The seamy but profitable business of offering refund anticipation loans, or RALs, took a body blow last month when the IRS announced it would no longer provide debt indicators to RAL providers. The news since then has not been good for the RAL industry.
RALs are similar to payday loans, providing access to cash just days earlier than it would otherwise be available at interest rates that would make an illegal loan shark envious. The industry rakes in billions, primarily at the expense of the most economically vulnerable members of society.
In one recent bit of news, Jackson Hewitt failed in its attempt to block an investigation of its practices by the New York State Division of Human Rights. In 2007 the state agency announced an investigation of Jackson Hewitt (along with H&R Block and Liberty Tax) for potential discriminatory practices of targeting communities of color and military families for these high-interest loans. Jackson Hewitt sought to have a federal court block the investigation, but the court dismissed the case, permitting the state agency to proceed.
Then came an announcement from the US Treasury (PDF) of another key development. Firms offering RALs argue that they provide a valuable service because many of their clients don’t have bank accounts, making it difficult for them to receive their income tax refunds without excessive delay. The Treasury says it will begin a pilot program this tax season in which the Treasury provides bank accounts to these individuals, with debit card access, making it possible for them to receive their tax refunds electronically. The announcement doesn’t mention RALs, but the implications are clear: what possible justification would there be for a loan charging a three-digit interest rate when the money will be available by electronic transfer just days later?
The Treasury says it will explore making the accounts available for other purposes, such as payroll deposit, putting a crimp in the check-cashing and payday loan businesses that siphon money from less affluent individuals and families.