Often in this space, we’ve written about how Washington has made community banks its personal punching bag. Sarbanes-Oxley, Dodd-Frank, the FDIC and other financial regulators – as well as Congress and the White House — have not been friendly to community banks, all while bailing out Wall Street big boys.
But at last, news hit quietly several weeks ago about a proposed measure that could actually help community banks. And – hold on to your hats, kids – it’s a bipartisan bill.
Senators Cory Booker, (D-N.J.) and Jerry Moran, (R-Kan.) introduced the “Refund to Rainy Day Savings Act”, a measure aimed at encouraging American taxpayers to save.
The proposal, introduced shortly ahead of Tax Day, allows taxpayers to defer up to 20 percent of any IRS refund.
Under the proposal, the 20 percent would be held by the Treasury Department for up to six months, earning interest during that period. Taxpayers would be able to draw the money out after the first 30 days.
The measure is the result of the two senators – often on opposite sides of the ideological divide – coming together after seeing how their constituents – from Kansas farmers to Jersey factory hands, struggle to save, living paycheck to paycheck
“Millions of Americans are getting by with little or no money set aside to cover unexpected costs,” Booker said in a statement. “Families living paycheck to paycheck endure the persistent threat of sudden financial disaster.”
Moran added, “Setting aside enough money each payday can be difficult when dollars are already stretched and existing expenses must be paid. This bipartisan legislation would allow Americans to utilize a rare moment of financial flexibility that accompanies a tax refund to plan for the future.”
If they elect to participate, taxpayers must receive their refund through direct deposit.
How could this help community banks? We can think of at least three ways:
- The proposal, if it becomes law, opens the door for community banks and credit unions to educate their customers and members, not only about the new provision in the law, but about savings. Two in three Americans don’t have a savings account. This “rainy day” provision makes saving painless. Don’t forget, this is also a chance to meet with customers for financial planning and goal setting. This “rainy-day fund” could help with large purchases, mortgages, cars, college funds, etc.
And don’t forget those emergencies, which strike like lightning from the blue.
- This is a marvelous marketing opportunity. Armed with the knowledge that customers may have taken advantage of the new law, the bank can market its savings and other interest-earning vehicles, pitching the idea of a “rollover from the Treasury “rainy day” account into one of your bank’s products. This is a rare moment, when the public and private sector can team up to help consumers.
- And while at first blush it may seem naïve, it stands to reason that customers who move off the treadmill of paycheck to paycheck and who are actually saving will feel better about themselves and their financial futures.
There’s something to learn from Booker and Moran’s idea for a financial umbrella. With an increasing number of Americans filing their tax returns electronically – and receiving their refunds the same way – what’s to stop community banks from setting up a similar voluntary “Rainy-Day” account with a percentage of the IRS refund going into an account offered by the bank.
This offers three quick benefits:
- Banks can offer more options – money market accounts, 401 (k) or just a simple passbook savings account. Or, the money could roll into a 529 college savings plan. The point is, the deposited percentage could be tailored to each individual customer, giving them more control.
- A downside of Booker-Moran – at least in terms of perception – is that some may view the plan as another opportunity for the government to intervene in the lives of its citizens, despite the “Rainy-Day” idea’s good intentions. Allowing your customers to set aside a percentage of the directly deposited refund into an account removes that concern and is a win-win for community banks and customers.
- Another perception point: Establishing an idea similar to Booker-Moran communicates that community banks truly care about the financial well-being of its customers. It’s another instrument in a financial toolbox that offers community banks and credit unions a chance to sell their greatest strength – personal banking done well.
Booker and Moran deserve credit on two fronts: First, bipartisanship is as rare as a raw filet in our nation’s capital. And to see a proposal that could potentially boost Main Street banks and their customers is an encouraging glimmer of hope.
We hope Booker and Moran will bring community banks and credit unions to the table as this legislation moves through the process. Think of it: For once, something good from Washington.
But an unintended consequence of the proposed legislation is that it offers an idea that community banks and credit unions can tweak to help their customers. That sounds like a win-win.
Read the entire story at HERE.
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