The VITA volunteers at ACMG Federal Credit Union ($62.1M, Solvay, NY) saw close up the angst that’s been reported around the country this year as some taxpayers realize they’re not getting the tax refund they expected.
“Some were quite upset,” says Wendy Wheelock, director of marketing. “‘This is crazy,’ they told us.”
ACMG trained students from Syracuse University to be volunteer tax return preparers, and the group assisted 168 taxpayers during two sessions in February.
Further south, UVA Community Credit Union ($954.2M, Charlottesville, VA), has prepared more than 525 returns so far this year across its six branches where staff volunteers provide the service on weekdays and Saturday mornings.
“We saw some tears,” says Rebecca Cardwell, vice president of community relations and business development.
ACMG and UVA Community are among thousands of participants in the IRS-sponsored Volunteer Income Tax Assistance program. The program provides assistance in preparing returns to qualified taxpayers, not assistance in paying those taxes or in covering the bills that won’t get paid because the filer didn’t get the return they were counting on.
The new tax law was intended to generally lower employees’ withholdings to better match their anticipated tax liability and boost their take-home pay. But the other side of that equation — that a boost in take-home pay would mean less available for a refund — still took millions of people by surprise as the W2s arrived and reality set in.
Economics And Rational Behavior
Lots of punditry already has taken place around what might seem to be a lack of rationality. A good read on that is by New York Times economics correspondent Neil Irwin titled “Why People Are Outraged at Lower Tax Refunds (But Probably Shouldn’t Be).” Indeed, behavioral economists can have a field day in the months and years ahead studying the 2019 tax season, but for many Americans today, the reduced return is hitting hard.
“We may see significant impact on people who are already in a financially fragile place,” Gigi Hyland, executive director of the National Credit Union Foundation, told the Credit Union Journal.
The evidence is anecdotal right now, and it will be difficult to suss out the exact impact on delinquencies and the like, but credit unions, especially those serving low-income memberships, might well keep an eye out for what happened and what they can do about it.
The Journal article cites a Harris Poll done for the National Endowment for Financial Education that found 24% of the 2,000 consumers surveyed got less money back this year and 15% got more. Only 7% said they paid more federal taxes than they had in the past.
Where The Reality Hits The Road
Those Harris Poll findings likely don’t mean much when it comes to the daily imperatives faced by the nearly eight in 10 Americans who live paycheck to paycheck.
Where does a reduced refund put those people?
“Will they not take care of their health because they don’t have the money?” Hyland asks. “Will they not be able to take care of bills? Will they have to take out a loan from their credit union?”
Of course, these are questions credit unions and their members face year-round, and although a quick check around credit union land for credit unions that offer specific programs geared toward helping members save their tax refunds came up empty, there are plenty that offer programs encouraging savings in general.
That includes ACMG.
“We encourage savings year-round,” says marketing manager Wheelock.
When the opportunity arises, staff suggests members who receive a return clear items that are holding down their credit score and use some of the newfound funds to open a secured credit card to build positive credit history.
The upstate New York credit union also offers a prize-linked savings account branded as the Lucky Saver. Similar savings plans have popped up across the country as state legislatures approved these lottery-type structures.
UVA Community also talks about repairing credit and saving for the future — such as for college or retirement. It has special offers, such as waiving the membership fee or free checks for setting up direct deposit, for non-members who join the credit union.
“There are some restrictions imposed by the IRS regarding ‘materially gaining’ from taxpayer relationships,” Cardwell says.
That’s OK because the VP at UVA Community says the credit union views the VITA relationship as a way to keep others from materially gaining too much from low-income taxpayers that otherwise might use for-profit tax filing firms or buy-here, pay-here lots, which charge what the market will bear for tax preparation in addition to their own high rates for refund anticipation and car loans.
Instead, according to Cardwell, this year’s VITA work at UVA Community should generate more than $1 million in economic stimulus through projected refunds and savings in tax preparation. For individual taxpayers, some learn they qualify for tax breaks, such as the earned income tax credit, or learn more about the ramifications of their personal situation, such as a divorce decree, in their tax filing status and options.
Advances In Hindsight
But what else can credit unions do? There’s a lot of creative thought around new approaches to pre-committing savings. Some involve using simple data analytics to bring the idea of the venerable Christmas Club into the digital age.
For example, credit unions can text members a savings tip or product offer after an ACH deposit hits their share accounts. The Common Cents Lab at the Center for Advanced Hindsight at Duke University did some field work on that idea, including incenting tax refund savings, and shared the mix results in a report titled Increasing Short Term Savings.
The center also experimented with savings matches and rounding up debit payments, both well-established tactics in credit union land.
These are all good ideas, but only time will tell if they can help responsible financial institutions find a way to temper their members’ expectations and prepare for a tax bill instead of a spring splurge, whether that plan was to buy something new or pay off something due.
How Will You Give Back?
Don’t wait for the marketplace to evolve without you. Take a step back from the day-to-day and focus on issues of strategic importance, such as how to best serve your community. Callahan & Associates’ Strategy Lab helps you do just that.
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