As the IRS moves to make it more difficult for tax preparers and financial institutions to issue RALs (refund anticipation loans), critics have been quick to point out that low-income taxpayers may have a difficult time taking advantage of their tax refunds. Many low-income taxpayers are “bankless” without access to banks that will cash tax refund checks or accounts for purposes of direct deposit. As a result, many companies who issue RALs claim they are providing a much-needed service.
The Treasury Department has been actively pursuing ways to address this issue. This year, they’ll be experimenting with issuing tax refunds this year on prepaid debit cards to a limited pool of taxpayers. This week, the Treasury will send out letters to 600,000 households chosen to participate in a pilot program for the cards.
The new debit card is called MyAccountCard (you know, since they clearly couldn’t think up a real name – go ahead, roll your eyes, you know you want to) and is issued by Bonneville Bank out of Provo, Utah. The FDIC insurance rules apply so money on the card is insured like a regular bank account.
According to the web site, MyAccountCard can be used to get cash at ATMs (for a $2.50 service fee plus fees charged by the ATM owner); make purchases at retail locations that accept Visa; pay bills with companies that accept Visa. You can even “top up” your card with cash, bank transfers or direct deposits.
The Treasury is experimenting with whether fees will be attached to the card. As part of the pilot program, there will be several different variations of the MyAccountCard, including options for some with monthly fees, some without. The fee range will be from zero to $4.95 per month during the pilot. Balance inquiries will be free.
The idea, of course, is to both wean taxpayers off of paper (are you seeing a trend here?) and offer an alternative for those who are bankless. Skeptics wonder, however, if IRS isn’t trading one evil for another.
What do you think: good idea or no?
This is an ineffective idea if the purpose is merely to discourage use of RALs because it does not address the motivating factor for many taxpayers who use RALs; the taxpayer’s desire to have money immediately. This is a viable option to discourage use of RALs by the bankless, however, should only be use to issue refunds to those who want such a card, and should never be mandatory for any category of taxpayer. Also, a debit card should only be used by Treasury if no fees are charged by MyAccountCard. Pushing bankless taxpayers away from RALs and into a financial institution that charges multiple or high fees would merely replace one oppressive financial practice with another.
I have been in the retail tax service for 7 yrs. I have found the clients who apply for the RALs are people who really need the money now. They need to pay rent, or the gas bill (otherwise their heat will get turned off) or to fix their car so they can get to work. Plus they usually don’t have the money to pay tax prep fees, but if they get a RAL our fees are withheld from their refunds. They also can’t always keep up with all the tax law changes. I have amended more returns through a certain software program because clients missed a credit or deduction while using it. I usually get them a bigger refund and they are so happy, always repeat clients after that. Finally how much would the card nickel and dime taxpayers? The walmarts near my location only charge $6 for cashing a check up to $5000. Plus my company usually works with local banks, check cashers, and similar places to get our clients reduced check cashing fees. Just my two cents, or would you prefer that on a debit card?
I was wondering if they can issue money order or cashier’s check-like notes for this purpose. The fact that some people have no bank accounts can indeed be a problem. I think prepaid debit cards is a step in the right direction, at least as an idea to think about and discuss. But I also wonder if people will start stealing other people’s mail looking for these cards.
I work with an organization that offers free income tax assistance to lower-income persons, and we used a similar program (prepaid debit cards, which we basically got a local bank to donate) last year, and it seemed to work very well.
I’m not one of those who rail against RALs; I think they serve a valid purpose. But we’ve found ththe problem with most of our customers is lack of education about the process. RAL lenders commonly tell their customers that it will take months to get a refund, when we can get them one in 2 weeks or less with the prepaid-debit card (or a bank account).
I can’t believe how many people don’t have savings and/or checking account somewhere. I started asking around with people I know and heard stories of people getting their savings garnished with no warning over unpaid taxes or child support. Before you beat up these people, from what I hear, they thought they were paid up. However, I have also heard of people hiding their money to keep it going to child-support. Sounds mean, but really, after a few kids with different women, the men really don’t have money to live on. It is OK to give the women and children welfare, but the men are dogs. These guys just need to save money to get their car fixed so they can keep working. I know of one guy who works two jobs and one job under the table. The under the table job is for him to live off of and the other jobs all go to child support. I doubt he has a bank account. You don’t have to feel sorry for him – I don’t. But clearly something is wrong with the system. This guy has to live his life like a game. I don’t have the answers, but encouraging gaming the system by making it too difficult to save for living expenses in the system is probably not good on morale. — I’m getting off topic now — I also know if you bounce too many checks, it becomes difficult to get a checking account.
I agree with TaxSmith about RALs, someone close to me was able to get an RAL and then put it all on his credit card debt. He calculated that the fees from the RAL were actually less than one month’s interest in credit card fees. RALs are not evil like pay-day-advance loans in my opinion (another system that capitalizes on the bankless).
I couldn’t believe all I learned by asking around. I am so fortunate to have had a savings account since a child and to have learned these skills. Thanks Dad!
The IRS should have left the Ral business and the debt indicator alone. It has got to be costing the IRS something to ramp up this program. I understand the so-called good intentions of the government, but it is the responsibility of citizens and consumers to make their own informed decisions and choices. I do not offer RALs in my office by choice. That was my business decision. The market place should decide these issues. Consumers are not going to make better decisions, if they are not encouraged to think.
I agree with Michael. People need to make their own decisions. Or soon the gov’t will be making all of our decisions, or at least leading us in the direction they want.
As for educating the average taxpayer so they know what they are paying for, I know myself and my employees (who I have trained personally) try to inform our clients. I can’t speak for all retail tax services. But we go over every fee: interest for the RAL, all bank fees, our fees, our debit card fees, fees of near by check cashers, and the options of how long it would take to get money. Our interest for a loan is $61.22 max. The interest rate I have seen reported in various places seems outrageous. But it is usually figured as a year long apr, when really the loan is only for 2 weeks, when the irs deposits the refund to our bank. Yes if we loan them the $$ and the irs doesn’t pay the reund it is an outrageous rate, but the bank generally do not loan out to taxpayers with a chance of not receiving a refind. We try to give them ALL the facts before they make a decision.
As for child support, most times if they are deliquent it is taken out of the clients tax refund anyways.