This year is the first time that the IRS has stopped providing tax preparation companies and financial institutions with a "debt indicator," making tax refund anticipation loans a lot more risky. The debt indicator use to let lenders know how much of a risk as taxpayer was allowing the bank to make an informed decision about how much to lend the borrower. However, without this information, tax refund anticipation loans may become a thing of the past. Already, many tax preparation companies are reporting that they are making significantly fewer loans to taxpayers and that many would be borrowers are shying away from the loans because of high fees. Could tax refund anticipation loans become extinct?
Some say that's possible because many taxpayers take out the loans because they don't want to wait to receive their check weeks later from the IRS. But now with IRS services such as an e-filed tax return, many taxpayers are able to get their refund direct deposited into their bank account within 10 to 14 days. Unfortunately, many unbanked taxpayers are still relying on the tax refund anticipation loans because they don't have a bank account, but the high fees can quickly eat away at their money, not to mention the problems they run into if their tax refund was over estimated or somehow gets garnished due to unpaid tax debt . As a solution some tax preparers are now offering debit cards on which they load the tax refund; but this service can also be laden with high fees. Unbanked individuals may be better off looking for ways to find a low cost bank account and using it to cash and deposit their refund check.