Last week I joined the chorus of folks cheering the IRS' decision to no longer provide lenders with a debt indicator for taxpayers.
The assumption is that discontinuation of what is essentially a government provided credit check mechanism will likely reduce the number of refund anticipation loans (RALs).
But you know what they say about assume.
I still don't like RALs. Too many of the providers of these short-term loans prey on desperate people who end up in worse financial shape because of associated fees and the fact that they just can't pay back the loans, tax refund notwithstanding.
Several blog readers, however, quickly let me know that the end of debt indicators will not eradicate RALs. Why? Because the need and/or desire for fast refund money has deeper, more troublesome financial roots.
Direct deposit, which the IRS touts as a way for taxpayers to get their refunds in as little as a week after e-filing, isn't an option, notes Amy, if you don't have or trust a bank or don't have enough impulse control/financial understanding to keep an account open.
"Even assuming a bank account exists, 10 days just isn't fast enough to people with a certain mindset. In general, we're talking about people who also patronize payroll loan services, meaning they can't make it a whole week or two between paydays," she wrote in response to my debt indicator post.
Compounding the problem, Amy adds, is the fact that most of the folks who are attracted to RALs tend to have little investment in "the system" and little savvy within it: "Without the cash to get someone else to do it for them and no immediate return on 'investment,' there might be folks that end up skipping filing altogether."
It's such "noninvested" folks, often called the unbanked, that are the focus of a USAToday story in which reporter Sandra Block points out that the many people who shun bank accounts usually end up paying more for financial services.
Or, as @Eligabiff noted when she passed along the link to me, "Good article about the cash-based society. These are the RAL clients!"
So, upon further reflection, I'm tempering my debt indicator cheering a tad.
I realize that this one move by Uncle Sam is not the magic bullet to take down RALs.
I'm even conceding that in some very specific taxpayer situations, a RAL might be beneficial.
But I'm still glad the IRS won't be even remotely complicit in the issuance of these loans.
And I join Amy, Elizabeth and all tax professionals who deal with cash-strapped clients frantic for their refund money as quickly as possible in hoping that we can eventually find a solution to one of this country's core financial ailments instead of just treating symptoms like RALs.
- IRS debt indicator decision could doom tax refund anticipation loans
- RAL realities
- Refund loans and the once-a-year 'rich'
- Check cashers and recession talk
- George Bailey lives!
- Anti-RAL efforts continue
- Refund anticipation loans under the IRS gun again
- Refund loans on the ropes?
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