Tax Related Financial Products Can Be Costly

The Permanent Subcommittee on Investigations held a field hearing in Minnesota entitled “Tax Related Financial Products Can Be Costly.”   Senator Norm Coleman, Chairman of the Permanent Subcommittee on Investigations, conduct the field hearing regarding the Subcommittee’s investigation into tax-related financial products.  These bank products include refund anticipation loans (RALs), refund anticipation checks (RACs) and refund transfers that are offered by tax preparers such as H&R Block and Jackson Hewitt. Also included are products offered solely by the tax preparation companies such as tax preparation guarantees. The Subcommittee examined these products’ costs, the extent to which these products are fairly marketed, and whether the costs of these products are fully disclosed. The Subcommittee also examined the refunds, incentives and rebates that are paid by banks to tax preparers for selling these products and the ethical implications that can be presented from a client service perspective.

The hearing presented testimony from former tax preparers and clients who question the propriety of some of the marketing and disclosure tactics that are used to sell refund anticipation loans and tax preparation guarantees. Senator Coleman also addressed consumer groups’ concerns about the products such as whether recipients of the Earned Income Tax Credit are targeted for these products. Further, Senator Coleman examined the extent to which free tax preparation is available throughout Minnesota and the extent to which these services are being used. The hearing also presented two major professional tax preparation companies with the opportunity to explain their products, the products they market with banks, their marketing procedures, the costs of the products, and the incentives they receive.