The Refund Anticipation Loan (RAL) business is very much in flux, and has the national preparers in a state of near apoplexy.
RALs are a huge contributor to the bottom line for the national tax preparers (H&R Block, Jackson Hewitt and Liberty Tax Service). Without the unfettered availability of this rapid refund product the major preparers lose a primary incentive that encourages clients to file in January seeking refunds from the Earned Income Tax Credit, Child Tax Credit, and Additional Child Tax Credit.
During this past tax season Jackson Hewitt (JH) was able to get a commitment from the bank underwriting their loans for about 50% of their RAL requirements. For the upcoming season in 2011, it is unknown if JH will be able to secure a loan commitment from the banks remaining in the RAL business to handle a significant portion of JH needs. This problem has been further complicated by the recent announcement from the IRS that they will no longer provide Debt Indicator information to the banks. This information is vital to the banks in determining whether a refund loan will be offered to the tax preparer’s client.
Several things could happen – the banks will only make loans to taxpayers who have high credit scores, they will drop out of the RAL market altogether, charge much higher loan rates to cover the added loan risk, or taxpayers should be prepared to get only a nominal percentage of their refund through a RAL and then wait the additional 10-14 days for the balance to be deposited to a bank account or preparer provided debit card.
Either way this plays out, anticipate a different world for taxpayers, banks and tax preparers offering RALs
Tax Wisdom – When Congress talks about simplification, taxpayers may well be reminded of Emerson’s comments regarding an acquaintance, “[t]he louder he talked of his honor, the faster we counted our spoons.”
– Michael J. Graetz
As Certain As Death
Jeffery L. Yablon