related to EIDL and PPP loans. Given the potential avenues for fraud, financial institutions should become familiar with the known schemes, and resources available. For additional information consider the following resources: 
 
FinCEN advisory. 

Fraud related to SBA loan programs. 

By, Ally Bates

/by
Wisconsin Bankers Association logo

questions@wisbank.com

608-441-1200

4721 S Biltmore Ln.
Madison, WI 53718

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