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BankThink

Use CRA to promote college savings

As federal regulators begin revamping a law aimed at reinvesting in communities, now is the time to consider how deposit products that focus on education can help bolster the neighborhoods that banks serve.

The Community Reinvestment Act of 1977 was designed to encourage financial institutions to help meet the credit needs of the communities in which they do business.

In attempting to update this more than 40-year-old regulation, two federal financial regulators — the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. — proposed a replacement last month. The stated intent is to “encourage banks to provide billions more each year in Community Reinvestment Act qualified lending, investment and services by modernizing” the law “to better achieve the law’s underlying statutory purpose.”

It appears that the three pieces to the CRA regulation should be lending, investment and services.

Yet the vast majority of the proposed regulation covers performance standards related to lending; some on investment and community development; very little on services; and none on deposit services.

The dictionary defines “community” as “a group of people living in the same place or having a particular characteristic in common.” Yes, a community is all about “people.”

The new CRA proposal needs to address the deposit services for people, especially low- and moderate-income, within a community as well as the lending needs of these people. However, the draft CRA sets no performance standards for deposit services.

The No. 1 issue that can help all communities is enhanced education. Not just education about how to use financial services, but specific advanced education for the people within the community.
Whether someone wants to be an automotive mechanic or a doctor, it will require advance education and training.

None of the community advocacy groups mentioned the issue of investing in education when they addressed a House Financial Services subcommittee last month.

Education is the one factor that will assist communities throughout the U.S. to help lower unemployment, especially for low- and moderate-income people, increase the standard of living and lower crime rates within their communities.

A 2019 survey by Edward Jones found that 33% of people did not know that a 529 plan was an option to save for college or trade school expenses. A 529 plan is basically an investment account that gives a tax break when the money is used for certain education expenses.

Furthermore, the Edward Jones study found that 36% of parents with children under 18 said they do not save for future education expenses, and a mere 11% said they save more than $5,000 per year. When it came to specific education savings strategies, 529 plans were the least prioritized strategy at 18% of respondents.

What educational savings option is available for the 82% of families not using a 529 plan?

Many banks do not currently offer a deposit product to actively promote education, encourage saving for education and perhaps, even help pay for a customer’s education-related expenses. This does not include a traditional “Education Savings” account, which does little to encourage significant savings for education-related expenses.

If banks really want to invest in their communities, and serve the low- and moderate-income people, they should have a performance standard within the new CRA regulation that encourages them to offer dynamic and proactive products focused on education.

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