[Congressional Record Volume 155, Number 44 (Thursday, March 12, 2009)]
[Senate]
[Pages S3078-S3079]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. AKAKA (for himself, Mr. Bingaman and Mr. Durbin):
  S. 585. 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 introducing the Taxpayer Abuse 
Prevention Act. Refund anticipation loans, RALs, are short term loans 
facilitated by tax preparers and secured by a taxpayer's expected tax 
refund which typically carry a three or four digit interest rate. These 
predatory RALs prey on low-income taxpayers, diminishing their earned 
tax credits.
  Earned Income Tax Credit, EITC, benefits are intended to help working 
families meet their food, clothing, housing, transportation, and 
education needs. According to the Internal Revenue Service, IRS, in 
2007 EITC filers made up 63 percent of all RAL consumers despite being 
only 17 percent of the taxpayer population. The National Consumer Law 
Center estimates $567 million was drained out of the EITC program in 
2007 by RAL loan and add-on fees. Working families cannot afford to 
lose a significant portion of their EITC funds by expensive, short-term 
RALs.
  The high interest rates and fees charged on RALs are not justified 
because these loans are outstanding for only a short length of time and 
present minimal risk to lenders because of the Debt Indicator, DI, 
program. The DI program is a service provided by the 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 can be repaid.
  It is troubling that the Department of the Treasury facilitates the 
use of RALs. In 1995, use of the DI program was suspended because of 
massive fraud in e-filed returns with RALs. The use of the DI program 
was reinstated in 1999. The effect of the DI program on total RAL 
volume is clear: the number of RALs fell dramatically following the 
suspension of the program in 1995 and rose again to pre-suspension 
levels immediately following its reinstatement in 1999. Use of the DI 
program should once again be stopped because it is helping tax 
preparers make excessive profits from low- and moderate-income 
taxpayers who utilize RALs. The Department of the Treasury should not 
be facilitating the use of RALs that allow tax preparers to reap 
outrageous profits by exploiting working families.
  The Taxpayer Abuse Prevention Act will protect consumers against 
predatory loans, reduce the involvement of the Department of the 
Treasury in facilitating the exploitation of taxpayers by terminating 
the DI program, 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.
  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 reliance on high-cost 
and often predatory financial services. In addition, the unbanked are 
unable to save in preparation for the loss of a job, a family illness, 
a down payment on a first home, or education expenses.
  To address this problem, my bill also expands access to mainstream 
financial services. Electronic Transfer Accounts, ETAs, are low-cost 
accounts at banks and credit unions intended for recipients of certain 
Federal benefit payments, 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 immediate access to financial opportunities found at banks and 
credit unions.
  The timeliness of this legislation has never been greater. I urge all 
of my colleagues to support this important bill that offers consumer 
protection from predatory RALs and expand access to mainstream 
financial services.
  I want to thank my colleagues, Senator Bingaman and Senator Durbin, 
for cosponsoring this legislation.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
placed in the Record, as follows:

                                 S. 585

       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. 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. 7. 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

[[Page S3079]]

     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. 8. 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.
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