New Policies Aim to Reduce Payday, Tax Refund Loan Dependency

Dow Jones Newswires
August 31, 2010
Hughes, Darrell A.

The Obama administration will soon unveil a program through the U.S. Treasury Department's Internal Revenue Service designed to provide low- to moderate-income taxpayers with the tools they need to avoid taking out payday and refund anticipation loans. The initiative would allow the IRS to help Americans set up traditional bank accounts and have tax refunds directly deposited into those accounts, which could help steer millions of people away from high-interest loans and into the mainstream banking system. As many as 26 million taxpayers could benefit, and Assistant Treasury Secretary Michael Barr says more information about alternatives for tax refunds will be available soon. This initiative follows other moves by the administration to eliminate federal policies that play a role in risky financial decisions, the latest of which came in the IRS' decision to restrict refund anticipation loans by no longer providing tax preparers and financial firms with a key debt indicator. Research conducted by consumer advocates indicates high correlations between taxpayers who take out refund anticipation loans and those who use payday lending, as well as those who use overdrafts and credit card cash advances.
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