IRS strikes blow against refund anticipation loans

Posted by:

Robert Bliss, Director of Communication, Department of Revenue

In what is widely viewed as a blow against refund anticipation loans, the Internal Revenue Service announced earlier this month it would end in the coming tax season its policy of releasing information about back taxes and other debts owed by taxpayers.

In its story on the move, the Associated Press wrote that:

"The information, called debt indicators, has been included on acknowledgments the IRS sends tax preparers when it receives returns filed electronically ...The indicators served as warning that some or all of a person's refund might be held to cover old debt, including back taxes, unpaid child support or delinquent federal student loans."

Banks that fund refund anticipation loans use debt indicators to decide whether a taxpayer expecting a refund is a good risk for such a loan. The loans themselves have been criticized for years for charging high interest rates and fees in exchange for providing cash that may arrive only days ahead the federal tax refund check.

The National Consumer Law Center estimates that in tax year 2008, some 8.4 million taxpayers paid more than $738 million in fees taken for refund anticipation loans. In essence, taxpayers wind up paying the loan issuers interest on what is their money.

"We no longer see a need for the debt indicator in a world where we can process a tax return and deliver a refund in 10 days," said IRS Commissioner Doug Shulman. "We encourage taxpayers to use e-file with direct deposit so they can get their refunds in just a few days."

DOR agrees for all the reasons we outlined earlier this year in a statement urging taxpayers to file electronically and to forget about refund anticipation loans. Why pay interest on your own money?

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