In a move that may cut down on the use of refund anticipation loans (RALs), Treasury announced on September 2 the launch of a pilot program to provide taxpayers with access to low-cost financial accounts. This is the second action in the past month the Treasury Department has taken that would affect the RAL industry: In August, the IRS announced that it would stop providing debt indicators—used in RAL underwriting—when acknowledging e-filed returns (see “IRS Will Stop Providing Debt Indicators”).
Under the pilot program, certain low- and moderate-income taxpayers will be offered low-cost accounts with debit card access so they can receive direct deposits of their tax refunds. It will also test offering accounts that can be used year-round to deposit other funds. The announcement did not offer any details on how the accounts would work or what financial institutions, if any, would be involved.
The pilot program is expected to launch during the next tax season. Treasury will mail information about how to sign up for the accounts to individual taxpayers who have received paper refund checks in the past. It will also partner with payroll companies to insert offers into paychecks and paystubs of individuals who do not currently receive their tax refunds through direct deposit.
The Treasury announcement, citing FDIC figures, said that 9 million households in the United States have no bank account and another 21 million are “underbanked”—meaning they have a bank account but still rely on check-cashing services. Treasury is concerned that these individuals are forced to “turn to high-cost alternative financial products—such as check-cashing and other services” because they do not have an account in which to receive their tax refunds and presumably do not want to wait for a paper refund check to be mailed.
