IRS LACKS POWER TO CONTROL FEES CHARGED FOR REFUND LOAN

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, February 3, 1993                   TAG: 9302030180
SECTION: VIRGINIA                    PAGE: B4   EDITION: METRO 
SOURCE: By DAVID M. POOLE and MIKE HUDSON STAFF WRITERS
DATELINE:                                 LENGTH: Medium
IRS LACKS POWER TO CONTROL FEES CHARGED FOR REFUND LOAN
The IRS encourages taxpayers to file income tax returns via computer to reduce paperwork and speed processing.
But electronic filing has spawned "instant" refund loans that consumer advocates say take advantage of low-income taxpayers.
Taxpayers can get their refunds in just a day or two - as long as they're willing to pay for loans that carry annual interest rates as high as 300 percent.
"The IRS is the one driving it," said Bill Graham, the North Carolina commissioner of banks.
The IRS claims no responsibility for the high interest rates charged by banks who use private tax preparers to sign up customers for the refund loans.
"The IRS is very concerned about it," said Susan Andrews, a spokeswoman for the IRS office in Richmond. "But we don't offer it, so we don't control it."
Still, the IRS has proposed changes in its electronic filing procedures that may drive some banks out of the "refund anticipation loan" business.
Banks are now willing to lend money to any taxpayer who is expecting an IRS refund - regardless of his or her credit history.
Banks feel reasonably safe in making the loans because the IRS notifies tax preparers - usually in a matter of hours - whether there is an obvious problem with a tax return. The IRS sends an electronic code if there are any liens against the taxpayer or any other problem that would reduce the amount of the refund.
But the IRS is proposing to end the early-notification codes after this year.
That would mean banks would have no sure way of knowing if a taxpayer is entitled to the refund he is claiming.
"The message we're trying to give [banks] is that they should give loans based on creditworthiness, not an IRS code," Andrews said.
The change, if approved, could force some banks out of the refund loan business. The increased risk could cause financial institutions that stay in the business to raise loan fees even higher.

by Archana Subramaniam by CNB