How Can Strunk Assist with Vendor Management

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When it comes to evaluating third-party risk management, financial institutions can use their own methods to determine the level of risk for each partnership. The regulators understand that not all relationships require the same level of scrutiny, and it is important to recognize vendors with high and critical risks. At Strunk, we have created a vendor risk assessment in our Vendor Manager software that provides financial institutions with a baseline risk level for each vendor. This assessment takes into account the criticality of the vendor’s product and services and the risk associated with them. By analyzing the risk associated with each third-party relationship, financial institutions can maintain consistent monitoring and remediation strategies to prevent risks from occurring.

To effectively manage vendor risk, it is crucial to assess the controls put in place by vendors. Strunk’s Vendor Manager software offers vendor surveys that capture the controls in place for their risk. This tool also helps identify any gaps in the controls, enabling financial institutions to determine the residual risk posed by the vendor to their organization.

Our software aligns with interagency guidance and provides valuable assistance to financial organizations in implementing third-party risk management. It covers planning, due diligence, contract negotiation, ongoing monitoring, and terminating the relationship. With Strunk’s Vendor Manager software, financial institutions can manage the operational, compliance, and strategic risks associated with third-party relationships. For more information on Vendor Manager visit Strunk’s site to request a demo.

Permit Customers to Make Regulation E Elections Online

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ODP Manager custom letter templates include the Consent Form for Overdraft Services for customers who have not already opted in for the Reg E ATM and everyday debit card coverage. These letter templates simplify the process for customers who choose to opt in by mail, but ODP Manager can also allow your customers to opt in for Regulation E electronically.

The hosted software can be set up to include a Reg E opt in form and Reg E opt out form that matches the content in your ODP Manager letter templates. The links are then added to the institution website to direct customers to the Reg E opt in and opt out forms. Email confirmations are generated when customers visit the website and complete the form to opt in or opt out of the ATM / everyday debit card coverage. The request is tracked in ODP Manager and can be emailed to a specified email address at your financial institution.

Once a customer request has been made, ODP Manager users perform the following steps: 1.) Review the new responses in ODP Manager, 2.) Export the list of accounts that need an update to the account’s Reg E election, and 3.) Perform the appropriate maintenance in the core system – the user will update the account record in the core to opt in or opt out the account as requested by the customer. The ODP Manager software displays by default any new responses that have not been reviewed and downloaded. Requests that have already been processed are also retained within ODP Manager to allow review of prior responses.

If you would like to implement the electronic consent to opt in for Overdraft Privilege coverage for ATM and everyday debit card transactions in ODP Manager, please contact Strunk Support at support@strunkaccess.com with any questions or to find out more.

How Does a Formal Overdraft Program Benefit Consumers

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Formal overdraft programs are prevalent in community banks and consumers have benefited from them for over 30 years. Many articles have been written about the pitfalls and risks that consumers face from overdrafts and some of them are true. In reality, providing a consistent methodology to paying items that create an overdraft benefit both banks and their customers.

Consumers create overdrafts…banks do not. Banks are faced with decisions each morning to either pay a customer’s non-sufficient fund item or return it to the merchant. They also have to decide whether or not to charge a fee or waive the fee. Thirty years ago when formal overdraft programs started, the NSF or Overdraft fee was $15-$20 nationwide. The idea was to charge a fee to deter consumers from writing a check that would overdraw their account. This was a time when debit cards were not used much and checks and ACH items dominated the payments system.

Beginning in 2010, debit card transactions that would overdraw an account could not be authorized at point of sale unless the consumer “opted in” for this service. This was a great idea that came from the Federal Reserve. So, how do formal overdraft programs benefit consumers?

• Allows consumers to decide how they want their bank account handled when it comes to overdrafts
• Reduces returned check charges from merchants
• Allows consumers to take home the groceries or prescription drugs when otherwise their debit card transaction would be denied
• Keeps a bank from discriminating on daily pay and don’t pay decisions
• Keeps a bank for discriminating on waives and refunds

Contact Strunk at 800.728.3116 or email at info@strunkaccess.com to learn more about setting up a formal overdraft process at your bank.

Strunk Overdraft Program Bulletin

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On April 23, 2023, the OCC issued guidance on debit card transactions that are authorized positive, settled negative (APSN) and on re-presented NSF items. On the same date, the FDIC also issued guidance on APSN. Previously, on August 18, 2022, the FDIC had issued guidance on re-presented NSF items. The OCC and FDIC indicate that institutions following either of these practices risk violating Section 5 of the Federal Trade Commission Act which prohibits unfair or deceptive acts or practices and Section 1036 of the Dodd Frank Wall Street Reform and Consumer Financial Protection Act of 2010 which prohibits unfair, deceptive, or abusive acts or practices. The purpose of this bulletin is to summarize that guidance.

OCC Guidance

In terms of guidance related to APSN, the OCC has found that misleading disclosures contribute to findings that the APSN practice was unfair for purposes of Section 5. However, even when disclosures describe the circumstances under which consumers may incur overdraft fees, the OCC has found that overdraft fees charged for APSN transactions are unfair for purposes of Section 5 because consumers are still unlikely to be able to reasonably avoid injury.

With respect to re-presentment of NSF items, the OCC has found that disclosures may be deceptive, for purposes of Section 5, if they do not clearly explain that multiple or additional fees may result from multiple presentments of the same transaction. And again, even when disclosures explain that a single check or ACH transaction may result in more than one fee, a bank’s practice of assessing fees on each re-presentment may also be deemed to be unfair, for purposes of Section 5, if consumers cannot reasonably avoid the harm and the other factors for establishing unfairness under Section 5 are met (there is a representation, omission, act, or practice that is likely to mislead, the act would be deceptive from the perspective of a reasonable consumer, and the representation, omission, act, or practice is material). Their finding is that consumers typically have no control over when a returned ACH transaction or check will be presented again and lack knowledge of whether an intervening deposit will be sufficient to cover the transaction and related fees.

FDIC Guidance

The FDIC guidance is essentially the same as the OCC guidance, they just issued their guidance on re-presented items separately last August. In the April 23rd guidance on APSN the FDIC indicated that failure to take steps to avoid assessing overdraft related fees when transactions are authorized on positive balances but settle on negative balances results in ‘heightened risks” of violations of Section 1036 of the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010. An act or practice is unfair when it (1) causes or is likely to cause substantial injury to consumers, (2) cannot be reasonably avoided by consumers, and (3) is not outweighed by countervailing benefits to consumers or to competition.

In their August 18, 2022, guidance they said violations of law occur when financial institutions charge multiple NSF fees for the re-presentment of unpaid transactions if disclosures do not fully or clearly describe the financial institution’s re-presentment practice, including not explaining that the same unpaid transaction might result in multiple NSF fees if an item was presented more than once. Practices involving the charging of multiple NSF fees arising from the same unpaid transaction results in heightened risks of violations of Section 5 of the Federal Trade Commission Act which prohibits unfair or deceptive acts or practices (UDAP). Therefore, if a financial institution assesses multiple NSF fees arising from the same transaction, but disclosures do not adequately advise customers of this practice, the misrepresentation and omission of this information from the institution’s disclosures is material and therefore deceptive. Also, a risk of unfairness may be present if multiple NSF fees are assessed for the same transaction in a short period of time without sufficient notice or opportunity for customers to bring their account to a positive balance to avoid the assessment of additional NSF fees. As a result, while revising disclosures may address the risk of deception, doing so may not fully address the unfairness risk.

In addition to the regulatory compliance risk, the FDIC also found that multiple NSF fee practices may result in heightened litigation risk. Numerous financial institutions, including some FDIC supervised institutions, have faced class action lawsuits alleging breach of contract and other claims because of the failure to adequately disclose re-presentment NSF fee practices.

If you would like more information on Strunk’s program, please contact us at info@strunkaccess.com or call 800-728-3116.

Why is vendor management a hot topic in the world of financial institutions today?

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Why is vendor management a hot topic in the world of financial institutions right now? It’s because regulatory organizations including the Federal Financial Institutions Examination Council, Office of Foreign Assets Control, and Federal Trade Commission are focusing on how financial institutions are managing the vendors they outsource to. The Federal Deposit Insurance Corporation (FDIC) has declared that an institution can “outsource a service, but cannot outsource the duty,” making it very apparent that the responsibility for compliance rests with the financial institutions. Various regulators refer to vendor management using various terms. Even though they all ultimately want the same thing, they approach it differently.  For regulators, third-party risk is a sensitive subject. There are many different types of risk that might be introduced when a bank outsources a task to a third-party. Assessing, evaluating, monitoring, and controlling those risks is the core of vendor management.

The importance of vendor management is something Strunk constantly think about, just like it is for the FIs we support. We take great pride in offering a vendor manager software and services that let our clients have an effective vendor management program.  Components of Strunk’s effective vendor management program:

  • Risk Assessments- Assist the financial institution in assess the risk level of the activity the vendor performs.
  • Surveys- Vendor questionnaires to elevate the controls that each vendor has for the emerging risk of the vendor.
  • Contract- Contract assessment, a place to capture and store the contract and its information.
  • Service-Level agreements (SLAs)- tracking SLAs to make sure that the vendor is sticking to the agreement and not being fraudulent.
  • Review- Reevaluating the risk the vendor has while also identify any concerns with the performance of the vendor.
  • Due Diligence- central location to store and evaluate due diligence material from the vendor.

In conclusion, a properly managed vendor relationship can result in greater quality, better service, lower costs, and happier clients.

2023 Potential Focus

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In 2023, what will regulators and auditors focus their attention on the most? How can we get ready for a change in any law or regulations? How can Strunk’s software better prepare you for your audits and examines.

To determine the top regulatory hot button problems for 2023, Strunk examined supervisory priorities, enforcement trends, rulemaking agendas, speeches, blogs, and more. Below is the list of the items that seems to be focused the most on is 2023.

  • Loan origination and servicing: The CFPB expects every regulated entity under its supervision and enforcement authority to have an effective compliance management system adapted to its business strategy and operations. Examiners should also use the compliance management system review procedures, to conduct review and testing of components of the supervised entity’s compliance management systems which is part of the 2023 Supervisory Highlights Junk Fees Special Edition from the CFPB.
  • Credit Reporting: Inaccurate information on credit reports is the most frequent complaint that the CFPB receives. The CFPB refers complaints to your regulator agency even if they do not regulate you in their 2022 Fall Supervisory Highlights. Congress has issues of its own. Make sure your financial institution train workers, test credit reporting systems, and update rules and procedures that deal with the accuracy of information reported. Financial Institutions should immediately look into and resolve customer complaints.
  • Lending practices & fair lending: Fair lending is expected to remain one of the major compliance issues, if not the main one. In its most recent annual report to Congress on fair lending, the Consumer Financial Protection Bureau (CFPB) highlighted in their 2022 Fall Supervisory Highlights, its efforts to oversee activities related to “mortgage origination and pricing, small business lending, student loan origination work, policies and procedures regarding geographic and other exclusions in underwriting, and on the use of artificial intelligence (AI) and machine learning models.” The agency has a solid track record of carrying out its obligations. There is no reason to believe that this will change in 2023 given the bureau’s track record of following through on its commitments.
  • UDAAP focus on fees: A CFPB press release and information request from January 2022 helped popularize the phrase “junk fees” in the banking sector. The definition of a “junk” fee was not clear because the agency included services for concerts and hotel resorts with other fees that banks typically charge. However, the bureau explicitly mentioned overdraft, NSF, and late fees for credit cards in their press release. The bureau declared that in order to “reduce these kinds of junk fees,” it will “craft rules, issue industry guidance, and focus supervision and enforcement resources to accomplish this objective.”, which is stated in the 2023 Supervisory Highlights Junk Fees Special Edition.
  • Deposit accounts: Ensure that you are abiding by both local and federal laws and educate your workers on policies and procedures. Making sure that each consumers gets full details regarding their accounts and understands it. This has been covered in several CFPB and FDIC reports around UDAAP.
  • Vendor Management: Regulators are still very interested in your relationships with vendors, service providers, and fintech partners, particularly those who assist you in providing Banking as a Service. Your financial institution will be held accountable if a vendor violated consumer protection rules or caused a breach involving your data. Based on CFPB Consumer Financial Protection Circular 2022.
  • BSA/AML/OFAC: Regulators have gone after BSA officers and management with individual fines per BankersOnline.com BSA/AML Civil Money Penalties. Worldwide instability creates new sanctions. Financial Institutions must implement rules, including beneficial ownership rules for the next few years.
  • AI, algorithms and big data: It’s obvious that we’re only at the starting of sorting this all out because this subject has recently grown quite popular with the agencies. There are many facets of this problem to investigate, but one of the buzzwords is “digital redlining,” which refers to a form of discrimination where lenders limit credit availability or give credit on unfair terms based on applicants’ digital footprints. These new technologies are usually used by banks for marketing, fraud detection, and credit standards. Director Chopra’s comments focused on the use of AI in lending decisions. He stated that the CFPB will be “watching for digital relining,” citing what he called “algorithmic bias” and the need for investigation of whether “discriminatory black box models are undermining the goal” of equal opportunity.

Strunk offers a variety of software solutions to assist financial institutions with their Enterprise Risk Management. Strunk’s Risk Manager, Policy Manager and Vendor Manager solution will help financial institutions be better prepared for their audits and examines, covering most of the hot topics for 2023. Also, Strunk’s overdraft privilege programs assist financial institutions grow their bottom line while also making sure they are fully compliance with regulatory issues.

 

Strunk Response to Recent Overdraft Headlines

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It is no secret that overdrafts and overdraft fees are making the news quite frequently these days. This increased attention often puts pressure on community financial institutions specifically, as the articles and reports are often unclear. Questions like, ‘is there something our FI is required to do?’ or more simply, ‘should we be doing something?’ arise.

Most recently, the Consumer Financial Protection Bureau (CFPB) has released a report stating that banks’ overdraft/NSF fee revenue has declined significantly compared to pre-pandemic levels. The CFPB stated that “Bank overdraft/NSF fee revenue was lower in 2020 and early 2021 than before the pandemic, which was likely largely due to pandemic-related stimulus checks pushing up average checking account balances. In the second half of 2021, as the pandemic stimulus wound down, overdraft/NSF fee revenue rebounded somewhat, but began decreasing again through the third quarter of 2022 – likely due to changes in bank policies.”

The CFPB states in their report that they ‘have not observed correlating increases in other listed checking account fees, which suggests that banks are not replacing overdraft/NSF fee revenue with other fees on checking accounts.’  The report identifies the largest banks in the United States, and while those banks can afford these changes, the report fails to review how this will affect community financial institutions.

It is important to understand that the comments in the report are a function of two primary things:

  1. Consumers have changed their behavior regarding overdrafts because of the pandemic.
  2. Mega banks chose on their own to drastically cut NSF and OD fees. Those banks have many revenue sources and can afford to be magnanimous, while community financial institutions do not have that opportunity.

Quite possibly the most critical message here is, there is no new regulation and nothing for the community FI to do, for now. Strunk will alert clients if any new rule making is introduced by the CFPB, and thus changes become necessary. Strunk’s overdraft program remains complaint by offering clear and appropriate disclosures, easily accessible reports and ongoing employee training.

Community FIs might still feel the strain of lost revenue and should explore new fee income strategies and profit improvement opportunities with Strunk to get out in front of this challenge. It has never been more important to shift focus and to diversify the ways fee income is produced for the community FI.

Key Event History in ODP Manager

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Each day, an extract file is imported into ODP Manager to update each account with the most current data from the core. After the import, the letters due and the reports will reflect the up-to-date information – but what if a user needs to review the past information for a customer’s account?

Key account events are tracked within the software with each import and letter generated. After the file import completes, each account has been updated to note if the account is now closed, if it is now overdrawn, or if it has now moved into good standing. If overdraft limits were assigned or removed, or an account has opted in or opted out for Reg E, the account is also documented. When letters are generated, the hosted software updates the account’s history with the type of letter, the letter template, and the date. A PDF of the letter is also retained and linked to the event history.

In addition to these software-generated events, ODP Manager users can create their own events in the form of comments, reminders, repayment plans, and charge-off items. These items can be viewed and updated by all ODP Manager users.

Both comments and reminders are used to note additional information about an account and can include attachments. The main difference between the two is that a reminder will allow a user to specify the due date for follow-up action. Overdue and upcoming events display under the Events section of ODP Manager. Repayment plans create reminders for overdue fresh start payments. Charge-off items track the amounts charged off by account and can also track any recoveries received.

Please contact Strunk Support at support@strunkaccess.com with any questions or to find out more details about ODP Manager’s account event tracking.

ODP Manager Letters as Needed

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The hosted ODP Manager software uses information from a daily extract file to determine when Collection letters should be sent to overdrawn accounts and which Custom letters should be sent to accounts when overdraft limits are assigned, or accounts opt in for Reg E. In addition to the Collection and Custom Letter functionality, the software also allows users the flexibility to send Ad Hoc letters as needed. These letters don’t rely on an account event to be triggered so users are not limited to criteria included in the daily extract file.

If you close and charge off an account before the standard number of days overdrawn, you will need to be able to generate an Account Closed letter. Or you may have ODP related letters that you send in specific situations other than those covered by the standard letter templates. You can even use Ad Hoc letters to generate your Fresh Start Loan agreements. Rather than creating letters manually, you can have Strunk set them up as Ad Hoc letter templates in the ODP Manager software.

If a user has a list of accounts that need to receive the specific letter, an Ad Hoc letter can be generated using the template, and sent to the customer. When you need to generate the letter, just enter the account number and the letter will pre-fill with the information from the software – name, address, and any other relevant fields. Letters can be generated one account at a time, or multiple account numbers at once. Once the letter has been generated, ODP Manager tracks and retains the letter just like your Collection and Custom letters.

Please contact Strunk Support at support@strunkaccess.com with any questions or to find out more details about using ODP Manager’s Ad Hoc letters.

Give ODP Customers a Fresh Start using ODP Manager

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A Fresh Start Repayment Plan is a tool available to overdrawn customers that will allow them to repay the overdrawn balance in up to 4 payments and will also allow them to retain the use of their checking account. It also may help financial institutions recover and collect on accounts which may have otherwise charged off.

ODP Manager collection letters advise customers that have overdrawn balances of $100 or more that they may be able to pay back the overdraft balance in up to four installments rather than the entire balance at once. Interested customers are then assessed to determine the customer’s ability to qualify and repay the Fresh Start.

With each approved Fresh Start repayment plan, ODP Manager users can enter a repayment schedule for each account. The repayment schedule can be used to populate the Fresh Start Agreement or users can also populate the FS Agreement directly as an Ad Hoc Letter. The repayment schedule includes reminders that display when a FS payment is due. When the payment is due, ODP Manager users can check the core system to confirm if the payment has been made as agreed. Once verified, Fresh Start payments can also be tracked in ODP Manager.

If a customer’s Fresh Start payment is not paid as agreed (ten or more days past due), the Fresh Start is in default and the checking account should be closed and charged off. The Fresh Start Default letter in ODP Manager can be generated to notify the customer that the account has been closed, charged off, and reported to the appropriate agencies.

If any other Fresh Start letters are needed for accounts in a repayment status, an Ad Hoc letter template can be created. By entering the deposit account number, ODP Manager will pre-fill the account information. After the letter is generated, it will be tracked and retained in ODP Manager just like the other Collection and Custom letters.

ODP Manager includes two types of Fresh Start reporting. The Fresh Start Tracking report displays a list of all checking accounts currently under a Fresh Start repayment plan with a Fresh Start ODP Status code. If details are needed about current repayment schedules, a Repayment Schedule summary report can also be exported to PDF or Excel.

Please contact Strunk Support at support@strunkaccess.com with any questions or to find out more details about ODP Manager’s Fresh Start Repayment Plan features.

An independent certified public accountant has examined Strunk’s operations and found them to be in compliance with the AICPA’s Trust Service Principles. It was determined that Strunk meets the Security, Availability, Processing Integrity, Confidentiality, and Privacy criteria for SOC 2 established by the AICPA.