Association for Public Policy Analysis & Management

In this work, I examine the impact of state-level policies on the demise of Refund Anticipation Loans (RALs) and the subsequent increase in the use of Refund Anticipation Checks (RALs). Both are products offered by tax-preparers that provide taxpayers with an earlier refund (in the case of a RAL) or a temporary bank account from which tax preparation fees can be deducted (in the case of a RAC). The fees and interest associated with both products are often exorbitant in comparison with the value of the refund, yet state policies regulating the industry have focused mainly on RAL provision. Using zip-code-level tax data, I examine the effects of various state-level policies on RAL activity and the transition of tax-preparers to RACs. I then examine the effect this transition had on taxpayer outcomes, measured at the county level using Current Population Survey data. I find that state regulation regarding disclosure led to a swifter withdrawal of tax preparers from RAL provision, but the decline in provision was largest for the few states with interest-rate caps. While the drop in RAL provision led to a decrease in the number of taxpayers receiving an EITC in the zip code, the average size of the credit was unaffected. I discuss the implications of the findings on the necessity of states to adapt as new lending strategies emerge.