Where's My Refund?

"Get used to disappointment." ~ man in black in The Princess Bride

Over the past couple of years, the U.S. government has been slowly eliminating the Rapid Refund loans that used to be prevalent in the tax return preparation industry.  The loans enabled taxpayers to get the majority of their refund immediately, but for the cost of fees and interest that often exceeded 36%  APR.  Last year, a couple major tax preparation companies reduced or eliminated Rapid Refund loans due to government intervention.  This year, more companies have eliminated the offering.

The reason the government got involved was to protect the consumer.   First, the government wanted to address the issue of high interest rates charged to get money 1-2 weeks earlier.  Second, the IRS expected to be able to reduce refund times to less than a week, perhaps even 2-3 days with a new e-file process, although the expected time was still 8-15 days this year.   The government's logic was that the government could do something better than private industry could and therefore, the government got involved.

So how has this change worked out this year?

The new process has been a small disaster.   Instead of meeting the typical 8-15 day refund time period, tax refunds are now taking 10-21 days (which the IRS is notes is the historical range).   In some cases, the Where's My Refund Tool  is giving incorrect information, such as the IRS "has no information" on an individual's return.

It is not surprising that this "glitch" by the IRS is causing anxiety among some taxpayers.  This article describes taxpayers that were counting on their timely refund to make necessary payments.  Now they need to deal with the potential late bill payment issues.

I am definitely personally against using Rapid Refund loans. To me, using short term loans is not a good financial practice.  However, I am even more against the government legislating away a service that doesn't have legal, moral or ethical issues.  Instead of legislating away Rapid Refund loans, I would have liked the government to simply eliminate Rapid Refund loans through simple free market competition.  If the IRS could reliably reduce refund times to 2-3 days (very reasonable in today's digital world), more taxpayers would likely move to a 2-3 day refund instead of paying Rapid Refund fees.

However, competing in a free market environment is not an approach the government seems to use.  Legislating away competition is the typical operational method.  As the government takes over more (formerly private) services, expect to get used to disappointment.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2012 Achievement Catalyst, LLC