refund anticipation loans might disappear in foreseeable future

Credit goods are falling under an increasing amount of scrutiny. One such product is refund anticipation loans. Banks are under increasing regulatory pressure from the government not to fund the loans, which makes it harder for companies that offer them to secure the credit. Advocacy organizations believe that refund loans are detrimental to people who take them out. Article resource – Refund anticipation loans could become endangered species by MoneyBlogNewz.

Financing harder for tax preparers

Tax preparation services for instance H&R Block and Jackson Hewitt are finding it harder to discover financing for tax refund loan programs, as federal regulations make it more difficult for financial institutions to meet legal underwriting requirements. H&R Block was forced to close its refund anticipation loan program when its partner in financing the program, HSBC, was forced to withdraw from the partnership in the program by the Office of the Comptroller of the Currency, according to the Washington Post. H&R Block posted a net loss in excess of $12 million in the three-month period that ended January 31, and that partially was as a result of loss of the product, according to NPR. JP Morgan Chase stopped financing the short term installment loans against tax refunds in April of 2010.

Change in Internal Revenue Service rule brings loan product to a halt

If an individual took out a refund anticipation loan, the business that the loan came from was able to check the person's tax refund status which was from the Internal Revenue Service. That law was repealed past year, and the belief that a financial institution might not check on the borrower’s credit worthiness meant that legally mandated underwriting needs can’t be met. The RALs were only offered by the Ohio Valley Bank in Gallipolis Ohio and River City Bank and Republic Bank and Trust banks in Louisville, Ky., this year. At the conclusion of this tax season, both River City Bank and Ohio Valley Bank are preparing on leaving the market. That means that there can be only one bank that offers them in the whole nation soon.

Refund anticipation loan facts

There are several that like refund anticipation loans. They are simple loans. Individuals get their taxes prepared by a preparation service like H&R Block or Jackson-Hewitt. If they are due an income tax refund, they can take out loans against their refunds. The refund minus a $65 fee, or somewhere around there, is taken out. This is what the refund anticipation loan is. The loans are somewhat similar to payday loans, as the loan is against future earnings. No credit check is done, just like payday loans. There are still fees and penalties. There’s a lot of criticism for these. This is because they service mostly low-income communities. It can be hard for individuals to wait for the money. Most that get the loans need the money right away.

Articles cited

NPR

npr.org/templates/story/story.php?storyId=134403451

Washington Post

washingtonpost.com/capital_business/2011/03/25/AFNQJVkB_story.html