When President Joe Biden’s administration dropped a planned $600 reporting requirement on bank account transactions, financial institutions in central Massachusetts and across the country breathed a collective sigh of relief.
Not only were banks and credit unions worried about the amount of work it would take to track and report the originally proposed $600 rule and then its modified $10,000 successor, they were worried about privacy. of their customers and the cancellation of the incursions they had made historically. unbanked populations.
Ryan Foley, Partner, Cunningham & Associates
“Those kinds of defeats the purpose of trying to lift the backbone of America. It takes that away and makes it harder to succeed,” said Ryan Foley, a partner at tax consultancy Worcester Cunningham & Associates.
The initial proposal was part of the Biden administration’s effort to raise more money for its proposed federal spending programs by helping the Internal Revenue Service strengthen enforcement of penalties against individuals and businesses that pay less in taxes. , with a total amount estimated at 600 billion dollars per year.
To close this tax gap, U.S. Treasury Secretary Janet Yellen has proposed requiring banks and credit unions to submit reports on account transactions representing at least $600 of financial activity. , including every withdrawal, deposit and account-to-account transaction made by an account holder. . After institutions such as the American Bankers Association and the Credit Union National Association declared that this threshold would apply to almost all account holders in the country, the threshold was raised to $10,000, before finally being deleted.
Kathleen Murphy, CEO, Massachusetts Bankers Association
“What is our right to privacy? We are law-abiding citizens. We report everything [our] taxes. We’re working with a tax accountant to get this all right, and now we’re presumed to have done something wrong because of this vast data that’s being submitted to the IRS,” said Kathleen Murphy, President and CEO of the Massachusetts Bankers Association. over the old proposed IRS threshold.
Increased costs for banks
Financial institutions use vast data to manage and protect the personal information of account holders. Firewalls and central processors, third-party operators that provide these information systems to banks, are now in place for day-to-day banking needs. However, these core processing systems should have been reworked to extract all of the account information mandated by the proposal before transmitting that information to the IRS. These changes would have increased banks’ operating costs while increasing tax preparation expenses for small businesses.
Mark O’Connell, Chairman and CEO, Avidia Bank
Mark O’Connell, chairman and chief executive of Avidia Bank in Hudson, which has $2 billion in assets, said banks already face strict reporting.
O’Connell said the Bank Secrecy Act already requires financial institutions to report cash transactions of $10,000 or more to the federal government to prevent money laundering. In a 1996 addition to the Bank Secrecy Act, banks were further mandated to report suspicious cash transactions, even if they were below the $10,000 limit.
“The BSA monitoring that we do, we are not compensated by the government for that, and we have a department in our bank of seven people who work in our BSA department. Their job is 80% to 90% mainly to monitor accounts for suspicious activity and report it to the government, that’s why I don’t understand why [the IRS] need this new information,” O’Connell said.
Changing reporting requirements would have impacted small businesses, Foley of Cunningham & Associates said, without necessarily deterring bad actors who don’t pay their tax obligations in full.
“If people do the wrong things, they will continue to do the wrong things. If they don’t report income, they will continue to not report income. Reporting requirements will only put a strain on people who are compliant, good taxpayers and good business owners,” Foley said.
Reasons for being unbanked
Undermining confidence in the banking sector
In 2015, the IRS was hacked and nearly 700,000 Americans’ Social Security numbers were compromised. This story undermines people’s trust in the government to keep their information safe, Murphy said.
If banks and credit unions were required to provide more information about account holders, people would also have less trust in financial institutions, she said.
“Our industry places the highest priority on protecting consumer data, and quite frankly, the banking industry under the Gramm-Leach-Bliley Act has the most consumer privacy requirements of any entity. , any company in the country and we take that very seriously,” she said.
According to a 2019 survey by the Federal Deposit Insurance Corp., 95% of all U.S. households use a bank or credit union account. This figure is the highest number and percentage of accounts since the first survey was conducted in 2009.
Yet 7.1 Million Households Are Still Unbanked, FDIC Says
This aspect of undermining trust would have a particular impact on credit unions since they serve people who generally do not have access to traditional banking services.
Ronald McLean, CEO, Cooperative Credit Union Association
“Credit unions have a rich and proud history of serving the underserved,” said Ronald McLean, president and CEO of the Cooperative Credit Union Association.
Credit union stakeholders sent nearly 600,000 messages to Congress expressing concern over the proposed additional reporting requirements, said Barbara Mahoney, president and CEO of Leominster Credit Union.
Barbara Mahoney, CEO, Leominster Credit Union
“We believe Congress should not pursue these goals with an agenda that will almost certainly discourage financially vulnerable people from seeking financial services from safe and regulated financial services industries. We work very hard to make financial services and products affordable and accessible,” Mahoney said.
Easing mistrust among financially vulnerable people, privacy, and increased costs for banks/credit unions are all concerns McLean has with the IRS’ discontinued reporting requirements.
“Every dollar spent on compliance is one dollar less spent serving your members,” he said.