[Congressional Record Volume 150, Number 127 (Friday, October 8, 2004)]
[Senate]
[Pages S10848-S10850]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. AKAKA (for himself, Mr. Bingaman, and Mr. Durbin):
  S. 2947. A bill to provide additional protections for recipients of 
the earned income tax credit; to the Committee on Finance.
  Mr. AKAKA. Mr. President, I rise to introduce the Taxpayer Abuse 
Prevention Act. Earned income tax credit (EITC) benefits intended for 
working families are increasingly being reduced by the growing use of 
refund anticipation loans, which typically carry triple digit interest 
rates. According to the Brookings Institution, an estimated $1.9 
billion intended to assist low-income families was received by 
commercial tax preparers and affiliated national banks to pay for tax 
assistance, electronic filing of returns, and high-cost refund loans in 
2002. The interest rates and fees charged on refund anticipation loans 
(RALs) are not justified

[[Page S10849]]

for the short length of time that these loans cover and the minimal 
risk they present. These loans carry little risk because of the Debt 
Indicator program. The Debt Indicator (DI) is a service provided by the 
Internal Revenue Service that informs the lender whether or not an 
applicant owes Federal or State taxes, child support, student loans, or 
other government obligations, which assists the tax preparer in 
ascertaining the applicant's ability to obtain their full refund so 
that the RAL is repaid. The Department of the Treasury should not be 
facilitating these predatory loans that allow tax preparers to reap 
outrageous profits by exploiting working families.
  Unfortunately too many working families are susceptible to predatory 
lending because they are left out of the financial mainstream. Between 
25 and 56 million adults are unbanked, or not using mainstream, insured 
financial institutions. The unbanked rely on alternative financial 
service providers to obtain cash from checks, pay bills, send 
remittances, utilize payday loans, and obtain credit. Many of the 
unbanked are low- and moderate-income families that can ill afford to 
have their earnings unnecessarily diminished by their reliance on these 
high-cost and often predatory financial services. In addition, the 
unbanked are unable to save securely to prepare for the loss of a job, 
a family illness, a down payment on a first home, or education 
expenses.
  My bill will protect consumers against predatory loans, reduce the 
involvement of the Department of the Treasury in facilitating the 
exploitation of taxpayers, and expand access to opportunities for 
saving and lending at mainstream financial services.
  My bill prohibits refund anticipation loans that utilize EITC 
benefits. Other Federal benefits, such as Social Security, have similar 
restrictions to ensure that the beneficiaries receive the intended 
benefit.
  My bill also limits several of the objectionable practices of RAL 
providers. My legislation will prohibit lenders from using tax refunds 
to collect outstanding obligations for previous RALs. In addition, 
mandatory arbitration clauses for RALs that utilize federal tax refunds 
would be prohibited to ensure that consumers have the ability to take 
future legal action if necessary in the future.
  I am deeply troubled that the Department of the Treasury plays such a 
prominent role in the facilitation and subsequent promotion of refund 
anticipation loans. In 1995, the use of the DI was suspended because of 
massive fraud in e-filed returns with RALs. After the program was 
discontinued, RAL participation declined. The use of the DI was 
reinstated in 1999, according to H&R Block, to ``assist with screening 
for electronic filing fraud and is also expected to substantially 
reduce refund anticipation loan pricing.'' Although RAL prices were 
expected go down as a result of the reinstatement of the DI, this has 
not occurred. The Debt Indicator should once again be stopped. The DI 
is helping tax preparers make excessive profits of low- and moderate-
income taxpayers who utilize the service. If the Debt Indicator is 
removed, then the loans become riskier and the tax preparers may not 
aggressively market them among EITC filers. The IRS should not be 
aiding efforts that take the earned benefit away from low-income 
families and allow unscrupulous preparers to take advantage of low-
income taxpayers. My bill terminates the DI program. In addition, my 
bill removes the incentive to meet Congressionally mandated electronic 
filing goals by facilitating the exploitation of taxpayers. My bill 
would prevent any electronically filed tax returns that resulted in tax 
refunds that were distributed by refund anticipation loans from being 
counted towards the goal established by the IRS Restructuring and 
Reform Act of 1998 that the IRS have at least 80 percent of all returns 
filed electronically by 2007.
  My bill also expands access to mainstream financial services. 
Electronic Transfer Accounts (ETA) are low-cost accounts at banks and 
credit unions that are intended for recipients of certain Federal 
benefit payments. Currently, ETAs are provided for recipients of other 
federal benefits such as Social Security payments. My bill expands the 
eligibility for ETAs to include EITC benefits. These accounts will 
allow taxpayers to receive direct deposit refunds into an account 
without the need for a RAL.
  Furthermore, my bill would mandate that low- and moderate-income 
taxpayers be provided opportunities to open low-cost accounts at 
federally insured banks or credit unions via appropriate tax forms. 
Providing taxpayers with the option of opening a bank or credit union 
account through the use of tax forms provides an alternative to RALs 
and provides immediate access to the opportunities found at banks and 
credit unions.
  I want to thank my colleagues, Senator Bingaman and Senator Durbin 
for cosponsoring the legislation. I also thank Representative Jan 
Schakowsky for introducing the companion legislation in the other body. 
I ask unanimous consent that the text of the Taxpayer Abuse Prevention 
Act be printed following my remarks. I also ask unanimous consent that 
the text of a support letter from the Association of Community 
Organizations for Reform Now, the Children's Defense Fund, the Consumer 
Federation of America, Consumers Union, and the National Consumer Law 
Center, be printed in the Record.
  Mr. President, I ask unanimous consent that the text of the bill and 
a letter be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 2947

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Taxpayer Abuse Prevention 
     Act''.

     SEC. 2. PREVENTION OF DIVERSION OF EARNED INCOME TAX CREDIT 
                   BENEFITS.

       (a) In General.--Section 32 of the Internal Revenue Code of 
     1986 (relating to earned income tax credit) is amended by 
     adding at the end the following new subsection:
       ``(n) Prevention of Diversion of Credit Benefits.--The 
     right of any individual to any future payment of the credit 
     under this section shall not be transferable or assignable, 
     at law or in equity, and none of the moneys paid or payable 
     or right shall be subject to any execution, levy, attachment, 
     garnishment, offset, or other legal process except for any 
     outstanding Federal obligation. Any waiver of the protections 
     of this subsection shall be deemed null, void, and of no 
     effect.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 3. PROHIBITION ON DEBT COLLECTION OFFSET.

       (a) In General.--No person shall, directly or indirectly, 
     individually or in conjunction or in cooperation with another 
     person, engage in the collection of an outstanding or 
     delinquent debt for any creditor or assignee by means of 
     soliciting the execution of, processing, receiving, or 
     accepting an application or agreement for a refund 
     anticipation loan or refund anticipation check that contains 
     a provision permitting the creditor to repay, by offset or 
     other means, an outstanding or delinquent debt for that 
     creditor from the proceeds of the debtor's Federal tax 
     refund.
       (b) Refund Anticipation Loan.--For purposes of subsection 
     (a), the term ``refund anticipation loan'' means a loan of 
     money or of any other thing of value to a taxpayer because of 
     the taxpayer's anticipated receipt of a Federal tax refund.
       (c) Effective Date.--This section shall take effect on the 
     date of the enactment of this Act.

     SEC. 4. PROHIBITION OF MANDATORY ARBITRATION.

       (a) In General.--Any person that provides a loan to a 
     taxpayer that is linked to or in anticipation of a Federal 
     tax refund for the taxpayer may not include mandatory 
     arbitration of disputes as a condition for providing such a 
     loan.
       (b) Effective Date.--This section shall apply to loans made 
     after the date of the enactment of this Act.

     SEC. 5. TERMINATION OF DEBT INDICATOR PROGRAM.

       The Secretary of the Treasury shall terminate the Debt 
     Indicator program announced in Internal Revenue Service 
     Notice 99-58.

     SEC. 6. DETERMINATION OF ELECTRONIC FILING GOALS.

       (a) In General.--Any electronically filed Federal tax 
     returns, that result in Federal tax refunds that are 
     distributed by refund anticipation loans, shall not be taken 
     into account in determining if the goals required under 
     section 2001(a)(2) of the Restructuring and Reform Act of 
     1998 that the Internal Revenue Service have at least 80 
     percent of all such returns filed electronically by 2007 are 
     achieved.
       (b) Refund Anticipation Loan.--For purposes of subsection 
     (a), the term ``refund anticipation loan'' means a loan of 
     money or of any other thing of value to a taxpayer because of 
     the taxpayer's anticipated receipt of a Federal tax refund.

[[Page S10850]]

     SEC. 7. EXPANSION OF ELIGIBILITY FOR ELECTRONIC TRANSFER 
                   ACCOUNTS.

       (a) In General.--The last sentence of section 3332(j) of 
     title 31, United States Code, is amended by inserting ``other 
     than any payment under section 32 of such Code'' after 
     ``1986''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to payments made after the date of the enactment 
     of this Act.

     SEC. 8. PROGRAM TO ENCOURAGE THE USE OF THE ADVANCE EARNED 
                   INCOME TAX CREDIT.

       (a) In General.--Not later than 6 months after the date of 
     the enactment of this Act, the Secretary of the Treasury 
     shall, after consultation with such private, nonprofit, and 
     governmental entities as the Secretary determines 
     appropriate, develop and implement a program to encourage the 
     greater utilization of the advance earned income tax credit.
       (b) Reports.--Not later than the date of the implementation 
     of the program described in subsection (a), and annually 
     thereafter, the Secretary of the Treasury shall report to the 
     Committee on Finance of the Senate and the Committee on Ways 
     and Means of the House of Representatives on the elements of 
     such program and progress achieved under such program.
       (c) Authorization of Appropriations.--There is authorized 
     to be appropriated such sums as are necessary to carry out 
     the program described in this section. Any sums so 
     appropriated shall remain available until expended.

     SEC. 9. PROGRAM TO LINK TAXPAYERS WITH DIRECT DEPOSIT 
                   ACCOUNTS AT FEDERALLY INSURED DEPOSITORY 
                   INSTITUTIONS.

       (a) Establishment of Program.--Not later than 1 year after 
     the date of the enactment of this Act, the Secretary of the 
     Treasury shall enter into cooperative agreements with 
     federally insured depository institutions to provide low- and 
     moderate-income taxpayers with the option of establishing 
     low-cost direct deposit accounts through the use of 
     appropriate tax forms.
       (b) Federally Insured Depository Institution.--For purposes 
     of this section, the term ``federally insured depository 
     institution'' means any insured depository institution (as 
     defined in section 3 of the Federal Deposit Insurance Act (12 
     U.S.C. 1813)) and any insured credit union (as defined in 
     section 101 of the Federal Credit Union Act (12 U.S.C. 
     1752)).
       (c) Operation of Program.--In providing for the operation 
     of the program described in subsection (a), the Secretary of 
     the Treasury is authorized--
       (1) to consult with such private and nonprofit 
     organizations and Federal, State, and local agencies as 
     determined appropriate by the Secretary, and
       (2) to promulgate such regulations as necessary to 
     administer such program.
       (d) Authorization of Appropriations.--There is authorized 
     to be appropriated such sums as are necessary to carry out 
     the program described in this section. Any sums so 
     appropriated shall remain available until expended.
                                  ____



                             National Consumer Law Center Inc,

                                    Washington, DC, July 12, 2004.
     Hon. Daniel K. Akaka,
     U.S. Senate,
     Washington, DC.
       Dear Senator Akaka: The Association of Community 
     Organizations for Reform Now (ACORN), Children's Defense 
     Fund, Consumer Federation of America, Consumers Union, and 
     National Consumer Law Center (on behalf of its low-income 
     clients), write to support your bill, the ``Taxpayer Abuse 
     Prevention Act.'' By prohibiting lenders from making loans 
     against the Earned Income Tax Credit, this bill would greatly 
     reduce the scope of abuses caused by refund anticipation 
     loans (RALs), which carry effective annualized interest rates 
     of about 70% to over 700%.
       As you know, over 55% of consumers who receive RALs are 
     beneficiaries of the Earned Income Tax Credit. In 2002, EITC 
     recipients paid about $749 million in loan and 
     ``administrative'' fees for RALs. These fees divert hundreds 
     of millions of EITC dollars, paid out of the U.S. Treasury, 
     into the coffers of multimillion dollar commercial 
     preparation chains and big banks. It's time to stop lenders 
     from making high cost, abusive loans using the precious 
     dollars intended to support working poor families.
       Furthermore, we support the ``Taxpayer Abuse Prevention 
     Act'' for its provisions that halt several of the most 
     egregious practices of RAL lenders, such as seizing 
     taxpayers' tax refunds as a form of debt collection and 
     slipping in mandatory arbitration clauses, which leave RAL 
     consumers without their day in court. Moreover, we appreciate 
     the termination of the IRS Debt Indicator program, which 
     would stop the IRS's practice of sharing taxpayer's personal 
     financial information in order to make RALs more profitable 
     for lenders. Finally, we applaud the provisions of the bill 
     that support linking unbanked taxpayers with bank accounts, 
     such as the provision to permit them to open Electronic 
     Transaction Accounts to receive federal tax refunds.
       Thank you again for all your efforts to combat taxpayer 
     abuse by the RAL industry.
           Sincerely,
     Maude Hurd,
       National President, Association of Community Organizations 
     for Reform Now.
     Jean Ann Fox,
       Director of Consumer Protection, Consumer Federation of 
     America.
     Chi Chi Wu,
       Staff Attorney, National Consumer Law Center.
     Deborah Cutler-Ortiz,
       Director of Family Income, Children's Defense Fund.
     Shelley Curran,
       Policy Analyst, Consumers Union.
                                 ______