Auto loan interest deduction proposal raises concerns
While credit unions support consumer-focused tax relief efforts in H.R. 1, the proposed car loan interest deduction provisions raise major concerns for credit unions. Detailed comments sent Monday by America’s Credit Unions to the Internal Revenue Service (IRS) urges the IRS to consider its significant “operational, compliance, and consumer-facing challenges.”
As outlined, the provisions take effect for only a limited three-year tax period. Putting them in place would require large, one-time costs, complete rewrites of credit union systems, or requiring determinations based on information that credit unions do not hold.
“In particular, the proposed rule appears to effectively require credit unions to determine whether a particular vehicle loan constitutes a specified vehicle passenger loan (SPVL) even though credit unions may not have access to all of the information necessary to make that determination,” the letter reads. “We respectfully request that borrowers, not lenders, be the parties responsible for determining whether a vehicle loan is an SPVL.”
In just one example, a requirement to record detailed vehicle information will require system modifications to loan origination, servicing, document retention, and reporting systems. America’s Credit Unions’ member credit unions have shared the difficulties they would face in addressing this, as it would require significant resources and employee hours. Other challenges include model year versus manufacture date, the “personal use” requirement, and treatment of refinancing, negative equity, protection products, payment reversals, and more.
In light of the difficulty, and in some cases impossibility, of operationalizing these requirements, America’s Credit Unions urges the IRS to provide relief and safe harbors for “any determinations in the proposed rule that credit unions may lack the information necessary to make.”