Schumer Announces IRS to Cut Program that Enables Tax Preparers to Use Refund Anticipation Loan Scams Designed to Bilk Americans Out of Much Needed Tax Refunds

Today, U.S. Senator Charles E. Schumer announced that the Internal Revenue Service will cut the Debt Indicator Program beginning with the 2011 tax filing season, putting an end to this unnecessary program that allowed tax preparers to access a client's private tax information and apply exorbitant fees and interest on refund anticipated loans, or RALs.

"The decision today by the IRS to stop underwriting these loan scams will go a long way toward protecting American taxpayers from having their income tax refunds reduced by these insidious loan products," Schumer said. "We've all seen the catchy slogans and colorful advertisements: Simply sign a form, pay a fee, and walk out with cash against your coming refund check. What most folks don't realize is their getting slammed with absurdly high interest rates. This new decision by the IRS will help keep more of their tax money in their own wallets."

Generally, a taxpayer goes into a tax preparer and is told that their refund can be made available immediately rather than waiting to get the IRS to process the refund. Loan fees can range from anywhere from $30 to $150 depending on the combination of costs, on top of additional tax preparation fees, which average almost $150. These charges are steep, especially when consumers don't realize that they are getting a loan. Depending in the size of the loan, consumers are paying an effective annual interest rate of 40 percent to more than 700 percent according to the National Consumer Law Center.

Once a taxpayer decides on receiving their "instant tax refund," the tax preparer then sends a request to the IRS to see whether that person is entitled to a full refund, partial refund, or nothing at all. The IRS tells the preparer what they're entitled to; the preparer calculates the expected refund, minus the fees.

Schumer has been leading the charge in the Senate to make sure that consumers have better information about the costs and fees associated with RAL products, and has introduced legislation in the last three Congresses that would require additional disclosures and ensure that all paid tax preparers are licensed and registered.

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