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

The IRS information all about debts owed including taxes are called debt indicators and will no longer be available. The IRS has sent debt indicators to tax preparers to let them know if their customer’s refund may be held to cover back taxes and other debt. Debt indicators are used by refund anticipation loan banks to choose whether to make short-term loans to customers backed by their tax refund.

Taxes in 2011 won’t have debt indicators

August 5, the IRS explained that there won’t be any more debt indicators beginning with 2011 taxes because they aren’t significant anymore. 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. Companies that profit from refund anticipation loans say the elimination of debt indicators limits an essential service they offer to the unbanked and underbanked.

Debt indicators help banks know who is delinquent

The debt indicator is a key underwriting tool refund anticipation loan banks use to determine whether they’ll loan, how much to loan and at what interest rate. Unpaid debts such as unpaid child support or school loans can be paid with one’s tax refund, and a debt indicator from the IRS shows that to the preparer if it is going to happen, the Journal of Accountancy reports.

Refund anticipation loans not like by the IRS

For giving someone cash just a few days before a tax refund arrives with high interest rates and fees, short term refund anticipation loans are criticized by numerous. In 2008, 8.4 million taxpayers paid more than $ 738 million in fees for refund anticipation loans, according to 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. The longest it would take to get a tax refund would be 10 days when filing electronically and getting direct deposits. 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.”

Refund anticipation lenders unhappy

Debt indicators are used by companies using refund anticipation loans to choose 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. He said these consumers are often unbanked or under-banked and could be forced to seek more expensive and unregulated credit. H and R Block said the demise of debt indicators will dent 2011 profits 5 cents a share, sending its shares down 3 percent.

Additional 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