It's Not Over

On Thursday, the IRS announced that it would not be releasing the debt indicator for the 2011 tax season. I blogged about it then. Since then, I've read news articles, blogs and forum threads about the change. And it seems I need to remind many people of something... there is a good chance that RALs will continue. Whether we have RALs in 2011 will depend on the RAL banks and in some cases to their tax affiliates not on the presence of the debt indicator.

Without the debt indicator, the banks will have to use more traditional decision criteria; credit score, past history and the preparer may even come into play in the decision. This will definitely mean that approvals will go down. This type of refund lending was going on long before electronic filing and RALS.

The RAL banks will have to decide to cut or modify their RAL program. For many of us on the sideline of this issue, it may seem an easy decision. Especially, when you consider the losses the banks suffered the last time the IRS cut the DI (1995). HSBC lost big money that year even after scaling back their approvals. Logic would dictate that they learn from that experience and decide to get out of the RAL business. But they are partnered with H&R Block until 2013 and may not have the option of cutting the program. HRB is very dependent on the RAL market for their survival and cutting RALs could seriously damage their business. 

It becomes a game of chicken among the banks. Even if they want to cut the program, do they dare if a competitor offers them. There will be a loss of revenue whether the RALs are cut or not. But do you take the loss over one or more years? 

I am sure the IRS decision make a good weekend for the consumer groups and non-RAL tax preparers but they can't assume that this means 2011 will be RAL free. It just means the whole issue became more cloudy and we'll have to wait for the banks to make their decisions.