[Congressional Record Volume 153, Number 61 (Tuesday, April 17, 2007)]
[Senate]
[Pages S4612-S4614]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. AKAKA (for himself, Mr. Bingaman, and Mr. Durbin):
  S. 1133. A bill to provide additional protections for recipients of 
the earned income tax credit; to the Committee on Finance.
  Mr. AKAKA. Mr. President, today, I am reintroducing the Taxpayer 
Abuse Prevention Act. Earned income tax credit (EITC) benefits intended 
for working families are significantly reduced by the use of refund 
anticipation loans (RALs), which typically carry three or four digit 
interest rates. In 2005, EITC filers accounted for more than half of 
the refund anticipation loans issued despite being only 17 percent of 
the taxpayer population. EITC recipients lost an estimated $649 million 
in loan fees plus application or documentation fees in 2005. The EITC 
is intended to help working families meet their food, clothing, 
housing, transportation, and education needs. Working families cannot 
afford to lose a significant portion of their EITC funds by expensive, 
short-term, RALs.
  The interest rates and fees charged on RALs are not justified because 
of the short length of time that these loans are outstanding 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 (IRS) that informs the lender whether or not an applicant owes 
Federal or State taxes, child support, student loans, or other 
government obligations, which assists tax preparers in ascertaining the 
ability of applicants 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,

[[Page S4613]]

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 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 legislation 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. It 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.
  It is troubling that the Department of the Treasury facilitates 
refund anticipation loans. In 1995, the use of the DI was suspended 
because of massive fraud in e-filed returns with RALs. The use of the 
DI was reinstated in 1999. Use of the Debt Indicator should once again 
be stopped. The DI is helping tax preparers make excessive profits from 
low- and moderate-income taxpayers who utilize RALs. The IRS should not 
aide unscrupulous preparers who take the earned benefit away from low-
income families. My bill terminates the DI program. In addition, this 
bill removes the incentive to meet congressionally mandated electronic 
filing goals by facilitating the exploitation of taxpayers. My bill 
would exclude any electronically filed tax returns resulting in tax 
refunds distributed by refund anticipation loans from being counted 
towards the goal established by the IRS Restructuring and Reform Act of 
1998, which is to 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 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 refund anticipation loan. 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 immediate access to financial 
opportunities found at banks and credit unions.
  I want to thank my colleagues, Senators Bingaman and Durbin for 
cosponsoring this legislation. I also appreciate the efforts of 
Representative Jan Schakowsky who will be reintroducing the companion 
legislation in the other body. I ask unanimous consent that the text of 
the Taxpayer Abuse Prevention Act be printed in the Record.
  I urge my colleagues to support this important legislation that will 
restrict predatory RALs and expand access to mainstream financial 
services.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 1134

       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 such right or any moneys paid or 
     payable under this section shall not 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.

     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

[[Page S4614]]

     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.
                                 ______