Refund loans

Read where?

952912 Pick one. It's been all over the news these past few days. The last one links to an NPR audio story. JOE

"Andrew" wrote

Just to be clear here. The tax preparation firm isn't ~making~ the loan. Nor does the lender prepare tax returns. Let's just take H&R, who prepares the return, and as a separate "service" offers to fill in the paperwork (all on computer now-a-days) for the loan application, which they forward to the lender for approval. Two different companies entirely.

FYI: It's not at some high rate of interest, till you factor in the loan application fees charged ~by~ the tax preparer. Remember that it ~is~ an unsecured loan, so it'll carry a higher than prime rate. The deal is that with direct deposit, the refund is in the bank in 9 to 15 days - so that is how long the loan is for in reality. The fees, from what I've seen, are bracketed by loan amount, so they aren't set by, or charged like regular interest rate loans.

Can they stop you from making a loan? No.

Can they stop telling the lender "the refund is good"? Clearly they can. And the returns flagged for RAL should be sent paper checks - in 10 weeks or longer.

If you were uncertain that your borrower had the ability to repay the debt, you probably wouldn't make the advance.

They wouldn't deny the ability of the tax preparer to make loans, they would take away the ability for the lender to verify the refund status as being "good". Often times tax offsets eat up the proposed refund.

It's taxpayer data, and they don't have to release it as quickly as they do.

You're correct that IRS cannot bar anyone from offering a loan in anticipation that the lender will be repaid from the taxpayer's refund. However, lender's don't like making these types of loans without almost iron-clad assurance that they can expect IRS to direct deposit the refund into the lender-controlled RAL bank account. That's how the lender counts on being repaid.

Currently, lenders receive this assurance from IRS about 24 hours after the taxpayer's return is electronically transmitted. IRS sends the transmitter an acknowledgement file with a boolean, i.e., true/false, indicator confirming whether the direct deposit designation on the tax return will be honored. If the taxpayer owes back federal tax or non-tax debts to which IRS is required by law to offset the refund, IRS, without technically disclosing the existence of the taxpayer's debt to the transmitter, sends a negative direct deposit indicator back with the acknowledgement file. When the transmitter/preparer gets the negative direct deposit indicator, the RAL is denied because they know the refund they would be counting on to repay the loan very likely won't come through.

IRS is being pressured by anti-RAL interest groups to discontinue transmitting the direct deposit indicator, be it positive or negative, back with the acknowledgement file. If IRS were to do this, preparers most likely would discontinue offering RALs since they would be too risky.

Condor

IRS published an Advance Notice of Proposed Rule Making (ANPRM) regarding this issue in the Federal Register on Monday, January 7.

Condor

There are many opinions out there that the lenders would not give up such a lucrative business. Without the Debt Offset Indicator they would just charge each taxpayer more for the loan.

the RAL industry has survived several tax seasons without the debt indicator when it was eliminated during the mid 1990's. If it is eliminated again, then the banks will probably just tighten the criteria for approving them. without being preachy (don't think this is the place for it) i just want to say that if more practitioners were upfront about the total cost of this product, then there would not be such an outcry for its elimination.

Thanks all for the posts and insight, but I don't think anyone has addressed my original point of legality and jusridiction questions.

The point is "The Internal Revenue Service said Thursday that it was considering curbing tax refund loans offered by tax preparers such as H&R Block Inc. and Jackson Hewitt Tax Service Inc. "

That's what I was asking about. Regardless of whether or not it's "Fees" or "interest rate", or whether or not there some computer-gook about verification of the return (so, what if they stopped doing this; that's not the point). , etc. etc. etc., no post I've ready deals with the legality and jurisdiction issue. Of course, I realize that this is a *tax* forum, not a

*legal* forum, but I am still unsure how they can do this.

Oh well, hopefully I'll never have to enter into this type of agreement.

As I said above, IRS published an ANPRM in the Federal Register on Monday, January 7. If you want to read it, open the link below and scroll down the alphabetic list of agencies to Internal Revenue Service. See the entry listed as: "PROPOSED RULES ? Guidance Necessary to Facilitate Electronic Tax Administration Updating of Section 7216 Regulations."

Internal Revenue Code § 7216 governs tax professionals' obligation to keep their clients' tax information confidential. Currently, the regulations allow a tax pro to disclose client information for purposes of a RAL with the client's voluntary consent. The notice in the Federal Register is inviting comments on whether IRS should rescind the taxpayer's option of consenting to disclosure of his or her tax information to a RAL provider. If IRS were to adopt such a change, it may end up being a de facto bar to offering RALs, however the RAL providers probably would find for other ways to hawk their products without running afoul of the regulations.

Condor

text -

IRS does regulate tax preparers. In fact they have a couple RAL regulations to0. Within their jurisdiction to prohibit RALs from being offered in a tax preparation location. However, the IRS (actually the Taxpayer Advocate) tried to influence IRS policy making by actually including the RAL language in the final IRS 7216 regs. Cooler heads prevailed within the IRS and argued that IRS does not make policy decisions based upon anecdotal infernece. Hence, the ANPRM - long way to go before a reg will be issued (if at all). The real issue remains that the Taxpayer Advocate and certain consumer groups (CFA/NCLC) are on a witch hunt to rid the loans totally. It seems to me to be very reckless government when an appointed high level official continually tries to influence not only the IRS to act, but Cogress as well... all without evidence nor even asking the whales in this case if they want to be saved. The real indictment here is not on the RAL industry. They provide a fairly priced product (most cases the lowest cost option available to the people who use them - we can debate that later) to people who need their money quicker than the IRS is able to deliver it. In fact, RALS enjoy a 70% repeat factor and an 85% satisfaction rate. Not many products can boast that. The TPA will tell you though that they really don't know what they are saying or doing and need to be guided. I think the TPA needs to be guided on this one. Why doesn't she tell congress not to take lower income American's money to start with? Thats the real shame....

Oh, ok. I saw that POST, but I Thought you were answering the other fellow who asked where I read it; I didn't realize it also contained germane info to my original request. Now, this makes sense when reading. Thanks!