Banks fight key part of Biden agenda by calling it bad for minorities

Cadence’s business association, the powerful American Bankers Association, is waging a war on a key part of the Biden administration’s economic agenda: the requirement for financial institutions to report entries and exits to the Internal Revenue Service annually. gross on accounts equal to or greater than a certain threshold. Financial institutions do this by insisting that the proposal, if passed, would be costly and that marginalized communities would pay a disproportionate price.

Financial institutions lobbying the Hill, including minority banks, have pointed out that the provision could be problematic for households of color, who have long been disproportionately excluded from the banking system, said three people familiar with the discussions. They pointed out that additional disclosure requirements would create privacy concerns, which in turn would create an additional barrier for marginalized groups or cause existing clients to leave.

Critics say this is a deceptive and whiplash-inducing effort by the financial industry to claim a high moral standing after decades of accusations of discriminatory practices. But there are indications the argument resonates. The Biden administration had advocated for this minimum threshold to be set at $ 600, but lawmakers have reached an agreement in principle that the new threshold will be $ 10,000. Under the deal, the total will not include deposits from payment processors, according to a Democratic aide.

For banks, this is not enough. They say almost all Americans will be subject to the declaration and they want to eliminate the potential requirements altogether. They are fighting to roll back the demands even further.

“Banks and other stakeholders have made progress in reducing the number of unbanked people in the country, and we are concerned that this proposal will deter people who would benefit from a bank account from even applying,” said Ian McKendry. , spokesperson for the American bankers. Association, in a press release. “It’s not a result that everyone should want.”

Supporters of the disclosure provision say it is intended to ensure that the wealthiest pay their fair share. And experts say the financial institutions’ argument is flawed at best. At worst, said Darrick Hamilton, founding director of the Institute for the Study of Race, Stratification and Political Economy at the New School, banks are trying to capitalize on a moment of national judgment on the racism and police brutality.

“If banks and financial institutions are concerned that black and Latin households and indigenous households could access their services, then the focus should be on fines, fees and affordable products,” Hamilton said. “Using race as a mechanism to get around this requirement, whether you think this requirement is good or not, becomes spurious, and maybe even a stronger word: just sad.” Manipulator, co-optation, these are the words that come to mind.

The disclosure provision that Biden’s team had sought to include in the reconciliation bill was seen as a handy fruit to raise funds to pay for social spending and the party’s climate agenda, upon which the party is based. legacy of the president. The administration argues that its plan would raise $ 460 billion over the next decade, at least in part due to increased compliance once taxpayers realize the IRS has more much of their information. And it would not be cumbersome to implement, they add. New data, the Biden administration argues, would simply build on existing reports required of financial institutions by the federal government.

In a statement, Senator Ron Wyden (D-Ore.), Chairman of the Senate Finance Committee, said the provision was intended to target “extremely wealthy tax evaders who are capable of robbing working taxpayers”, not working class.

“For frequent travelers who make most of their money through middle-of-the-road companies and the like, there’s hardly any connection at all,” he said. “So they think they can get away with cheating and often do. This proposal concerns them and ensures that they pay the taxes they already owe. … Workers know that the tax system is compulsory for them and optional for the rich and they are in favor of correcting it.

The banks have marketed their opposition to the measure as a matter of privacy protection. But opponents also misinterpreted the scope of the provision, saying it would require banks to report every transaction over $ 600. In a hearing earlier this week, Senator Cynthia Lummis (R-Wyo.) Pressured Biden’s Treasury Secretary Janet Yellen over what she mistakenly believed to be a provision requiring the reporting of transactions of $ 600 or more, such as buying a “couch” or a “cow”. (The measure does not require reporting of individual transactions, only annual cumulative totals.)

“This is not a proposal to provide detailed data at the level of transactions by banks to the IRS,” Yellen told lawmakers. “We have an estimated tax gap of $ 7 trillion over the next decade, which is taxes owed and unpaid to the government that rob us of the resources we need to make essential investments for life. make America more productive and competitive. “

She also argued that the $ 600 figure, while small, was necessary so that individuals could not play the system through multiple accounts.

Sen. Mike Crapo (R-Idaho), senior member of the Senate Finance Committee, and Representative Kevin Brady (R-Texas), senior member of the House Ways and Means Committee, presented legislation that would block the new declaration. conditions. Democrats in August blocked Crapo’s budget bill amendment that opposed the reporting requirement. Brady is retiring. Crapo is not. This year, he received $ 5,000 from the Mortgage Bankers Association PAC and $ 2,500 from the Independent Community Bankers of America PAC, both of which opposed the measure.

In addition to these privacy concerns, financial institutions argue that the measures – the new infrastructure they would need – would be costly and could create a security risk for vast amounts of personal financial information.

All in all, the new requirements “would almost certainly undermine efforts to reach vulnerable populations and unbanked households,” a coalition of business and finance associations wrote to congressional leaders earlier this month.

A household is “unbanked” if no one has a checking or savings account at a bank or credit union, a term often correlated with worse economic outcomes. A 2019 report from the Federal Deposit Insurance Corporation, an independent government agency, found that about 5.4% of U.S. households were unbanked that year. But the rates varied widely between racial and ethnic groups. Among black households, that number is 13.8% and among Hispanic households, 12.2%.

There is some evidence to suggest that financial institution skepticism is turning potential bank customers away. The FDIC report found that 36% of unbanked respondents said avoiding banks offered more privacy, and 48.9% said they did not have enough money to meet bank requirements. minimum balance.

But 36.3% of unbanked respondents said they don’t trust banks, which experts say is a residual impact of banks’ history of discrimination against people of color. As illustrated by the case against Cadence Bank, which declined to comment on this story, there is a long and heavy history of banks refusing to grant loans to black communities, which has contributed to the racial wealth gap in the country. country. A 2018 study by the National Community Reinvestment Coalition found that the legacy of redlining, the practice of banks denying services to certain neighborhoods, persists today.

Asked about the history of financial institutions marginalizing people of color, Ryan Donovan, executive vice president and advocate for the Credit Union National Association, said credit unions have made significant strides in diversity, equity and inclusion in recent years. And, he added, a policy requiring additional reporting and disclosure from financial institutions was not the way to help.

But Jacob Faber, an associate professor at New York University, said financial institutions have long argued that the cost of new regulations would disproportionately fall on low-income people. Today, communities of color are less likely to have commercial banks, and these relatively few commercial banks are more likely to have higher fees and stricter requirements for their accounts, he said. , claiming that financial institutions’ arguments about distrust of the system are cyclical.

“It’s the banks that are fueling this undue fear, so any kind of fear associated with it is just their fault,” he said. He also argued that redlining is far from a dead practice – highlighting the discrimination case against Cadence Bank. “This is something that persists throughout the history of the financial services industry. “

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