Thursday, August 12, 2010

Debt indicators no longer available making it impossible to get refund anticipation loans

Debt indicators — IRS information about back taxes and other debts taxpayers owe — are going away. Tax preparers were warned by the IRS with debt indicators that back taxes and other debt may be paid off with the tax refund. Banks trying to determine whether to give someone a short-term loan based on their tax refund will use debt indicators to make their decision. Source for this article – Demise of debt indicators puts hurt on refund anticipation loans by Personal Money Store.

2011 taxes have no debt indicators

The IRS reasoning for stopping debt indicators in the 2011 tax season as announced Aug. 5 is that they aren’t needed by anyone. Taxpayers can get their taxes in just a few days with electronic filing and direct deposit. The IRS said that eliminates the necessity for refund anticipation loans. Numerous companies use anticipation loans for much of their service to the underbanked and unbanked, meaning eliminating debt indicators is bad for their business.

Indicate delinquents with debt indicators

Refund anticipation loan banks will use debt indicators to decide all the major factors around a loan they’re loaning out. According to the Journal of Accountancy, normally a tax preparer would get a debt indicator letting them know if their tax refund would be going to any taxes that were unpaid or other unpaid debt such as school loans.

IRS criticizes refund anticipation loans

Short-term refund anticipation loans are criticized by consumer advocates for charging high interest rates and fees in exchange for providing cash just a couple of days before the tax refund arrives. Refund anticipation loans fees were paid by 8.4 million people in 2008 totaling a total of $ 738 million, reports the National Consumer Law Center. Those who are low-income are usually the people getting hurt by anticipation loans according to IRS Commissioner Doug Shulman who talked to the Associated Press. He said with electronic filing and direct deposit it takes 10 days or less to get a tax refund. Next he said:

“I think it’s unfortunate that there’s a lot of hardworking Americans that are in a financial situation where they have to pay a substantial fee to access their refunds a week or two before they can get it from the IRS.”

Mad lenders of refund anticipation loans

Companies that facilitate refund anticipation loans argue that debt indicators let taxpayers who are strapped for cash get their money faster. Those with low refund anticipation loan approval rates are the ones going to be hurt by the stop of debt indicators, and there are going to be higher rates for individuals who get these loans still, said Alan Bennett who’s the CEO of H and R Block in an interview with MarketWatch. Underbanked or unbanked individuals are going to end up getting unregulated credit. This debt indicator problem will make H and R Block shares go down in 2011 5 cents a share going down 3 percent.

More on this topic

Journal of Accountancy

journalofaccountancy.com/Web/20103174.htm

Associated Press

google.com/hostednews/ap/article/ALeqM5gZhidWFh-omq3dh3M486iDXA4JbAD9HDHDKG0

MarketWatch

marketwatch.com/story/hr-block-responds-to-irs-elimination-of-the-debt-indicator-2010-08-05?reflink=MW_news_stmp



No comments: