Credit and Debt Blog

(Sandra from Arizona) i get some of my refund early every year but last year it was hard to find holiday refund loans can I get one this year?

Dear Sandra:

So-called holiday income tax refunds are becoming much more scarce, as are refund anticipation loans in general. This stems from two major changes that I will indicate below. However, in order to answer your question, yes you can still obtain holiday tax refunds. The number of income tax preparation firms that offer these is getting fewer, and the costs are going up.

These are some of the most costly loans that you can obtain, even when considering predatory payday loans. They are essentially secured by the income tax refund that you are expected to receive based on your W-2s, pay stubs and family size.

The reduction in holiday tax loan offerings is based on two primary changes.

1. First, the Internal Revenue Service ceased providing an indicator to income tax preparers. The indicator basically confirmed that there were no tax liens that would be collected from the tax filer’s return before the remainder (if any) was distributed to the tax filer. Tax liens are frequently utilized by the government to seize funds owed on previous year’s taxes owed or defaulted student loan debt. Even back child support may be retained from your tax refund proceeds.
2. Second, the Comptroller of the Currency among other regulators expressed concern that banks who underwrite these loans that are provided through income tax preparers may be taking on too much risk. As a result, the number of banks that provided the capital to float the loans in the short term have shrank. Republic Bank was one of the most commonly used lenders to provide backing for these loans.

Since lenders cannot verify if you will receive your full refund, they have begun to reduce the amount of funding devoted to holiday tax loans and other refund anticipation loan products. Some tax filers will not qualify at all. Others may find that even if they are approved, that the amounts of these loans may be less than in previous years.

Those who want to access their tax refunds early in order to purchase holiday gifts may be most likely to obtain funds by going to the same preparer that they used the previous year. That way the lender who provides the loan can be sure there are no existing tax liens or other collections owed from more than a year ago. Still, understand that the cost is high, which is the primary reason that holiday tax loans are not recommended.