{"id":492472,"date":"2010-03-31T06:00:36","date_gmt":"2010-03-31T10:00:36","guid":{"rendered":"http:\/\/washingtonindependent.com\/?p=80963"},"modified":"2010-03-31T06:00:36","modified_gmt":"2010-03-31T10:00:36","slug":"refund-anticipation-loans-continue-to-harm-low-income-taxpayers","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/492472","title":{"rendered":"Refund Anticipation Loans Continue to Harm Low-Income Taxpayers"},"content":{"rendered":"<p><a href=\"http:\/\/washingtonindependent.com\/wp-content\/uploads\/2010\/03\/tax-forms.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-large wp-image-80967\" title=\"tax forms\" src=\"http:\/\/washingtonindependent.com\/wp-content\/uploads\/2010\/03\/tax-forms-480x318.jpg\" alt=\"\" width=\"480\" height=\"318\" \/><\/a><\/p>\n<p>Despite years of efforts to rein in the practice, lightly regulated tax  preparers will be permitted to continue peddling high-cost refund  anticipation loans once again this tax season to the most vulnerable  filers, as tougher rules to curb the practice languish in bureaucratic  purgatory.<\/p>\n<p><div id=\"attachment_2754\" class=\"wp-caption alignleft\" style=\"width: 140px\"><img loading=\"lazy\" decoding=\"async\" class=\"size-thumbnail wp-image-2754\" title=\"debt\" src=\"http:\/\/www.washingtonindependent.com\/wp-content\/uploads\/2008\/08\/debt-150x150.jpg\" alt=\"Image by: Matt Mahurin\" width=\"130\" height=\"130\" \/><\/p>\n<p class=\"wp-caption-text\">Image by: Matt Mahurin<\/p>\n<\/div>\n<div class=\"floatButtons\">\n<div style=\"float: left; margin-right: 10px; margin-bottom: 10px;\"><script src=\"http:\/\/digg.com\/tools\/diggthis.js\" type=\"text\/javascript\"><\/script><\/div>\n<div style=\"float: left; margin-bottom: 10px;\"><script type=\"text\/javascript\"\n\tsrc=\"http:\/\/d.yimg.com\/ds\/badge2.js\"\n\tbadgetype=\"square\">\n\t<?php the_permalink(); ?><\/script><\/div>\n<div style=\"float: left; margin-right: 10px;\">\n\t<script type=\"text\/javascript\">\ntweetmeme_source = \"TWI_news\";\ntweetmeme_service = \"bit.ly\";\n<\/script> <script src=\"http:\/\/tweetmeme.com\/i\/scripts\/button.js\" type=\"text\/javascript\"><\/script>\n<\/div>\n<div style=\"float: left;\"><a name=\"fb_share\" type=\"box_count\" href=\"http:\/\/www.facebook.com\/sharer.php\">Share<\/a><script src=\"http:\/\/static.ak.fbcdn.net\/connect.php\/js\/FB.Share\" type=\"text\/javascript\"><\/script><\/div>\n<\/div>\n<p> Refund anticipation loans, or RALs, promise  near-instant refunds, but the catch is that they&#8217;re very short-term and  very expensive loans, according to Christopher Kukla, senior counsel for  government affairs at the Center for Responsible Lending. &#8220;In terms of  APR, these things carry a rate of 50 up to 1,000 percent,&#8221; he said,  adding that the rate is often hidden in a bevy of ancillary fees.  Watchdog groups have been waging a policy battle against RALs for years,  working with agencies like the IRS and the Office of the Comptroller of  the Currency. The government has been slow to respond to concerns,  despite an ever-growing body of evidence about the harm these loans  cause low-income filers.<\/p>\n<p>Groups including the National Consumer  Law Center and the Consumer Federation of America have mounted  multifaceted campaigns to remove refund anticipation loans from the  marketplace, but reform efforts have only crept forward. The OCC, which  oversees many of the banks that provide the loan funding &#8212; including  industry giants like HSBC and JPMorgan Chase &#8212; issued internal guidance  for its examiners back in 2007 pertaining to the training and  supervision of third-party tax prep firms, but it wasn&#8217;t declared public  policy until this year. The office also waited until this year to issue  a <a href=\"http:\/\/www.occ.treas.gov\/ftp\/ADVISORY\/2010-1.html\">consumer  advisory<\/a> about RALs. &#8220;This was in direct response to the advocacy  we&#8217;ve been doing, but it&#8217;s still really weak,&#8221; said Dory Rand, president  of the Woodstock Institute.<\/p>\n<p>The IRS has previously examined  whether or not it should be legal for tax preparers to sell financial  products. This January, though, in a move that frustrated watchdog  groups, the agency decided to establish a task force to study RALs and  the legality of allowing tax preparers to share filers&#8217; financial  information with lenders. Advocates like Jean Ann Fox, director of  financial services for the Consumer Federation of America, are unhappy  with the longer timeline creating this task force will entail. &#8220;We were  disappointed this is as far as they went,&#8221; she said. &#8220;The IRS could have  dealt with this to put a stop to it.&#8221; The IRS also <a href=\"http:\/\/www.irs.gov\/newsroom\/article\/0,,id=217781,00.html\">announced  plans<\/a> in January to regulate the tax preparation industry,  requiring tax preparers to follow ethical guidelines, undergo  professional education and testing. Creating and implementing these  standards will take a few more years, despite the six months&#8217; worth of  research that preceded the January announcement.<\/p>\n<p>The stakes are  so high because RALs prey on the most disadvantaged Americans. Groups  like the Neighborhood Economic Development Advocacy Project, which  offers assistance to low-income New York City residents, says RAL  providers deliberately target poor, uninformed recipients of the Earned  Income Tax Credit, many of whom are outside the realm of mainstream  banking and rely on lightly regulated fringe products. In 2007, <a href=\"http:\/\/nedap.org\/pressroom\/documents\/FINAL2010RALsREPORT1-19-10.pdf\">more  than 80 percent<\/a> of RALs in New York City were made to low-income  citizens, and more than 60 percent went to EITC recipients. In some  low-income neighborhoods, close to one in five taxpayers took out a  refund anticipation loan. &#8220;These areas are some of the lowest-income  areas in the country,&#8221; said Alexis Iwanisziw, NEDAP program associate.  &#8220;This money should really be staying in the community and staying with  the families.&#8221;<\/p>\n<p>The primary concern is that tax preparers,  especially independent shops, can play fast and loose with the facts  they give consumers because they never come under scrutiny from the  banks making the loans. According to the Woodstock Institute&#8217;s Rand,  Chase, the bank responsible for supplying the loans to some 13,000  mom-and-pop tax prep outfits, only instituted a mystery shopping program  this January, in response to Woodstock Institute queries about  compliance with the OCC guidance.<\/p>\n<p>In 2008, <a href=\"http:\/\/www.consumerlaw.org\/issues\/refund_anticipation\/content\/shopper_report.pdf\">mystery-shopping  programs<\/a> conducted by watchdog groups found that customers received  incomplete and sometimes inaccurate information about RALs and the  costs they would incur. While new requirements on disclosures, marketing  terminology and customer education have all been announced by the OCC,  the agency is giving tax preparers another year to comply with these new  regulations. Even the new disclosure requirements aren&#8217;t foolproof,  points out Chi Chi Wu, staff attorney at the National Consumer Law  Center. &#8220;The problem with any sort of written disclosures is they&#8217;re not  that useful when [a customer] gets a RAL,&#8221; she said. &#8220;They get another  piece of paper in the stack. It may not be something they look at right  away.&#8221; By the time the tax filer looks through his or her paperwork, the  charges have already been applied against their refund.<\/p>\n<p>The big  appeal of these loans, the Woodstock Institute&#8217;s Rand points out, is  the prospect of instant money. Already, taxpayers who e-file and elect  to receive their refund via direct deposit generally get their returns  within two weeks. If the IRS sped up its payments to taxpayers outside  the mainstream banking system and allowed them to receive that money on a  debit card similar to those used for other benefits, the appeal of RALs  would be diminished. &#8220;These improvements the IRS could make would  eliminate a need for refund anticipation loans,&#8221; Rand said.<\/p>\n<p>&#8220;We  think as a federal policy change, one very obvious thing that needs to  happen is that the EITC should be prohibited from being used as  collateral in a loan,&#8221; said Sarah Ludwig, co-director of NEDAP. This  practice is prohibited when it comes to other federal benefits like  Social Security, and Ludwig says Congress should extend this prohibition  to the EITC. &#8220;If that loophole was closed, it would to a large extent  cut off RALs at the pass,&#8221; she said. The Consumer Federation&#8217;s Fox says  legislation that would limit interest rates to 36 percent would protect  taxpayers, but it has stalled in Congress. There is stiff resistance not  only from fringe lenders but from mainstream financial services firms  against a federal usury cap inclusive of fees and surcharges, since this  would apply to other types of loans, such as credit cards, as well.<\/p>\n<p>Both  the number of RALs and the total cost of obtaining these loans has  dropped slightly in recent years, in part due to market forces that made  borrowing money everywhere harder to do. In 2006, 8.7 million RALs were  issued at a cost of $833 million, which dipped to 8.4 million and $738  million in 2008. Fox says while this is heartening, leaving these loans  on the marketplace makes too many taxpayers vulnerable to exploitation.  &#8220;The volume&#8217;s been dropping over the years, but it&#8217;s time to take care  of this at the policy level. This is deviating taxpayer money. Do you  want to give part of your tax refund to a big bank?&#8221;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Despite years of efforts to rein in the practice, lightly regulated tax preparers will be permitted to continue peddling high-cost refund anticipation loans once again this tax season to the most vulnerable filers, as tougher rules to curb the practice languish in bureaucratic purgatory. Image by: Matt Mahurin Share Refund anticipation loans, or RALs, promise [&hellip;]<\/p>\n","protected":false},"author":5750,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-492472","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/492472","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/5750"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=492472"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/492472\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=492472"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=492472"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=492472"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}