US Treasury Bank Accounts?

For those of us in the tax return preparation business, we are well aware of the continuing saga related to Refund Anticipation Loans, or RALs. Proponents lament about how necessary these are to get refunds to taxpayers who critically need these for rent payments, car repairs, etc. Those opposed to the practice point out that rent is due 12 months a year, so if it is so critical, what do they do for the other 11 months?

The real issue is the high interest rates that are generally charged. I've commented on this before - over 100% annual rate is not uncommon. It is a process of shifting money from those who desperately need it to those who have built strong businesses on the practice. Proponents point out that the high interest rates are necessary because of the high risk in having the loan paid.

We view it as "usury" and do not participate in those loans.

A few weeks ago the IRS announced that they would no longer transmit to Electronic Return Originators, or EROs (those who submit e-filed tax returns) an indicator as to whether or not the refund would be paid or diverted to pay other debts (e.g., back child support). That indicator was used by banks to determine whether to approve the RAL or not. If the IRS indicated that the refund would not be paid, the loan was not granted. Direct deposit refunds have been within 2 weeks for a few years already and there are efforts to move those to about 3 days.

In response promoters of RALs pointed out that direct deposit is of little value to those who do not have bank accounts. Thus giving taxpayers loan checks allow them to go to check cashing businesses and get their money. (Note another high-cost service provider in that path.)

It looks like the government has a solution for that too - Treasury bank accounts for those without bank accounts. We do not have all the details yet, but there is a program being assembled that will allow taxpayers to setup a limited-use bank account with the government to accept those refund checks and have access to the cash.

It will certainly be interesting to watch how this develops. This could be a real winner for those who traditionally seek RALs, putting hundreds of additional dollars in their pockets each year.