Backdoor Regulation Harming Consumers…Again!

Folks in need of cash often depend on a federal tax refund to help them through a tough time. Prior to this year, they might go to a tax preparer like H&R Block to get their returns completed. Since it might take several weeks to get a refund, H&R Block and many other tax preparation services would offer the client a loan against their federal tax refund. A bank would fund that loan, because the bank would have the refund signed over to it, and IRS refunds are guaranteed by the Federal Government.

But now, President Obama’s Nanny State is quashing these loans, forcing those folks into more expensive options.

Refund Anticipation Loans (RALs) have APR’s of around 100%, meaning that a $2,000 refund might cost the client $100 while waiting three weeks or so for their refund. Nanny Statists and ignorant consumer activist groups like the Consumer Federation of America decide that’s just too much to pay for a loan.

Because, after all, they need to decide for us.

Normally, when the tax return is finished, it is sent electronically to the IRS, which gives it a quick once-over to verify income, dependents, exemptions, and other basic facts. Then the IRS would provide a “debt indicator”, which would indicate to the prospective lending bank whether the client had outstanding back taxes due or other liens. If so, the bank would know not to make the loan. If the debt indicator were clear, then it electronically approves the return for a loan. The bank, knowing there is no risk, makes the loan.

However, the IRS will not provide the debt indicator this year.

Why? It’s what we call “backdoor regulation”.

No legislation is necessary.

No voting by the public is necessary.

The Obama Administration just does it because it can. Last I heard, this is more akin to a dictatorship than a democracy. Especially since nobody asked the IRS to “protect” the consumer.

Now, with a credit option removed, those in need of a loan will have to try other options. Guess what? All of those options are more expensive.

When — WHEN — will government learn the most basic economic principle of supply and demand? If you remove supply, demand does not vanish. Instead, people are forced into more expensive options. Honestly, did they forget about Prohibition?

Meanwhile, by removing this source of income for tax preparers, what do you think those businesses do? Do you think they hire more people since revenues are getting cut? Or do you think they cut staff?