It’s a growing trend on a mostly unregulated landscape: payment advances or prepaid cards tied to tax refunds sought by cash-strapped Americans.
In a new report, the Associated Press found that “refund anticipation checks” jumped to about 21.6 million in 2014, up 17 percent from 2011, according to IRS data.
These cash advance are especially popular among low-income families who qualify for the Earned Income Tax Credit (EITC).
These advances are being marketed as a way to get fast refunds or defer payment of tax preparation costs. But these services can also carry murky terms and high fees, and federal regulators have yet to come up with stricter rules, although the U.S. Consumer Financial Protection Bureau is finalizing the first rules on prepaid debit cards, including those for tax refunds. The rules are expected to require clear disclosures upfront about costs and risks.
The average tax-preparation fee for 2014 returns is $273, up 11 percent from two years ago, according to a survey by the National Society of Accountants. But fees can run as high as $400 or more, says the National Consumer Law Center.
The Internal Revenue Service has been urging Congress for new authority to regulate the $10.1 billion tax preparation industry. An appeals court last year barred the agency from requiring tax preparers to undergo background checks and testing.
“It’s the wild, wild West,” Nina Olson, the IRS’ national taxpayer advocate, told the AP, describing the level of risk for abuse in pricing and quality of service in tax refund advances.
The IRS says that taxpayers who have filed their returns and are waiting for their refunds can use the Where’s My Refund? tool, which has been accessed 164 million times as of March 13.