With Congress debating more pressing matters, a bill that would give tax breaks to banks offering individual development accounts to low-income consumers has languished in a Senate committee for months.
However, some of the country’s biggest banking companies, including Citigroup Inc. and KeyCorp, are stepping up their lobbying efforts to get the bill more attention.
Typically sponsored by community groups, individual development accounts are savings accounts in which banks or nonprofit organizations match contributions dollar for dollar. The aim is to help account holders build savings for specific purposes, such as buying a home, starting a business, or paying for post-secondary education.
Most banks, thrifts and credit unions, though, do not offer the accounts, which they say are unprofitable and too labor-intensive. A July survey by the Corporation for Economic Development, a Washington-based nonprofit, showed that there were only about 21,000 such accounts.
However, tax breaks could persuade more banks to offer the accounts, and 13 banking companies are working with Corporation for Enterprise Development to promote the Charity, Aid, Recovery, and Empowerment (Care) Act, which Sen. Rick Santorum, R-Pa., and Sen. Joseph Lieberman, D-Conn., introduced in February.
If passed, the bill would provide a tax credit of up to $500 per account for banks offering individual development accounts.
About 350 banks, thrifts, and credit unions — most of them smaller institutions — offer individual development accounts.
Participation by larger institutions such as Citigroup, would provide much-need momentum for the accounts, said Melissa Koide, a senior program manager for the Corporation for Enterprise Development.
Edna R. Sawady, the chief operating officer of community development for the $83 billion-asset KeyCorp, of Cleveland, said that passage of the Care Act would make the accounts more affordable for banks.
“As an industry, we have huge fixed costs” for administering the accounts, Ms. Sawady said. Extra staff is often required, because each account must be monitored separately for compliance with the terms of whatever community program it is affiliated with, she said.
The Care Act, designed to encourage charitable giving, covers a wide range of deductions for businesses and individuals. The Senate Finance Committee passed the bill, which has 27 sponsors and bipartisan support, in July. Two months later Sen. Santorum urged the full Senate to vote on the bill, but opposition to a provision that deals with contributions to faith-based organizations has hampered its progress.
In July the Corporation for Enterprise Development and 13 banks formed a working group to focus on getting the bill passed, either this year or in the next Congress, which will convene in January.
The group is also looking at ways to encourage more banks to offer individual development accounts if the bill is not passed. Banks receive Community Reinvestment Act credit for offering the accounts, but Ms. Koide said that is not enough of an incentive for most banks.
“We at least need to make it a break-even prospect for them,” she said.
FleetBoston Financial Corp. has been building its operations in low-income communities over the past 10 years. Michael Glavin, the $192 billion-asset company’s director of regional economic development, says it sees an opportunity to use individual development accounts to expand in those communities.
Over the past 18 months Fleet has opened 600 such accounts and contributed $500,000 to launch programs and conduct financial literacy classes to prepare consumers to use the bank’s services.
“It is a way for a low- or moderate-income person to build personal wealth and offers us an opportunity to cross-sell,” he said.
The Care Act would encourage other banks to offer individual development accounts, Mr. Glavin said. He expects it to pass next year.
