Re: Working at storefront, trying to fully disclose RALs

How about looking for another job?

One of the things that makes RALs work is the Debt Indicator Bit.

This is a single bit returned with every e-file acceptance by the IRS.

It tells the Electronic Return Originator if the taxpayer has an Offset applied to the account to pay a debt to federal, state or local government agencies.

Intense lobbying by the largest tax peparation firm persuaded Congress to mandate that bit be returned to EROs. Without that bit the RAL lender would not know if a refund would coming.

The Taxpayer Advocate, Nina Olsen, who reports to the Commissioner of Internal Revenue but by statute must submit two annual reports directly to the Congress without first checking in with anyone above her, has consistently criticized RALs.

Last year she picked on that one bit to criticize as part of her RAL advice.

So the ball is squarely in Congress' laps.

Has anything happened?

Silence from Congress. Nina Olsen will probably include RALs in her reports again this year. The national tax preparation firms and many smaller tax preparers find RALs a significant part of their business model and would probably be oppossed to changing the debt indicator bit.

On the other hand, the largest of the national chains has greatly de-emphasized the importance of RALs in its pay structure.

Here in Ohio, last month the legislature greatly lowered the "pay day loan" interest to something like 28%, effecively closing down that industry. But RALs are a federal issue. The best states have done is required fuller disclosure, which gets us back to OP.

And in defense of OP, even though I personally would not touch RALs, it is a legal offerring which a large number of taxpayers are quite willing to pay for.

Like many of my clients, you guys don't seem to be seeing the cross- collection issue. And no wonder, for it's something completely out of the blue. It's as if you're opening up a checking account and among the papers you sign is permission for the bank to remove money from your account FOR MONEY YOU OWE TO SOMEONE ELSE. Or, it's as if you're putting up earnest money to buy a house, and among the papers is permission for the bank to take from that money for debt you owe to someone else and a person unrelated to the current transaction.

So with cross-collection, if a client is due a $4,000 refund from a combination of EIC, withholding, and additional child tax credit, HSBC will potentially take the ENTIRE REFUND for purposes of third party debt collection. Santa Barbara Bank & Trust will do the same thing.

Some of my clients do get it. One man said, "I want to pay my bills, but on my own terms." But many do not, because they are understandably focused on whether or not they'll be approved and how long.

In the California Attorney General's Feb. '06 lawsuit against H&R Block this was one of the issues cited: "?Therefore, Block clients who are claimed to owe debt from a prior year are led to expect a loan, but instead find themselves in a collection proceeding,? the complaint alleges.

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-Tiger

That's blatantly false. It's disclosed, repeatedly, and I'd be very surprised if your employer hasn't instructed you to discuss it also.

There is a toll free phone number a prospective loan applicant can call before agreeing to anything, to find out if any prior debt is outstanding on their account according to HSBC. Why don't you let the client use your phone to make that call?

The client also typically has 48 hours to cancel the loan application.

I'm not a defender or promoter of RAL's, but think the facts should be made clear.

Even the IRS Taxpayer Advocate states that about 10% of households are unbanked, and the RAL has been the only alternative for them to receive a [loan on the] tax refund in less than 5-6 weeks.

(try this link instead of the one posted by Art Kamlet, I think it's the one he meant -- it is not included in the link he posted, only referenced in the table of contents):

Since HR Block gets bashed here every few months, it's only fair to mention they now offer unbanked (and other) taxpayers a non-loan product (prepaid debit card) which allows them receive the refund in 1-2 weeks, you can read about it at their web site. This is something the Taxpayer Advocate talks about the government doing, but HR Block has actually done it, and it is promoted on their web site on the same page and ahead of RAL's, not buried somewhere.

Lastly, I'm going to guess that "Doug" (purplepenguin44) and "Personable Tiger" are the same person, based on similarity of posts (RALs, Wesley Snipes), timing of posts, and writing style. Whether or not this is true, both of you have posted essentially the same thing in the last six months: "I'm not disclosing enough about RAL's to my clients, is there any help?" Reply: what is stopping you?

-Mark Bole

No, it's not that we aren't seeing the cross-collection issue. It's that cross-collection isn't the *real* issue; it's merely a smoke-screen which obscures the real issue, which is that RALs are a rip-off and not a good idae for the vast majority of people who are suckered into getting them.

The RAL is to storefront tax preparers what the extended warranty and rustproofing are to car salesmen. It's a bogus product of questionable benefit pitched to consumers when they are at their most vulnerable in the hopes that they will be taken in and agree to purchase a product they don't need.

The only people who can possibly benefit from RALs are people who (a) don't have any credit cards and (b) are in such dire financial straights that they need money to pay of some debt which, if they don't pay it off RIGHT NOW, is going to cause them to become homeless or starve. What percentage of all the people who end up getting RALs do you think actually fit this description?

I don't think the people here have any interest in helping you figure out how to make the cross-collection issue obvious to your clients, because the people here think that what you should be making obvious to your clients is that they shouldn't get the RAL. Presumably, you can't do that because your employer requires you to pitch the RAL to everyone who's getting a refund, hence the advice from another poster that if you are concerned about the ethics of what you are doing, you should find yourself a different job.

What percentage do *you* think fit this description? It might be higher than you imply.

I personally have had clients who really did need money the very next day to pay the past due rent, or to get their car out of the repair shop so they could get to work (at least, that's what they told me). But it's self-selecting -- if a tax preparation firm doesn't offer RALs, they will never see these people, and therefore it's easy to forget they are out there, "in numbers too big to ignore" (apologies to Helen Reddy).

What hasn't been mentioned, is that RALs are a marketing tool to attract tax preparation clients, which is still where the bulk of profit for any tax prep firm derives. The OP could be glad that the RAL brings the client in the door and gives him a chance to help the client better plan for next year by taking advantage of the Advance EIC, for example (about which many employers have been mandated to notify their employees), or more accurate payroll withholding. The choice between a RAL, and Advance EIC or adjusted withholding, still belongs to the client in the end because none of us are going to make it up to them next year if they blow their estimate and end up owing.

Also, as a side note, Congress has decided to protect active duty military servicemembers from their own bad choices by greatly restricting, or eliminating, the availability of RALs to these folks. (see "John Warner National Defense Authorization Act for Fiscal Year

2007", Section 666).

A statistic from the IRS Taxpayer Advocate report (previous post) cites

10% of households (U.S.) are unbanked. To me, that's a proxy statistic for how many people aren't very good at managing their finances. I personally was surprised how high that number was, but I suspect that tax preparers (and others who participate in forums such as this) just naturally don't include many people in that demographic among their friends and neighbors. Relatives are another thing! ;-)

-Mark Bole

Do you really want all the people who feel the ethical situation to leave, and you?re left with people who think it?s just fine or who don?t even see it? In working in four different ?Storefront? offices, only one fellow co-worker saw and felt the issue of the loans and cross-collection like I did. That?s disappointing. The other people are good people, sincere people, wanting to help their client, so what happens? In my judgment, most people tend to discount something that is merely written. We can start with health and safety warnings which are sometimes overblown and poorly thought out, so it?s self- protection and rational to some extent. Most people, unless they hear something relatively first-hand, will discount.

Prior to my first year, I read a consumer website, ?Yeah, I owed them money, but that was between me and them, I don?t know how Household got in the middle of it.? I have not been able to re-find that. That would help. These kind of warnings from real people. I would seriously entertain the idea of printing them out and showing them to clients. And we could kind of combine these with more formal publications. Most people still have their mind on getting the loan, so this is still something from left field. And besides, this is communicating in paragraphs which, as a nerd, I tend to do. This isn?t ping-ponging back and forth in a good dialogue.

This season I did okay. The office manager seemed like a good guy, and I felt I could talk with him. I showed him the part of the RAL application that stated, ?REPAYING DEBT . . . OTHER RAL LENDERS.? Now, I was a little bit disappointed that he didn?t tell people. But he didn?t stand in my way when I told people and it was not a surprise to him. I was proactive, confident, matter-of-fact, and it kind of worked out.

I eventually hit upon the method of simply underlining those parts in blue ink in front of the client. And since we ask people to sign about seven or eight pieces of papers, it?s good communication to draw their attention to the most important parts.

Now, with the H&R Block ?Emerald Card,? which is kind of a debit card, you can do it with the 8 ?15 day (on average) non-loan product. But it?s still a bank product, and it?s still vulnerable to cross- collection.

I do generally agree on the subject of people who are ?unbanked.? My first year at ?Storefront,? I remember being astonished at how many people did not have any kind of bank account at all. However, the first thing I?d want to look at is whether banks make it difficult for low-income persons to have accounts (they do in some ways, it?s just a question of how much).

Okay, what would really help me do a better job would be a list of who HSBC cross-collects for. I have found a list for Bank One for tax season 2006, from their four-page loan application put on line by a tax, management, and real estate firm.

Beneficial, Household, Santa Barbara Bank and Trust??as well asseven additional banks!?plus their ?successors or assigns.? Now, infairness, they do state, ?Refund Anticipation Loan from any prioryear.? That?s a little different than the 2008 HSBC application?OTHER RAL LENDERS,? which does not specify the type of debt. Andthis is where I become cynical of institutions, and I think properlyso. Debt collection is a profitable business, they?re likely to pushthe envelope as far as they can, with all kind of high-sounding moralreasons.

There?s also an instruction book from Bank One for the ?06 season which lists the same eleven banks (page 44).

So yeah, I like the interaction with clients, I think I make a difference. I?m open to working tax season next year (pending what all else is going on in my life, of course!), and I?d like to do even a better job of it. Any help you can provide would be appreciated. I think of you folks as my more experienced colleagues, even though we don?t always do the same things. And I hope I can sometimes contribute, too.

-Tiger