Mark Ernst Offers His Thoughts on RALs
I was able to get an advance copy of the speech that Mark Ernst will deliver today to the audience at today’s meeting of the Council for Electronic Revenue Communication Advancement (CERCA). CERCA is a group convened by the IRS to share best practices on electronic tax filing.
Ernst’s talk reviews the preliminary results of this year’s tax season. Seventy percent of filers used e-file this year – a new high.
The real meat of his comments focus on how consumers use loans to settle the costs of their tax preparation. Ernst sees two reasons why these loans are used by consumers: to avoid the out of pocket costs of their tax preparation, and to get a bank account for the purpose of depositing that refund. Other motives, including a desire for certainty around the refund, are products of those larger needs.
Ernst will not announce any new policy changes today. Nevertheless, it is possible to draw some conclusions from what he is saying.
Ernst looks upon refund anticipation checks with much more favor than refund anticipation loans. RACs cost less, while still allowing consumers to “net” their prep fees.
Consumers should be getting the benefit of the debt indicator. According to Ernst, the IRS provides the debt indicator service only because it serves as a “public good.” RAL fees have increased since the debt indicator was introduced. In fact, Ernst points out that when junk fees are included, the costs of RALs have never been as high as they were this year. That doesn’t make sense. If the DI is a public good that is meant to serve the consumer, than the presence of the DI should lead to lower consumer costs.
The Debt Indicator as it is currently delivered is a public good – meaning the IRS provides this information so that consumers can get an advantage they wouldn’t be able to get otherwise. In as much as the DI is the primary underwriting tool, that advantage should really come in the form of lower prices. But in fact prices are higher for RALs today than they were when the DI didn’t exist. That suggests that the entire value of the DI is going to industry participants and none is going to consumers when, arguably, all of its value should go to consumers.
That sounds like he wants lower pricing on refund loans. Alternatively, he might be talking about changing the debt indicator itself. He recognizes that some changes could be in order.
Tax filing is a pretty dry topic. Ernst concedes that point. Still, I found it humorous that Ernst has not yet filed his own taxes. Ernst admits that he had to ask for an extension this year. Guess he didn’t e-file, either.
Rob
May 7, 2010
Now lets talk reality and the reality of the situation is that the consumer was angrier than ever when they went to file their tax returns and about half were declined a loan after the banks lowered the fees. If the consumer were polled and asked if they would rather pay more and get approved or have the rates go down but take a 50/50 shot of being declined then the vast majority of the consumers that have utilized and still utilize would in favor of leaving the rates higher.
Rob
May 7, 2010
The real question is how far do we go to protect citizens from their own ignorant actions? The facts are that people that would make an unwise decision in obtaining a RAL also are the ones daily making ignorant decisions on almost every aspect of life. Do we regulate life down to the very finite detail to protect our citizens from a lack of knowlege?
I personaly do not care if RALs stay or if RALS go because in the end the only people benifiting from the chaos caused by this argument are the activist groups whose main job is not to protect people but it is to raise money while stirring the pot on any issue they can create chaos over. The people getting RALs do not benifit because we live in a free society where making bad decisions is a right!!!
Sooner or later the public has to catch on and ask themselves in every situation like this "Whats the Hook" Why are the activist groups in existance and why do they care? Unless their is financial gain for someone I promise you wil never hear this kind of fuss so are RALs the real problem? Are Activist the Real Problem. Is ignorance the Real Problem? I do not have the answer but there is more to the story.
Rob
May 7, 2010
When we as a country was redistibuting wealth to low income by the welfare system all we heard was how welfare was being abused and the system was demonized to the point where politicaly our genius politicians had to make a decision on how to change the tide of negative public sentiment so they converted welfare into the program we have now which is EITC.
Rob
May 7, 2010
When you annualize numbers out for the entire American Public it is easy to create illusion of craziness. If RALS are that bad it is my opinion that we need a study to show how much poor people on a national level purchase bottle water because every dollar of that is money they was ripped off because water out of a faucet is free!!!
Rob
May 7, 2010
I question Marks comments based upon what happened this past season with at least Republic Bank slashing the cost of obtaining a RAL. Consumers are gettng the benifit of the DI now but overall I would suggest that consumers are more unhappy now than ever since the approval rates on these products dropped dramaticly as well.
There is 2 sides to this story that never gets told. On one side we have activist groups that cry and demand that Banks are ripping the clientelle off with these products. They annualize the interest rate to get Americans up in arms and convince them that they are doing them a favor by forcing the "Mean" banks to lower the fees.
Rob
May 7, 2010
Since EITC has been around since the late 1990s suffeciant time has passed to where the very program that was to fix the welfare system has become just as fraudulent as the program it was created to fix. Yes there is the issue of RALs but their is also the underlying issue, the one no politician wants to address, which is rampid EITC fraud that the IRS is being forced to clamp down on. So as usual someone has to be to blame for the issue so its RALS and Tax Preparers not the individuals doing the fraud.
Rob
May 7, 2010
I imagine there is 100 million dollars plus scammed from innocent poor people who did not realize that buying water was a bad idea when they could go to faucet or carry reusable water bottle and get water for free. Not to mention the annualized profits and mark up the companies made that bottled the water and sold it to unknowing poor people!!! Who is with me to demonize another industry because people need to be protected in the name of fairness!!!
Rob
May 7, 2010
This is not the kind of republic that our founding fathers envisioned. A country where the citizens need a sign to show them COFFEE IS HOT. Have the real leaders of men, not politicians because leadership it not a quality politicians are required to have, but real leaders that our founding fathers were all disappeared. We need several to rise up and take there god given posistion and speak to help turn the tide of craziness we have created.
Rob
May 7, 2010
So in closing Mr. Ernst. Are you a true leader of men, one that is willing to stand up and tell the facts as they realy are without lowering yourself to believing people need a sign warning that "Coffee is Hot"? I realy hope that you are and through your leadership by working with our government, citizens, and Tax Professionals and affect true lasting meaningfull change not just a sign to inform us "Coffee is Hot"!!!! Because if you are then you may be the light at the end of the tunnel this country needs.
sdog
May 19, 2010
rob –
Thanks for all of those comments. I don't like those hot coffee warnings, either.
Decision Time for Ernst with the IRS Debt Indicator | Bank Talk
July 20, 2010
[...] tax prep sector is the uncertainty about what the IRS will do to the debt indicator. During his comments in May to CERCA, Mark Ernst made it clear that he expects better results from the program. Here is part [...]