A recent article in the Wall Street Journal talks about how banks that have given away incentives to new customers are now sending those same customers 1099’s.
As the banking industry has become more competitive, especially with bank’s paying very little on CDs and Money Market accounts, many banks are offering gifts that are more valuable than a toaster.
As a result, gift cards and frequent-flyer miles worth more than $600 are causing banks to send thousands of 1099 forms to their new customers! Even though the tax consequences are small, it is causing customers to complain and many are even closing their accounts.
The banks, which include Citigroup Inc., HSBC Holding PLC and the Citizens Bank unit of Royal Bank of Scotland Group PLC, claim they fully disclosed the tax implications to their customers. But will it be enough to keep their business?
Nessa Feddis, senior counsel with the American Bankers Association said that banks tend to be sticklers about tax rules because they operate in such a regulated industry. In contrast, gifts offered by retailers often aren’t subject to IRS reporting because they are classified as a reduction in the purchase price rather than income.
Bank marketing managers should continue to be creative when it comes to innovative ideas to lure potential customers into their banks, but they should also be mindful of the long term consequences.
What seems like a great idea could prove to be a public relations nightmare.
Speaking of 1099’s, I’ve heard a lot lately about banks and mortgage companies that are paying people to sell their homes for less than what they owe. Many banks are finding that it’s cheaper and faster to pay a homeowner who is not making their mortgage payments to do a short sale than it is to foreclose.
What the homeowners don’t realize is that they may get a 1099 for the payment and possibly for the amount that the bank forgives! And remember: the IRS doesn’t forgive or forget. Ex-homeowners could be paying taxes and possibly fines on the amount for a long, long time.
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Neal Reynolds has worked with hundreds of banks and credit unions around the country helping them to grow core deposits and market share without growing their marketing budgets. Contact him at [email protected].
