The IRS Enables the Return of Refund Anticipation Loans

New Orleans   Refund anticipation loans or RALs, as they were known, were one of the most predatory products on the market in their heyday targeted solely to low-and-moderate income workers who were most desperate for their tax returns. They were on the other side of the digital divide so less likely to file with the IRS electronically. The money was theirs, and tax preparers, especially the big boys of the market, H&R Block, Jackson & Hewitt, and Liberty Tax Services all exploited this desperation.

This was a 21st century national campaign for ACORN, and we forced the first negotiations with H&R Block after 330 actions in a 6 week time period during the height of the tax season, and eventually ended up with agreements with all three of the companies to wind down RALs. Disclosures of the interest rates were part all of the agreements, but it didn’t really matter since even if it said the interest rate on the loan to get their money one week earlier than the IRS would deliver it would cost them 349%, displayed in a poster or on the computer screen, if you have to have the money to pay rent or buy groceries or fix the car and you have to have it right now, disclosures, no matter how predatory don’t matter. Eventually we got HSBC to withdraw as the primary lender to the companies for RALs for what they termed, “reputational reasons” because the loans were so exploitative. Finally, the IRS and eventually other government agencies jumped in and also condemned RALs, and they finally faded from the market.

Now, thanks to the IRS, they are back, and there is even less doubt about the potential victims now. In 2017, the IRS decided to deliberately delay refunds until February for any taxpayer that claimed the earned-income tax credit or the child tax credit. These credits are only available to lower income workers. Presidents from Clinton to Bush to Obama have argued that EITC is the best and largest “anti-poverty program in the United States.”

On their website the IRS claimed they were concerned about an “error rate” of between 20 and 27% for filers in order to justify these delays. Something is fishy here. This is the IRS. The error rate should be an exact number based on information they have at hand on how many corrected filings they required, so giving a fudged number raises questions in my mind. Furthermore, their advice is to preparers who enable incorrect filings, which the IRS concedes are largely based on the complexity and confusion involved in the EITC program. Why was the pain not pushed to the preparers, rather than the families filing who were delayed unreasonably in receiving their returns? Oh, and meanwhile the number of audits of higher income filers is in the dumps now!

The preparers saw an opportunity and seized it by offering RALs again. Admittedly, these were no-interest loans this time offered against the amount of the return, and they had loan limits depending on the company’s policies. The big boys report over 1.5 million RALs are reported already this tax season with a month to go. Block did 840,000, Liberty175,000, and Jackson Hewitt 485,000. For the preparers, this is just the cost of customer acquisition, since it is cheese in the trap to catch low-income workers who would be forced to fork over the preparation cost to get their refunds.

No matter how much sugar you put in the coffee, this is once again the IRS partnering with private preparers to expand their businesses. The only real question is how long it will be before RALs are back in full and terrible force again?

The only good news in this tawdry story is that overall filings are down so far this year, so some people at least have decided to wait all of the vultures out.

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Public Subsidies of Low Wages

publicbenefitsNew Orleans      The Berkeley Center for Labor Research and Education at the University of California has released a report looking at many federal and state subsidies directed at relief for lower income Americans.  All good.  What they found though is that a huge percentage of this kind of support is not in Republican ideological terms, helping people get their lives together to get jobs, but is in fact subsidizing the low wages of existing work.  In the words of the chair of the center, our old comrade Ken Jacobs, “This is a hidden cost of low-wage work.”

The Center’s new report defined a working family as any family that included a worker averaging at least 27 hours of work weekly.  Under that definition, looking at the statistics that were available to them, almost 75% of the people helped by federal programs like food stamps, EITC, and Medicaid are headed by workers.  Based on their calculations the cost of such public support for working families was over $152 billion per year.  Working families were the biggest beneficiaries of federal programs aimed at the poor in all but six states.  Make a mental note or jot this down on a piece of paper nearby:  this does not include anything involving health care support based on the Affordable Care Act because no figures were available yet for such calculations.

Don’t misinterpret these figures.  I’m 100% for what I call “maximum eligible participation” as a key ingredient for “citizen wealth.”  In fact I think we need to redouble our efforts to make sure all families that are eligible for any of these programs are in fact receiving the benefits.  That’s what they are for, so we should make them work.

Where the rubber hits the road on welfare versus work is that the ideological drift since President Clinton has shifted most federal and state support towards workers and away from providing the underpinnings for the poor that would platform their ability to build stable lives, and, yes, even access more education and work.  There is only so much money and so many ways to slice the pie though, so instead lawmakers have retreated from attacking poverty and moved instead towards subsidizing lower wage work as we have increasingly become a service-based, lower waged economy over the last generation.

The inescapable argument of the Berkeley report is that if employers were paying fair wages, less subsidy would be required. At one level the report is feeding into the right ideology that maybe there is something wrong with workers getting food stamps, EITC and other support.   At one level the report is feeding into the right ideology that says we should support lower waged work and that maybe there is something wrong with workers getting food stamps, EITC and other support.  That is not their theme and is inadvertent, but that’s the cloud that hangs over a figure like $152 billion, as more red states will claim they should cut back support to workers, as we have seen recently with the retraction of support for providing food stamps for many men without dependent children.  Every dollar of that money is well spent, and more should be spent in fact, but as long as we are publicly subsidizing low wages, we are not able to provide more critical support to the lowest income families to pull them out of poverty, and that’s worse than a shame.

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Tax Preparers Refund Anticipation Loans are Out of Control – Again!

AP_Tax_Refund_Advances_t_w600_h3000New Orleans         After years of campaigns by ACORN and agreements with the major tax preparers, H&R Block, Jackson-Hewitt, and Liberty Tax Services, to rein in the abuses and predatory pricing of “refund anticipation loans” or RALs, as they are known in the industry, it appears that the rats will play “while the cat is away.”  Nina Olson, the IRS’ national taxpayer advocate was quoted in an AP story calling the situation now the “wild, Wild West” and “called the level of risk for abuse in pricing and quality of service unprecedented.”  What the heck?!?

It seemed just yesterday that the tide was going the other way and that the earlier ACORN victories were being to be set in concrete.  The IRS had announced that they were promulgating rules to restrict the use of RALs – finally.  The IRS was finally going to create some rules of the road, including licensing at some level or something to assure a degree of competency by tax preparers.  Major banks like HSBC and others had refused to continue to offer the lines of credit to the preparers for such products for “reputational” reasons.  The Consumer Financial Protection Bureau had announced that it was on the case as well and strict rules were coming.   And, now it’s the wild West?

Refund anticipation have soared 17% to 21.6 million taxpayers in 2014 compared to 2011 according to IRS data given to the Associated Press.  Worse the big prep companies are hooked on this drug.  RALs and prepaid cards loaded with anticipation refunds make up 10% of H&R Block’s gross sales now, and the even more bottom feeding, Liberty Tax Services, is sucking up 20% of its revenues through such pure and simple exploitation.

Drive through any low-and-moderate income area and the tax payers are housed cheek to jowl along the main thoroughfares.  When you see the young people dressed in atrociously green Statute of Liberty costumes dancing with arrow signs to lure you into fast service at a Liberty storefront, don’t laugh, because the bait is luring victims into the trap.  Make no mistake about where the predators are feeding.  The IRS data reveals that “about half the purchasers are EITC recipients.”  The Earned Income Tax Credit touted by Presidents of both parties as their major anti-poverty program for low income, working families is only available for such families as a way to get ahead and survive, but those are the pockets being picked.  Of all victims of these high interest loans charging usurious rates between 250 and 400%, 84% are low-income.  There’s no question about what’s going on here.

The IRS is whining because they lost a court appeal on their licensing effort for tax preparers, but what happened to their efforts to rein in the RALS.  They have tools a plenty.  The Consumer Financial Protection Bureau now claims they are close to having something written up, but their scope seems limited to more transparency, and looks good, but has little practical impact on the predation.  ACORN got all of the companies to make posters with the rates that preparers would show at their desks and on their computer screens, but that was just the toll people had to pay to get on the faster highway to get their money.

The IRS and other agencies of government are essentially allowing an income transfer from the federal government intended for lower income families to become a direct remittance to private companies’ bank accounts, because they are unwilling to either put their foot down on the practice or step up and move all or part of the refunds to families more quickly themselves or through preferential preparation sites.

This ought to be a scandal, and, if intent counted, it’s a crime.  Without a doubt it’s a government approved swindle.

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Street Dogs – Unions and the Law (Alt Version)

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Making Earned Income Credits a Better Incentive for Work and Fair to the Childless

Energy-Tax-CreditsPeterborough    In a recent op-ed in the Wall Street Journal, Princeton economist, author, and former Vice Chairman of the Federal Reserve Alan Blinder made a brilliant case for Congress to actually read Obama’s proposal and do more to make the Earned Income Tax Credit really increase citizen wealth and even, are you listening my Republican buddies, act as an incentive for lower income workers to in fact work more.  It’s worth reviewing his arguments and sharing them widely.

            First, he simply pointed out how the program works now in three stages:  phase-in, plateau, and phase-out. 

In the phase-in stage, as Jane’s annual earnings rise from zero to $9,720, the EITC reduces her tax bill by 34 cents for each additional dollar she earns. Thus, if her employer pays $10 an hour, Jane nets $13.40 for each additional hour worked—providing a financial incentive to work more. The credit stops increasing at $3,305 a year—which happens when her earnings reach $9,720 a year—and then remains on this plateau until her earnings reach $23,260 (less if Jane is single). The credit then begins to phase out—at 16 cents for every $1 earned. The tax credit would be entirely gone when Jane’s earnings reach $43,941 a year. Notice that the EITC actually creates a disincentive to work more in the phase-out range by raising Jane’s effective tax rate.  But the EITC is vastly less generous if Jane has no children—as it has been throughout the credit’s history. If Jane is childless, her subsidy rate during the phase-in would be just 7.65% rather than 34%. The benefit would plateau at $496 a year rather than $3,305, and the phase-out would begin when she makes $13,540 rather than $23,260. These are huge differences.

            Secondly, he basically argues that President Obama’s proposal is too moderate, because it does not equalize the EITC benefit between childless workers and workers with children, but he advocates the proposal, despite its modesty, as still doubling the maximum benefit for childless workers, and therefore also doubling the work incentive. 

            Why a program initiated by Republican President Gerald Ford, heralded by Republican President Ronald Reagan as the “best antipoverty…measure to come out of Congress,” and extended by both President’s Clinton and Obama, is nickeling and diming between workers with and without children makes no sense to me at all.  Work is work and workers and workers, so systemic discrimination just seems counterproductive and mean spirited, but maybe that’s just me.

            It especially seems callous to not at least do what the President is proposing because Blinder points out that the cost is only $6 billion to make this happen, which is hardly a rounding error in the federal budget these days, and is easily offset by closing even minor tax loopholes that Congress is so generously providing to the rich on a daily basis.

            If our political ideology worships the dignity of work, then why can’t Congress put our money where its mouth is?

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KABF.org song of the day

Please enjoy Robert Cray’s You Move Me

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Finally Regulating Tax Preparers

IRSOctatel This may be a case of doing the right thing for the wrong reason, but under any circumstance, it is good news for the the 60% of American taxpayers who pay money to tax preparers for help with their returns:  the IRS finally announced that they are going to require certification and registration for tax preparers!  This could finally be a step in regulating the Wild West of tax prep land, which is fraught with abuse.  It is also likely a sop being thrown to the big mega-preparers like H&R Block, Jackson-Hewitt, and Liberty Tax Services to allow them to bring more order to an industry where even being huge only gives them less than one-third of the market.

Even as the lumbering, passive bureaucracy of the IRS moves towards regulation, they note that CPAs won’t have to register, because they are already licensed, and free tax preparers, like those that once existed at the ACORN Centers when I used to work there, won’t have to have special certifications.  What they did not say, but could have said for the free tax preparers is that to get the IRS filing number for a free VITA center, we already had to get certified!  The article in the Wall Street Journal made it sound like the IRS was being generous, but the facts, as usual, are wildly different, since it’s rather a case essentially of having already forced service centers for the poor to have to be regulated, and finally now having them get around to the rest of the industry!

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Santa Barbara Finally Pulls Up Short

jackson hewitt logoQuepos            It was an extra present under the palm tree to read in the pre-dawn that Santa Barbara Bank & Trust was being pulled out of the business of factoring RALs, predatory refund anticipation loan for Jackson & Hewitt and other companies in the viciously competitive tax services market for lower  income and working families.  Several years ago direct negotiations with HSBC, previously the largest factor for such loans, had pulled out of the market (which I have discussed in Citizen Wealth at some length) and Chase had been reforming its practices, but Santa Barbara had been the big holdout.

            Partially, it was simply the “one that got away.”  It’s footprint was smaller with a base in Santa Barbara that was too far away from our groups and members to do much damage.  They had gotten into this predatory business and done very well, but were impervious to the impacts.  What did it matter to their normal customer base  in Santa Barbara after all?

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