The Consumer Financial Protection Bureau recently warned that paid tax preparation help doesn’t always pay off when filing for tax refunds. The bureau reported that more and more taxpayers complain about the fees and quality of service of refund anticipation checks providers.
The federal agency currently plans to raise awareness among taxpayers on unfair practices of paid tax preparers and their hidden fees that can outweigh the benefits they are supposed to bring.
Among the most employed ways of saving time in obtaining federal tax refunds are prepaid cards and costly payment advances, according to the bureau’s data. Moreover, people who usually get tax prep help in tax refunds are low to moderate income taxpayers.
The federal report is also trying to be a wake-up call of regulators who are usually not aware that consumers aren’t always fully informed on the fees such services may involve.
The recent federal report is a beneficial endeavor since refund anticipation checks, a popular cash advance among people entitled to the Earned Income Tax Credit (EITC), skyrocketed in the past few years. EITC is a federal cash benefit program that is currently worth $65 billion.
Consumers usually resort to cash advances to obtain fast tax refunds or delay tax preparation costs.
The Consumer Financial Protection Bureau also announced that it was currently working on the first guidelines on the way prepaid debit cards should be advertised, especially when fees and risks are involved. The new rules will require that all paid tax preparers make it easy to understand the costs and risks to every consumer.
According to an IRS report, refund anticipation checks rose by nearly 17 percent in only two years. In 2014, refund anticipation check market rose by 21.6 million as compared to 2011. IRS disclosed that nearly 50 percent of buyers of refund anticipation checks are also EITC recipients, while more than 80 percent are low-income taxpayers.
But payment advances and their costs will spread even more as tax preparers will advertise them more aggressively in an attempt of boosting their earnings. For instance, prepaid cards and refund anticipation checks account for more than 20 percent of Liberty Tax Service’s annual revenue, according to its earning report.
Additionally, H&R Block plans to obtain an additional $100 million worth of fees in exchange of tax return prep help catered for Obamacare enrollees.
Both Liberty Tax Service and H&R Block claim that they help their consumers make the best choices when filing for a tax refund or using refund anticipation checks. The companies also state that payment advances’ most notable added value is convenience.
But, the tax preparation industry currently lacks any regulation since an appeals court barred in 2014 any background checks and testing of tax preparers. So, the Internal Revenue Service is currently pressuring Congress to create a new authority that would regulate the $10.1 billion industry.
Nina E. Olson, the U.S. Taxpayer Advocate, described the situation as the “wild, wild West,” while she warned that the industry is currently employing unfair practices in both quality of service and pricing as no industry has done before.