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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Hot Check Court Another Debtors’ Prison for the Poor

Sherwood's Hot Check Court Arktimes

Sherwood’s Hot Check Court arktimes.com

Little Rock   My brother-in-law and I agree on a million things, but those are family things, construction projects, upkeep of my trailers, automotive advice, and fixing anything and everything, but we do our best to NOT talk about politics, because he’s what you might call a Huckabee-man in Arkansas terms, and I’m anything but. We know where each other stands, so we know how to walk around most of the rocks in the road. This morning at dawn before I pulled out he said, “You got to see this!” He was following the news on Facebook, so I went over and looked over his shoulder where he was pointing. “Do you know about the “hot check” court? They’re running a debtors’ prison over in Sherwood.” I was all no, yes, and out the door. What the heck was a “hot check” court?

He was on to something though. Out of curiosity, I googled hot check court in Sherwood, which is a suburban enclave in Pulaski County across the Arkansas River and up the road from Little Rock. What you find with Google’s help is that, yes indeed, the City of Sherwood actually has a “Hot Check Division” of the Sherwood District Court of Pulaski County. How could it be that this little town has enough hot checks to have its own division? Are people driving from all over the county, the state, and the South in order to try and pass hot checks? The answer is, yes, sort of.

What had caught my brother-in-law’s eye was that the ACLU and the Lawyers’ Committee for Civil Rights Under Law had joined to file a suit for several defendants over the practices of this hot check division arguing that they were effectively running a court as a money printing machine exploiting low income defendants by larding on fines, court costs, and penalties connected with the original offense to milk the defendant and when they couldn’t bleed them dry, they were jailing them to keep the system going. The lawyers weren’t shy about referencing how similar this Arkansas mess was to Ferguson, Missouri where this was a system on steroids. They were also quick to mention that the Justice Department had jumped in and sued several venues around the country for using minor infractions as cash machines for their towns and cities.

In a report by the Associated Press one plaintiff is a good example of this system:

The plaintiffs in the case include Nikki Petree, a 40-year-old Arkansas woman who has been in jail for more than 25 days because she was unable to pay more than $2,600 in court costs, fines and fees related to a bounced check she wrote in 2011 for $28.93. According to the lawsuit, Petree initially faced $700 in court fines, fees and restitution, but the amount ballooned over the years due to related failure to appear and failure to pay charges.

The City of Sherwood of course denies everything. Their claims though seem hollow. They argue that it is only after the third or fourth hot check that they jail someone, and that they offer payment plans to resolve the earlier problems. I’m sure no one has every bounced a check, which is what a hot check is, essentially an NSF or non-sufficient funds matter, but these days if you are on not on top of your balances or a deposit goes bad, you could bounce a half-dozen checks in one sitting, bing, bam, boom! And, the City is in cahoots with the County, because Pulaski County has been sending over hot checks for more than 40 years to Sherwood to crank this ATM for them.

The AP reports that this adds up to a pretty penny.

The groups say Sherwood relies on the hot check fines and fees as a significant revenue source for its operations. The city’s receipts from district court fines and forfeitures were estimated to be at least $2.3 million in the 2015 fiscal year, Sherwood’s third-highest revenue source after city and county sales taxes, the lawsuit said.

Before you start South-bashing and pretending that this is just something you find in the backwoods or in broke-ass states like Arkansas, the lawyers are clear this situation exists in a lot of counties around the state for sure, but all of us know that this is common increasingly all over the South and the country, and certainly not confined to Missouri, Arkansas, North Carolina, and other places that have been in the news for creating modern day debtors’ prisons on the backs of the poor in order to avoid fair taxation and harder political choices.

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