Polls have regularly highlighted over the past few years that an enormous amount of United States households live paycheck to paycheck and have zero emergency savings. Since many Americans will be receiving a tax refund, cash-strapped citizens will be seeking out tax refund advances.
According to new federal data released by the Consumer Financial Protection Bureau (CFPB) via the Associated Press, Americans who are waiting for their tax refunds are deciding to take advantage of payment advances, prepaid cards and other expensive services when receiving assistance for tax preparation.
Soon, regulators will hone in on “refund anticipation checks” offered by tax preparers. This type of service is marketed as a new way to get tax refunds faster, and are very popular among low-income families who are recipients of the Earned Income Tax Credit (EITC).
Last year, the number of tax refund advances reached close to 22 million, up 17 percent from 2011. EITC beneficiaries accounted for half of these checks and 84 percent of customers are defined as low-income. Industry experts project the business will see significant growth as tax preparers look to increase revenues and many households seek out advanced-funding options.
Moving forward, the CFPB will establish a series of proposals as the federal agency has claimed consumers have made complaints regarding the quality of service, fees and misleading advertising.
This move is being reportedly supported by the National Association of Tax Professionals (NATP) because it invokes a minimum level of competence and acumen. However, the Institute of Justice doesn’t necessarily believe this is the best way regulate the industry.
At the present time, tax refund advances and prepaid cards make up about 10 percent of H&R Block’s revenues, while 20 percent of Liberty Tax Service’s revenues are generated by these tools.
The EITC harms poor people more than it helps. It is responsible for expanding low wage jobs and that has been the cause of the decline of family wealth. In 1995 the poorer half of the population (62 million families) had a 4% share of family and today they have just 1%.
The EITC has been supported by both parties because the 15.3% payroll taxes are too high. Workers would be much better of with a replacement of the payroll taxes (with an immediate boot of 7.65% in take-home pay) and a reduction in tax credits.