The financial regulatory environment is influx right now, on both the state and federal level. Last year, 20 states enacted new legislation or resolutions regarding financial literacy and financial education issues. In December, President Trump signed the most comprehensive tax reform legislation since 1986; and more regulatory reform is expected in 2018, potentially including the Financial Choice Act and the Senate Banking Committee bill. This deluge of new legislation will impact businesses and individuals significantly.
What should community banks do in preparation for these changes? EVERFI senior financial services expert, Jerry Plush, has over 20 years of executive level experience in the industry, most recently serving as CFO and subsequently CAO of Santander US, overseeing Corporate Services, Vendor Management, Corporate Social Responsibility and Corporate Communications. In a recent webinar, Trump Tax Reform & Interest Rate Implications for Community Banks, Plush discusses important legislative changes and trends that will impact community banks, customers and what banks should be doing now to address them.
Here are 4 key takeaways from our webinar:
1) The Tax Reform Bill – Community banks likely benefit financially from the tax rate decrease. Individuals (i.e. your customers) face tougher mortgage standards and fewer loan payoff benefits.
The tax reform bill calls for a reduction of the corporate tax rate from about 35% to 21%. There have been many bank announcements during earnings release season about how the new regulation impacted their financials, including deferred tax asset and liability reevaluations. As a result, many banks announced how they were investing their tax credits, whether it be reinvesting in their employees, their business, or in the community.
One notable term in the bill that affects the individual consumer is the reduction of the debt limit for mortgages (from $1 million to $750,000). There is also no longer a deduction for interest paid on home equity loans or lines. With the change in standard deductions to $12,000 for single taxpayers and $24,000 for married taxpayers filing jointly, fewer individuals will receive a tax benefit on their interest expense.
2) State-Level Reform – States increasingly prioritize financial education for borrowers and as part of social investment programs.
Financial literacy regulations at the local level have increased, with more and more states prioritizing—and often mandating—financial education for adults; in addition to an existing focus on K-12 financial literacy.
Indiana recently introduced a bill requiring borrowers taking out multiple loans to complete a financial literacy course at no cost to them. New York now provides financial literacy education to participants of public assistance employment programs.
3) Understand how state and federal regulations affect your institution, employees and customers.
It is essential to keep up with how new and proposed legislation affects your business, your employees and your customers. Having a firm grasp of current regulatory changes will enable you to optimize your business by, for example, providing timely products and services that suit your customers’ latest needs and communicating concerns about proposed reforms to your representatives.
Take a comprehensive look at each line of your business and ask questions such as: What impact is tax reform going to have on us? On M&A activity? On third party relationships? On our strategic plans? How can we best serve our home-buying customers with the new bill in mind? Might demand for certain products increase/decrease as a result? How can we ensure our management teams and board members understand the implications of tax reform?
4) Reinvesting in your employees, customers and communities gives you a competitive advantage.
“Doing good while doing well” is the philosophy of giving back to your employees, customers and communities when in a favorable position. For example, fewer regulations might afford banks to turn their focus on exceeding expectations by offering high quality products and/or services to members of the community, such as providing dividends, bonuses/raises, philanthropy and education.
Educating employees on the financial climate is vital. Greater involvement of your team in regulatory discussions will lead to more strategic perspectives and greater expertise when interfacing with customers, prospects, local and state government and third-party vendors.
Educating community members is also key. Consider providing a digital financial education program to customers or getting a local CPA to hold educational open sessions in your meeting rooms for members of the community. Such engagement will serve many purposes, including building goodwill and trust in the community, improving brand awareness, creating more informed customers and fulfilling CRA requirements.
Customers, prospects, and local and state government notice and respect good corporate citizenship. Consistently demonstrating support for the communities you serve is often the best marketing, and can be a true differentiator for your institution.
Click to listen to the full webinar: “Trump Tax Reform & Interest Rate Implications for Community Banks.”