Preying on the Weak
We could wipe out the refund anticipation loan scam pretty easily if we really wanted to.
Over at the Washington Independent, Martha White has a good piece about tax preparers who prey on low-income filers by hard selling refund anticipation loans, which typically boast effective interest rates of anywhere from 50% to 1000%. The whole thing is worth reading, but here's an interesting tidbit:
The big appeal of these loans, the Woodstock Institute’s Rand points out, is the prospect of instant money. Already, taxpayers who e-file and elect to receive their refund via direct deposit generally get their returns within two weeks. If the IRS sped up its payments to taxpayers outside the mainstream banking system and allowed them to receive that money on a debit card similar to those used for other benefits, the appeal of RALs would be diminished. “These improvements the IRS could make would eliminate a need for refund anticipation loans,” Rand said.
Here's a guess: an awful lot of low-income taxpayer have simple returns that could be pre-filled out by the IRS. This isn't done today largely because of opposition from tax preparers, who don't want to lose any business. But guess what else they might lose: their RAL business. If you received a pre-prepared statement in the mail and could accept it with a simple phone call or e-filing, there's no reason the feds couldn't get refunds out within days. With no tax preparer pushing the loans, and refunds available quickly in any case, the entire shifty industry would be wiped out. And it would be wiped out by making government more efficient. Who could object to that?