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Legal Q&A: New Compliance Resources Now Available

Help your team make the most of WBA’s robust online resources

By Scott Birrenkott

Q: Does WBA Have New Resources Available for Compliance Officers?

A: Yes. WBA recently added new, updated resources to its website.

WBA continues to ass to its new website — one such section recently updated was the Compliance Resources page. The Compliance Resources page can be found by visiting wisbank.com/resources/compliance or by navigating from the home page to the News and Resources tab found in the top menu, scrolling down, and looking for the red button under the heading Don’t Face Changes Alone.

On this section of the website, bankers will find previously listed resources such as the most recent WBA Compliance Journal, the comment letter library, links to Wisconsin laws, various compliance toolkits, and a number of new resources. New sections and resources include a monthly FAQ, a recently released resources section, most frequently requested resources, popular legal Q&As, and a new video series called the “WBA Compliance Corner.”

These resources will be updated and refreshed frequently as well as discuss hot topics, recently issued rulemakings, and commonly faced situations.

For example, the monthly FAQ is taken from questions received through the WBA legal call program to provide an answer to the most frequently asked question by Wisconsin bankers each month. The recently released resources section provides WBA’s newest creations — such as a flowchart for Wisconsin’s newly Revised Uniform Unclaimed Property Act. The most frequently requested resources section compiles some of the most useful guides and articles. The popular legal Q&As includes answers to the most frequently asked questions, and common scenarios bankers are likely to encounter. Lastly, the WBA Compliance Corner is a brand-new, monthly video series designed to provide the most recent compliance news in a concise presentation of 30–40 minutes, along with links to applicable material.

WBA hopes compliance staff and others interested in these resources find them useful. Additionally, while not new, WBA of course still maintains the legal call program. Certainly do not hesitate to contact WBA legal at wbalegal@wisbank.com or 608-441-1200.

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Legal Q&A: How Should Your Bank Approach Contracting With Minors?

Bank policies, procedures assist in determining the risk associated with minors

By Scott Birrenkott

Q: Can Banks Contract with Minors

A: Yes, depending on policies and procedures.

WBA frequently receives questions regarding the ability of minors to enter into a contract. No rule or regulation prohibits a bank from contracting with a minor. 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. Thus, banks are free to enter into contracts with minors, but must decide so as a matter of risk.

The ability of a minor to escape liability or void a contract is often referred to as the doctrine of incapacity. This is a common law term, meaning, generally, a concept under the law that is derived from judicial precedent rather than statute. As such, there is no specific rule governing contracting with a minor. It also means that there is no specific point at which a minor is deemed “competent.” If a minor attempts to escape liability under contract, it would be up to the bank to attempt to enforce the contract against the minor, and up to a court to decide.

It is important to understand the theory behind 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 potentially escape liability. Because it is not readily defined, 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.

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 that are not governed by WUTMA, as it would leave questions as to how the account would be handled.

As a result, banks must decide, as a matter of business and policy, whether they are willing to contract with minors. This includes both deposit and loan account relationships. For the above reasons, financial institutions should consult with their policies and procedures regarding contracting with minors.

For any questions on this, or other matters, you may reach WBA legal at wbalegal@wisbank.com or 608-441-1200.

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Legal Q&A: Revised Flood Q&As Provide Banks with Expanded, Organized Resource

By Scott Birrenkott

Q: Have the Agencies Finalized Their Revised Flood Q&As?

A: Yes. The OCC, FRB, FDIC, FCA, and NUCA (agencies) have reorganized, revised, and expanded the Interagency Questions and Answers Regarding Flood Insurance (Revised Flood Q&A).

Flood matters continue to be a hot topic with the examiners, and the Revised Flood Q&As are a helpful tool in working through many of the issues associated with flood compliance. The agencies previously issued flood interpretations, but those resources were scattered and found within various guidance documents such as the 2009 and 2011 Q&As. The Revised Flood Q&As supersede and replace those resources by consolidating and updating them into a single document.

The Revised Flood Q&As are organized by category and broken down into numerical designations within their categories. The agencies plan to update and manage these categories accordingly in the future. As an example of the benefit of the Revised Flood Q&As, examiners have recently been reviewing cross-collateralization and contents coverage calculations. The new category labeled “Other Security Interests” includes helpful discussion regarding such matters. For example, “Other Security Interests 7” discusses when flood insurance is required on contents, including examples of how to calculate. Question 8 then discusses a situation in which the contents might be located in another building, and question 9 covers applicability to contents taken as an “abundance of caution.” WBA has recently received questions regarding when contents coverage is required, as well as how to calculate insurable value when contents is included. These updated Q&As are helpful in understanding how the regulators view such situations.

While the flood rules themselves have not changed, the Revised Flood Q&As have been updated for ease of use and remain an excellent resource to consult when faced with a flood question. For any questions on flood matters or other compliance, also consider reaching out to WBA legal at wbalegal@wisbank.com or 608-441-1200.

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Legal Q&A: Maintaining Campaign and Election-Related Accounts

By Scott Birrenkott

Q: Can a Customer Open a Campaign Finance Account?

A: Yes. Customers may seek to open campaign accounts, political action accounts, conduit funds, and other types of election-related accounts.

Because there is no list of specific documentation that banks must collect for such accounts, banks receiving requests to open these accounts will need to consider what should be collected based upon policy and procedure. As there can be many types of campaign and election-related accounts, there is no one-size-fits-all approach. Banks will need to have a conversation with their customers to better understand the nature of the account requested. This article will use a state-related campaign as an example to illustrate an approach bank might take.

State-related campaigns must follow Wisconsin campaign and election laws. For example, a customer might run for mayor, or sheriff, and seek an account to maintain their campaign funding. The documentation the customer might have, and what documentation the bank might collect from the customer depends upon how the customer is holding funds, making contributions, disbursements, and fundraising. For this reason, the bank should consider having a conversation with the customer to better understand the campaign and use that information to gather any supporting documentation for confirmation of those details.

Bankers might also consider familiarizing themselves with the election process. Particularly if these accounts become common. It is not necessary to become an expert on Wisconsin campaign finance law, but familiarization with the process will go a long way in facilitating easier conversations with customers, knowing the right questions to ask, and to better request relevant information to maintain the account. For example, restrictions or reporting requirements might apply, depending on the campaign. While such requirements are generally the duty of a campaign’s treasurer to follow, from a “know-your-customer” perspective it is worth the bank taking the time to understand these details.

An example account title for such an account would be: John Doe for Sheriff by Jane Doe as Treasurer.

The law of campaign finance is complex. Furthermore, a customer might seek to open an account different than that used in the example above (ex: PAC, conduit, or federal election). Based upon this complexity and variety, a financial institution should also consider seeking assistance from its legal counsel in opening and maintaining such accounts.

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Legal Q&A: Requirements For Reporting Activities Related to Cryptocurrencies

FDIC-supervised banks must now report digital asset ventures

By Scott Birrenkott

Q: Is a Financial Institution Required to Notify Its Regulator When Engaging in Activities Involving Crypto Assets?

A: Yes. FDIC-supervised institutions are required to provide notification, along with certain information, when engaged in any activities involving crypto assets (digital assets). In turn, the FDIC reviews this information to provide relevant supervisory feedback.

While this requirement applies to FDIC-supervised institutions, non-FDIC supervised institutions should still consider proactively working with their prudential federal regulator. As innovations in the space of digital assets continue to develop, and financial institutions explore new relationships, working directly with your regulator is an important step to understanding compliance expectations. Digital assets present potentially unique safety and soundness risks, as well as financial stability concerns, and consumer protection considerations. The FDIC intends to review information provided in order to work with the financial institution engaged in digital asset activities as appropriate.

Wisconsin Department of Financial Institutions (DFI) is also considering digital asset activity. While there are currently no specific Wisconsin requirements or notification requirements, Wisconsin financial institutions should still consider working proactively with the DFI when engaged in digital assets. While both state and federal regulators support innovations, this is an area that is rapidly evolving, and often misunderstood. Transparent communications between financial institutions and their regulators can help address any potential compliance or safety and soundness concerns.

The new FDIC notice requirements can be found under Section 39 of the Federal Deposit Insurance Act, 12 CFR Part 364.

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Legal Q&A: Procedures for Information Sharing

How your bank can prevent financial crimes

By Scott Birrenkott

Q: What Tools are Available to Banks to Help Deter Financial Crimes?

A: Part of Bank Secrecy Act (BSA) regulations establish procedures for information sharing to deter money laundering and terrorist activity.

As financial institutions continue to monitor Office of Foreign Assets Control (OFAC) lists regarding sanctions and other restrictions, don’t forget to monitor for information sharing requests through Section 314 of the USA PATRIOT Act. Pursuant to section 314(a) law enforcement agencies may request that the Financial Crimes Enforcement Network (FinCEN) solicit, on its behalf, certain information from financial institutions.

Upon receiving an information request, a financial institution must conduct a one-time search of its records to identify accounts or transactions of a named suspect. Generally, financial institutions must search records for current accounts, accounts maintained during the preceding 12 months, and transactions conducted outside of an account by or on behalf
of a named suspect during the preceding six months. If a financial institution identifies any account or transaction, it must report to FinCEN that it has a match. No details should be provided to FinCEN other than the fact that the financial institution has a match. A negative response is not required. Unless otherwise provided, the search and response must be conducted within 14 days.

Financial institutions should also consider that FinCEN issued an alert on March 7 to be vigilant against efforts to evade the expansive sanctions and other U.S.-imposed restrictions implemented in connection with the Russian Federation’s further invasion of Ukraine. The advisory warns of evasion attempts and that “sanctioned Russian and Belarusian actors may seek to evade sanctions through various means, including through non-sanctioned Russian and Belarusian financial institutions and financial institutions in third countries.”

FinCEN also provides several red flag indicators to watch for attempted evasions. Select red flag indicators include for transactions initiated from IP addresses located in Russia, Belarus, or other sanctioned jurisdictions, transactions connected to convertible virtual currency (CVC) addresses listed on OFAC lists of specially designated nationals and blocked persons, and customer use of a CVC exchanger or foreign-located money service businesses in a high-risk jurisdiction.

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Acceptable Forms of Customer ID for CIP Purposes

By Scott Birrenkott

Q: What is an Acceptable Form of Customer ID for CIP Purposes?

A: It depends on bank policy, but there are various forms of ID that can meet CIP requirements.

As part of compliance with Bank Secrecy Act regulatory requirements, banks must have a written Customer Identification Program (CIP). Bank’s CIP must include risk-based procedures to verify the identity of each customer at account-opening. At a minimum, each program must obtain the name, date of birth, address, and identification number from each customer. This information must be verified, using documentary, non-documentary, or a combination of both methods, depending on bank’s procedures.

When relying upon documentary methods to verify a customer’s identity, bank’s procedures must specify which documents to obtain. Similarly, if procedures permit non-documentary methods, bank’s procedures must specify which methods to use. A bank need not establish the accuracy of every element of identifying information obtained, but it must verify enough information to form a reasonable belief that it knows the true identity of the customer. For most customers who are individuals, banks typically review an unexpired government issued form of identification evidencing a customer’s nationality or residence and bearing a photograph or similar safeguard. Nondocumentary methods may include contacting a customer, or otherwise independently verifying the customer’s identity through other sources.

A bank may encounter unique forms of identification. What forms are acceptable depends upon bank policy. Theoretically, any legitimate form of identification could be acceptable. Examples include state-issued driver’s license, state-issued ID card, passport, and alien ID card. There are also a variety of forms issued by the United States Citizenship and Immigration Services. For example, the U.S. Department of Homeland Security may provide certain records to refugees or asylees, who may also possess identification documents through the United States Citizenship and Immigration Services. These, and other forms of identification may be acceptable for CIP purposes if bank’s policy permits.

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Legal Q&A: New Interest Rate on Residential Mortgage Loan Escrow Accounts

Wisconsin DFI sets escrow interest rate at 0.09% for 2022

By Scott Birrenkott

Q: Has the Wisconsin Department of Financial Institutions set the Interest Rate on Required Residential Mortgage Loan Escrow Accounts for 2022?

A: Yes. The Wisconsin Department of Financial Institutions, Division of Banking (DFI), has calculated the interest rate required to be paid on escrow accounts for residential mortgage loans subject to Wisconsin Statute Section 138.052(5) to be 0.09% for 2022. The interest rate shall remain in effect through December 31, 2022.

Note that while Wisconsin Section 138.052 previously required financial institutions to pay interest on the balance on any required escrow accounts, Wisconsin Act 340 modified this requirement so that it only applies to loans originated prior to the effective date of the Act (April 18, 2018). Thus, financial institutions must continue to pay interest on required escrow accounts prior to April 18, 2018. Any escrow account associated with a loan originated after the effective date of Act 340, 138.052 no longer requires payment of interest. Wis. Stat. Section 138.052 applies to loans secured by a first lien or first lien equivalent in a 1-4 family dwelling that is used as the borrower’s principal residence.

The escrow rate notice may be found here.

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Legal Q&A: Annual Threshold Adjustments for 2022 Effective January 1

By Scott Birrenkott

Q: Has CFPB Released its Truth in Lending (Regulation Z) Annual Threshold Adjustments for 2022?

A: Yes. The Consumer Financial Protection Bureau has revised the threshold dollar amounts for Regulation Z, which implements the Truth in Lending Act (TILA). Specifically, has revised the dollar amounts for provisions implementing amendments to TILA under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act (HOEPA) and the ability to repay/qualified mortgage (ATR/QM), and the dollar threshold for exempt consumer credit transactions. Effective January 1, 2022, the following thresholds will be adjusted to the new dollar amounts.

For HOEPA loans, the adjusted total loan amount threshold is $22,969, an increase from $22,052 in 2021. The adjusted points and fees dollar trigger for high-cost mortgages is $1,148, an increase from $1,103 from 2021.

For qualified mortgages (QMs) under the General QM loan definition in §1026.43(e)(2), the thresholds for the spread between the annual percentage rate (APR) and the average prime offer rate (APOR) in 2022 will be: 2.25 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $114,847; 3.5 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $68,908 but less than $114,847; 6.5 or more percentage points for a first-lien covered transaction with a loan amount less than $68,908; 6.5 or more percentage points for a first-lien covered transaction secured by a manufactured home with a loan amount less than $114,847; 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $68,908; or 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $68,908.

For all categories of QMs, the thresholds for total points and fees in 2022 will be 3 percent of the total loan amount for a loan greater than or equal to $114,847; $3,445 for a loan amount greater than or equal to $68,908 but less than $114,847; 5 percent of the total loan amount for a loan greater than or equal to $22,969 but less than $68,908; $1,148 for a loan amount greater than or equal to $14,356 but less than $22,969; and 8 percent of the total loan amount for a loan amount less than $14,356.

For open-end consumer credit plans under the CARD Act amendments to TILA, the adjusted dollar amount in 2022 for the safe harbor for a first violation penalty fee will increase to $30 and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will increase to $41.

Lastly, based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers as of June 1, 2021, the dollar threshold for exempt consumer credit transactions under Regulation Z will increase from $58,300 to $61,000 effective January 1, 2022.

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.

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Legal Q&A: Delivery of Instruments to Mortgage Borrowers Requirements in Wisconsin

By Scott Birrenkott

Q: Does Wisconsin Require Delivery of Instruments to Mortgage Borrowers after Payoff?

A: Yes. Wisconsin requires delivery of the instrument, and, depending on the transaction, other payoff requirements.

WBA is frequently asked whether banks must provide a copy of a note to the borrower at time of payoff. Wisconsin law requires provision of a payoff statement, and for Wisconsin Consumer Act transactions, the bank must provide a copy of the “instrument.” A copy of the note would meet that requirement.

Wisconsin’s payoff statement requirements can be found under Wis. Stat. section 708.15(3). That section requires that the bank must file and give the secured creditor notification within 30 days after receiving full payment or performance of the secured obligation. Additionally, for loans covered by the Wisconsin Consumer Act, Wis. Stat. section 422.306 provides several requirements regarding receipts, accounting, and evidence of payment. One such requirement is that the bank must give or forward to the customer instruments which acknowledge payment in full. It also requires release of any security interest when there is no outstanding secured obligation.

“Instrument” is a defined term under Uniform Commercial Code Article 9. An “instrument” means a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation, is not itself a security agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary endorsement or assignment.

A note would meet the definition of “instrument” under Article 9. WBA is also frequently asked whether it must be the “original” instrument or a reproduction of such item provided to the borrower. This question is not addressed within the statutes. Thus, the bank should check with its practices in relation to the requirements. For example, it could be that the bank has a practice of providing the original stamped “paid,” to provide the borrower with documentation that the obligation has had been paid directly on the original. It might also be a decision which is made as a matter of best practice, as then there can be no question as to whether the original was paid.

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.

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Events

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WBA/ABA Legal Foundations in Banking

Legal Foundations in Banking presents the underlying legal structure for conducting the business of banking. The course covers key legal requirements affecting banks and bankers, as well as core language that must be understood to be effective. It provides the critical legal knowledge that every banker should know.

Learning Outcomes and Objectives: 

  • Understand the basic foundation for transaction processing and deposits
  • Identify the key areas that encompass the legal risks banks face
  • Provide a foundation for determining safety and soundness requirements to provide protection to the bank
  • Establish a framework for sound practices and understanding of financial transactions and their requirements

IMPORTANT: Be sure to order the required book for this course, Legal Foundations, if you did not already purchase it. We recommend that you FIRST select and add your course session to the shopping cart, then select your preferred format of book from the “Recommended Training” options that appear alongside the shopping cart.

Price: $550

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WBA/ABA Legal Foundations in Banking

Legal Foundations in Banking presents the underlying legal structure for conducting the business of banking. The course covers key legal requirements affecting banks and bankers, as well as core language that must be understood to be effective. It provides the critical legal knowledge that every banker should know.

Learning Outcomes and Objectives: 

  • Understand the basic foundation for transaction processing and deposits
  • Identify the key areas that encompass the legal risks banks face
  • Provide a foundation for determining safety and soundness requirements to provide protection to the bank
  • Establish a framework for sound practices and understanding of financial transactions and their requirements

IMPORTANT:  Be sure to order the required book for this course, Legal Foundations, if you did not already purchase it . We recommend that you FIRST select and add your course session to the shopping cart, then select your preferred format of book from the “Recommended Training” options that appear alongside the shopping cart.

Price: $550

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