IRS Stymies Tax-Refund Lenders

Raleigh News & Observer
August 6, 2010
Murawski, John

The Internal Revenue Service (IRS) will no longer provide information that helps banks issue short-term tax-refund loans that essentially function as advance payments on tax refunds. These refund anticipation loans can carry fees of between $50 and $200, and advocates for the poor hope the IRS' decision will wipe out the high-interest loans. Critics say people who take out the loans often believe they are getting a speedier tax refund without realizing they are paying extra fees to get their money only a week or two in advance. The IRS previously provided a service called the debt indicator, which alerted banks if a filer would be receiving the full amount or if the total would be reduced by an outstanding lien. According to the IRS, the debt indicator is no longer necessary because tax refunds can be processed quickly online. Banks will not be able to tell if loans can be recovered, which would mean taking a greater risk in issuing a refund anticipation loan. Refund anticipation loans are often processed by tax preparation services, which say the IRS' move will increase lending risk and force banks to charge even higher fees to issue the loans.
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