Time to Implement a Loan Pricing Solution

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When pricing commercial loans most bankers say they have to match the competition or they use some benchmark such as the prime rate. Others say they use the “flinch method”. They throw out a rate and see if the customer “flinches”.

Bank CEO’s often wonder if commercial lenders work for them or for their customers when it comes loan pricing. Lenders want to get the deal and many times they don’t consider the bank’s costs associated with making the loan when offering the rate/terms. Do lenders have the tools to offer a rate that meets both the borrower’s needs and bank’s profitability goals?

Many factors should be considered when making pricing decisions on commercial loans: Type of loan, amortization term, usage of a line of credit, fees, cost to underwrite and service the loan, risk, fixed, adjustable or floating rate, borrower’s other business with the bank and most importantly the size of the loan.

Relationships matter and we have to value that in the pricing equation. What other loans or business does the borrower have with the bank? Do they have a deposit relationship and is it in interest or non-interest bearing? What we typically find is banks over price their best customers and under price their smallest least profitable customers.

Now is a great time to look at an inexpensive, easy to use loan pricing tool to see if it is a fit for your financial institution. Increasing your Net Interest Margin is easy. Contact Strunk at 800.728.3116 or at info@strunkaccess.com to learn more about our loan and relationship pricing solution.

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.

Update on Agencies Final Guidance on Third-Party Risk Management

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On Tuesday, June 6, 2023, Federal bank regulators issued final guidance outlining the guidelines and factors to consider when managing third-party relationships for financial institutions. The joint final guidance was issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC). Planning, due diligence and third-party selection, contract negotiation, ongoing monitoring, and termination are the steps in the life cycle of third-party relationships that are covered by the final guidance on risk management strategies. The final guidance was released to hopefully improve consistency in the agencies’ supervisory approaches to third-party risk management and replaces each agency’s previous general third-party guidance. Based on the agencies’ consideration of public comments on the proposed guidance announced in July 2021, the final guidance has been simplified and made clearer. The final guidance rescinds and replaces the FDIC’s Guidance for Managing Third-Party Risk issued in FIL-44-2008. The FDIC also withdraws the 2016 proposed guideline on Third Party Lending (FIL-50-2016), which was released for comment on July 29, 2016, because the final guideline covers all third-party interactions, including lending arrangements. The final guidelines want to make clear that business relationships with third parties engaging in lending, payment or deposit activities for the financial institution are evaluated by the financial institution using both the third-party risk management guidance and various risk management processes and rules that apply to the lending and deposit relationship.

The joint guidance was designed to assist financial institutions, especially community banks, in matching their risk management procedures with the type of risk profile of their third-party partnerships, while giving example scenarios. The agencies intend to start working with community banks right away and to create more tools soon to help them manage important third-party risks. Like previous guidance, the complexity, size and size of the financial institution, as well as the nature of the third-party relationship, are all factors considered in the third-party risk management. The final guidance continues to make it clear that if a financial institution uses a third-party, then the third-parties risk falls back to the organization and the financial institution is responsible that the third-party performs all activities in a safe and sound manner.

The guidance also states that the agencies’ routine supervisory procedures will include examining a financial institution’s third-party relationship risk management measures. Supervisors typically evaluate a financial institution’s management’s capacity to supervise and manage its third-party relationships, as well as the impact of those relationships on the bank’s risk profile. They also carry out transaction testing to assess the third party’s performance and compliance with applicable laws and regulations.

In creating and executing risk management procedures for all phases of the life cycle of third-party partnerships, financial institutions may consider the sound principles provided by the guideline, which supports a risk-based approach to third-party risk management. A vendor management software can help with that and also help a company operate more efficiently. A vendor management software assists financial institutions to build better vendor relationships by improving engagement and transparency while reducing risks. Having the most comprehensive solution like Strunk’s Vendor Manager software helps streamline your end-to-end vendor due diligence workflow.

 

Automatically Update ODP Manager Information

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The information in Strunk’s hosted ODP Manager software is updated daily when an extract file from the core processor is uploaded. This file can be committed each day by an ODP Manager user prior to generating letters and reviewing reports. Strunk also offers an Automatic Upload option for institutions that meet the criteria below.

If an institution is able to create the updated core extract file automatically to a specified location, the Automatic Upload process may be possible. There is a one-time setup process – the first step is to install the upload client. The second step is updating the configuration details with user and file variables specific to the institution. The final step is to create a scheduled task. The scheduled task will start the import overnight after the extract file update and before users start their workday.

Even if the daily import is usually performed by the Automatic Upload process, your users will still be able to manually import a file if the scheduled import does not complete as expected. Each day when the import process runs, specified individuals or a group email address will receive an email detailing whether the import completed successfully.

Please contact Strunk Support at support@strunkaccess.com with any questions or to find out more details about this import option.

Bankers: It’s Time to look at a Loan Pricing Solution

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Pricing commercial loans for community banks can be daunting especially in areas where they compete for loans with larger institutions. With a yield curve that has changed dramatically over the past 18 months, isn’t it time your senior commercial lender looked at a loan pricing solution?

Commercial lending comes all shapes and sizes and borrowers are more sophisticated now more than ever. What should the interest rate be? For what term? Is there a fee involved? Is the rate floating or fixed? And lastly, will the borrower keep deposits with the bank?

Loan pricing solutions have been used by larger institutions for years and community banks sometimes just “throw a dart” to see what a borrower will pay. Generally, costs associated with underwriting and servicing the loan is not considered since it is hard to determine what they are. With interest rates at historically high numbers (last 15 years) maybe community bankers should look for an affordable loan pricing program.

Strunk’s loan and relationship pricing solution is designed to model all types of commercial loans factoring in costs associated with the loan, pricing for risk, and providing a return that is satisfactory to the bank. The program takes into account deposits the borrower may have with the bank as well as other loans.

The loan pricing model is easy to use and training the lending staff is paramount to getting buy-in for the solution. The goal is to increase net interest margin while also giving bankers a tool to understand why you may have lost a deal.

Contact Strunk at 800.728.3116 or email at info@strunkaccess.com to learn more about loan pricing solutions offered by Strunk. You will be glad you did.

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.

Vendor Due Diligence Material

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Every critical and high-risk vendor must have their fundamental business information gathered. Community financial institutions can use this information to assess if the vendor complies with any relevant local laws and regulations, as well as to spot any potential future performance problems.

An essential element in the vendor risk management lifecycle is due diligence. In many businesses, conducting due diligence on each vendor is not just a good business practice but also regulated by the law. There are baseline or foundational documents that should be gathered to further examine the majority of vendor engagements, even though not all vendor relationships pose the same risks to a financial institution.

Collecting, reviewing and storing vendors’ due diligence materials is a vital part of the vendor management process. Vendors are required to present certain documents as proof of their internal risk management as part of the due diligence procedure. The vendor should be able to provide documents that are a crucial part of evaluating the vendor’s risk and the controls they have in place. Whether it’s a SOC report to confirm information security processes, internal compliance guidelines, or even a business continuity plan and testing.

After collecting and reviewing the vendor’s due diligence material, the financial institution should have a central location to store these documents securely and also receive notification when due diligence material needs to be collected again or is missing.  Strunk’s vendor management software, Vendor Manager, can assist with your financial institution’s vendor due diligence process and provide a streamlined process. Visit https://strunkaccess.com/vendor-manager/ to learn more.

Accessing and Filtering ODP Manager Account Data

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The hosted ODP Manager software is an effective tool for managing an institution’s overdraft program. In addition to the daily tasks, ODP Manager can help users view and filter the account information that is imported from the daily extract file. If there is a specific population of accounts with certain criteria that users would like to monitor, these filtering options may facilitate the process.

Depending on the specific area of interest, users may want to limit results to a smaller population of accounts. There are three main areas in ODP Manager which will allow users this flexibility: account-level Reports, Account Inquiry, and Custom Query.

Reports show a standardized list of accounts that meet certain standard criteria. Individual column filters can be applied to incorporate additional criteria and limit the results displayed. These filtered results can be viewed on screen or exported to PDF or Excel. If users enter the same filter criteria frequently, it may be more efficient to create a new query group specific to your institution. This will allow users to display only the desired results just by selecting the group in a dropdown.

If users need more flexibility in selecting the accounts or data fields included, Account Inquiry provides additional options to select from all accounts in ODP Manager. Three different column views and all available data columns mapped from the daily extract file allow users to access additional data that may not be visible in Strunk’s standard reports. The filtered results can be viewed in the browser or exported to Excel.

Custom Query is used when an institution has a specific need to specify not only the account criteria to be used for the report but also the data columns displayed. Each day, users will download an Excel file with the updated list of accounts.

Please contact Strunk Support at support@strunkaccess.com with any questions or to find out more details about using the advanced ODP Manager filters.

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.