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August 05, 2010

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Esquire

Did your bank partner use the debt indicator for RACs?

Without a debt indicator, A RAC has about 1/15th the risk of a RAL since the only money "on the line" with a RAC is the tax pro's fee (let's say $200), not the typical $3,000 refund associated with a RAL.

My thought is that banks have to run credit checks on every RAL applicant. So the non-banked and bad credit folks (i.e. really poor) are hosed. The banked and lower-to-middle income folks are more likely to get a RAL although at lower levels.

Trish

Esquire- you're correct the debt indicator doesn't directly effect RACs as it does a RAl. But they do use the same bank procedures as a RAL (creation of a temporary account, DD of refund, payout when the money is received from the IRS. The only thing missing is the loan.) Right now the banks have to decide whether to offer some kind of limited RAL or drop RALs altogether. If they choose to offer the RALs, then RAC will continue. But if they stop the loans, will the bank continue to offer RAC? Especially in light of the IRS saying they are looking at a way to have preparer fees come out of the refund. It would be interesting to be a fly on the wall at the RAL banks right now.

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