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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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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