The IRS information all about debts owed including taxes are called debt indicators and will no longer be available. Someone who has an excellent tax refund might have it all held by the IRS because of debts owed or back taxes and is told through debt indicators. The decision on whether to make short-term loans to individuals or not is based highly on debt indicators for many banks.
Taxes in 2011 won’t have debt indicators
Saying they are no longer needed, the IRS announced Aug. 5 that it will stop providing debt indicators beginning with the upcoming 2011 tax season. Electronic filing and direct deposit lets taxpayers get their refund in a matter of days. Because of the fast return, refund anticipation loans aren’t needed. Many companies use anticipation loans for much of their service to the underbanked and unbanked, meaning eliminating debt indicators is bad for their business.
Debt indicators help banks know who is delinquent
There are many banks thriving off of refund anticipation loans, and they need debt indicators to tell them what interest rate to give, how much to loan, and what kind of loan to give out. As outlined by 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 like school loans.
Refund anticipation loans not like by the IRS
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. The Associated Press talked to IRS Commissioner Doug Shulman who said that those who are considered low-income are the ones targeted by anticipation loans. He said with electronic filing and direct deposit it takes 10 days or less to get a tax refund. He also 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.”
Lenders of refund anticipation loans mad
Debt indicators are used by companies using refund anticipation loans to determine which individual that is strapped for cash is going to get a loan. Alan Bennett, president of H and R Block, told MarketWatch that taking away debt indicators only hurts those with low refund anticipation approval rates and will even give higher costs to other taxpayers. Underbanked or unbanked individuals are going to end up getting unregulated credit. Shares will go down 3 percent in 2011 making it go to 5 cents a share for H and R Block because of this.
Further reading
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
