Wisconsin bankers toast the year past, focus on future

Northwestern Financial Review, Oct 1-Oct 14, 2003 by Dullum, Justin

Attendees of the Community Bankers of Wisconsin's 2003 convention celebrated what was a profitable year for banks despite a rocky national economy. The convention was conducted in La Crosse, August 24-26.

"Our commercial activity here has been pretty solid throughout the economic ups and downs recently," said Daryll Lund, CBWs president and CEO. "The banks are pretty conservative in practice and have been able to ride out the downturns. They've done great the last several quarters. With the up-tick in rates now, things are slowing down a little. But from the bankers I've talked with, they say they've done well and are continuing to do well."

Lund told the 80 attending bankers that CBW itself had a banner year, both financially and legislatively. In 2002, CBW exceeded $1 million in revenues for the first time in 22 years, with revenue from membership dues making up 4 percent less of the total than in the previous year. At the state capitol, CBW looks to continue its healthy batting average by primarily focusing on three bills during the 2003-2004 session.

One bill would protect consumers and their bank from people who initiate unauthorized paper demand drafts. Third party drafts, sometimes called demand drafts, are initiated by a party other than an owner of the account on which the draft is drawn, and does not contain the actual signature of the account owner. The person initiating the draft claims to be acting with the authorization of the account owner.

Demand drafts are a legitimate payment method. Consumers are generally aware that such arrangements can be made for recurring automatic payments, such as mortgage payments. Criminals who acquire an individual's account number, however, can manipulate a demand draft with phony checks and documents.

The bill would make the consumer protections compatible with that of the national electronic funds transfer laws. Under those regulations, the initial risk of loss and burden of proof of authorization is placed on the merchant or the originating/depository bank of the transaction.

"This bill is something CBW introduced," Lund said. "Our bill would allow the actual owner of the account to send the draft back to the bank of first deposit saying 'This is not authorized by the account holder' and then be re-credited."

The demand draft problem falls into the larger problem of identity theft. A survey of banks conducted by CBW found that fraudulent third party drafts create estimated annual losses to Wisconsin consumers and bankers of $4.5 million. One institution alone lost $260,000.

"Ultimately, we'd like to see federal legislation on this," said Lund, who added that the state senate has already passed a draft of the bill.

Another issue on the docket is bank name protection. CBW is currently drafting a piece of legislation that would put bigger teeth in a law prohibiting non-banks from using the word 'bank' in marketing materials. Lund said it's a problem on the rise, and customer relationships suffer the consequences.

Some companies selling products such as mortgage insurance are purchasing blocks of public deed records, identifying new mortgages and refinanced mortgages, and then contacting the holder with insurance offers pertaining to a specific product the consumer purchased from a bank. "Customers confuse the offer with something coming from their bank," Lund said. "The real company's name doesn't appear until the fine print on the second page."

The bank name protection bill would allow the Wisconsin Department of Financial Institutions to send cease and desist letters out to these companies on the basis of using a bank name in marketing materials.

CBW is promoting a third piece of legislation called the State Savings Bank Regulatory Efficiency Act. Under current Wisconsin law, state and federal regulators alternately examine commercial banks. "That's not available to our state chartered savings banks," said Lund. "The bill would save the bank from an additional examination as well as reduce the cost of conducting two exams."

Lorrie Keating Heinemann, Wisconsin's new Secretary of the Department of Financial Institutions, addressed the bankers, telling them she would work with the industry to promote efficiency. Heinemann has a background in banking and Lund said CBWs relationship with the new secretary has gotten off on the right foot. "She knows and understands the issues," said Lund. "I think she'll be well received."

By Justin Dullum