Debt indicators aren’t going to be accessible anymore as the information the IRS gives out about taxes and other debts owed. 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 depending on their tax refund will use debt indicators to make their decision.
2011 taxes have no 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. 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. 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 detect delinquents
Refund anticipation loan banks will use debt indicators to determine 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 feels strongly against refund anticipation loans
For giving somebody cash just a couple of days before a tax refund arrives with high interest rates and fees, short term refund anticipation loans are criticized by numerous. 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 that use refund application loans seem upset
Debt indicators are used by companies using refund anticipation loans to decide 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. Unregulated credit is what the unbanked and underbanked are likely to end up getting now. 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
