Some credit unions already losing accounts over Democrats' plan to expand IRS tracking
The "IRS is now going to force your bank to turn over information that can further ... track your personal and professional banking accounts," warns community banking industry rep.
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Organizations representing community banks and credit unions are blasting the Democrats' commitment to expanding IRS reporting requirements, calling the proposal a government overreach that would require financial institutions to spend more money on compliance costs at the expense of products and services for their members.
According to the National Association of Federally-Insured Credit Unions, customers at some credit unions have already decided to close their accounts over "government intrusion" concerns fueled by the prospect of such new rules taking effect.
The Democrats' proposal would require financial institutions to report account activity above $600 to the IRS.
House Speaker Nancy Pelosi said on Tuesday that new IRS reporting rules for financial institutions will stay in the Democrats' filibuster-proof budget reconciliation bill but the $600 threshold is part of ongoing "negotiation."
Dan Berger, president and CEO of NAFCU, said the new requirements stand to have "extremely serious and costly implications for consumers and financial institutions," especially credit unions.
"If this provision goes into effect, credit unions would not only be left facing technical challenges and added costs to meet the reporting requirements, they would also have to deal with an increase in questions and concerns about what they are reporting from their members," Berger said. "Not to mention the major financial data privacy concerns they'd need to address to ensure their members feel safeguarded and still willing to place their trust in credit unions."
Berger revealed that some credit unions are already losing customers due to the possibility of the new rules taking effect.
"Some credit unions are already seeing consumers withdraw their accounts because they are concerned about the possibility of this government intrusion," he said. "Any increase in compliance burdens ultimately leads to higher operational costs that could impact service and credit unions' lending capacity. Every dollar spent on cumbersome compliance costs is one less dollar to lend to members."
The Independent Community Bankers of America, an organization that represents a vast number of community banks of all sizes, said some of their member banks have received calls from customers inquiring about how to close their accounts if the new IRS reporting requirements become law.
Aaron Stetter, ICBA's executive vice president, said he's heard that community banks serving areas with high immigrant populations have customers who are worried that the new rules are similar to the actions of state-controlled banks in their home countries. He described the expanded reporting rules as a "gross overreach" from the federal government.
"We work with a number of minority banks across the country, minority depository institutions," Stetter said, "and many of them that are within our membership have come to us, and their concern is that many are serving a community that have come from authoritarian regimes, that have a natural distrust for governments and big government. And this is actually furthering or exacerbating those concerns, so they're very concerned with how they communicate to their customer base."
The new rules could lead to more audits of individuals in the middle class, not the wealthy, Stetter warned, which runs contrary to rhetoric from the White House and Democratic congressional leaders.
"It is problematic for our community banks, but it's going to continue to be problematic for our customers," he said. "Regardless of the limit, it's going to cause false positives that are going to trigger greater audits, and so that's a big concern that we have as well. In no way, shape or form is this going to capture those individuals that are on the highest level of the income scale or wealth scale that the administration would like to make sure that they pay their fair share or their legal share of taxes. It isn't going to do that."
In selling the new requirements to the public, Biden has said millionaires and billionaires are not paying their fair share of taxes. Biden's plan includes hiring approximately 87,000 additional IRS agents as part of the Democrats' $3.5 trillion Build Back Better reconciliation bill, which encompasses much of Biden's social spending agenda.
Stetter was asked how he responds to consumers who are worried about the IRS spying on their accounts.
"I think the appropriate way to look at it is that the IRS is tracking your accounts," he said. "I think that's the correct word to use for this. And that's the word that we've used, that the IRS is now going to force your bank to turn over information that can further or greater track your personal and professional banking accounts."