WASHINGTON—The Defense Credit Union Council is asking the Department of Defense to champion its concerns over the new IRS reporting proposal, and take those concerns to Capitol Hill.
As CUToday.info reported, a proposal from congressional Democrats and the Biden Administration that would have initially required credit unions to report all member account inflows/outflows of $600 or more has recently been dialed back, due to opposition from multiple groups beyond just credit unions.
Similarly, DCUC President and CEO Anthony Hernandez has to the DoD stating the organization is very concerned about the additional reporting burden the legislation would inflict on military CUs and the entire credit union community.
“Credit unions have always held the needs of their members and their communities at the forefront of everything we do. This has been especially true during the last 18 months in response to the pandemic,” wrote Hernandez. “As part of our foundational mission of financial inclusion we continue to do all we can to attract and retain the unbanked and underbanked. However, this proposal directly strikes at privacy concerns, which is one of the main reasons individuals avoid opening a personal checking account. It is a slippery slope without any safeguards on disclosing or leaking personal information, purchase history, or charitable donations,” wrote Hernandez.
Additional Concerns
Apart from privacy concerns, Hernandez said DCUC believes the proposal also imposes significant compliance costs on its member credit unions in terms of hiring and retaining additional regulatory and compliance staff.
“This affects all credit unions as the cost of doing business continues to escalate. Yet, when lawmakers and regulators add new rules it disproportionately impacts smaller credit unions, where financial inclusion effort matter most,” he stated.
Hernandez noted the regulatory burden is accelerating at small credit unions faster than the rest of the industry.
“Between 2016 and 2018, the cost of regulations for small credit unions climbed 5% to $814 million, according to Cornerstone Advisors. For the rest of the credit union industry, the cost rose by roughly 2%,” Hernandez explained.
Regulatory costs as a percentage of average assets at small credit unions totaled 73 basis points in 2018, compared with 47 basis points for the rest of the idustry. Additionally, in 2018 return on assets (ROA) for small credit unions came in at 60 basis points, according to Hernandez.
“In other words, regulatory costs were 25% higher than their ROA. This is on top of heavy labor shortages and rising personnel costs as a result of the pandemic,” Herandez said.
Worries Over Security
There is also the issue of data security, added Herandez.
“In light of the fact that the IRS already experiences nearly 1.4 billion cyberattacks each year, we are also concerned with potential data breaches such as the ones the Treasury and Commerce Departments experienced in 2020 on top of the one OPM experienced a few years ago. Since we serve military members who serve in harm’s way, these data breaches also put individuals and critical military missions at risk.
“Despite recent reports to raise the reporting threshold from $600 to $10,000 and/or to exclude direct pays, the government has still not demonstrated its ability to adequately build and maintain databases that can actively protect private individual financial data,” continued Hernandez. “Plus, there is little evidence to show how this proposal narrows the ‘tax gap” between federal outlays and revenues. It is simply cost prohibitive relative to the gain. Then there are costs to repair the damage once private data is breached—both material and in terms of mission failure.”