Washington, D.C. - U.S. Senator Daniel K. Akaka (D-Hawaii) applauded Senate Finance Committee approval of consumer protection legislation to assist low-income families file their tax returns and access affordable and convenient financial services.
S. 882, the Tax Administration Good Government Act, as reported by the Senate Finance Committee today, includes a provision from S. 685, the Low Income Taxpayer Protection Act, introduced by Senator Akaka and Senator Jeff Bingaman (D-NM), that authorizes $10 million in demonstration grants for programs that link tax preparation services with the establishment of a bank account.

According to the FDIC, an estimated 10 million American households are "unbanked" or "underbanked" - they do not have accounts at banks and other mainstream financial institutions. As a result, these cash consumers often pay excessive fees for basic financial services, are susceptible to high-cost predatory lenders, or have difficulties buying a home or otherwise acquiring assets.

Having a bank or credit union account allows individuals not only to receive their tax refund check faster than waiting for a paper check, but also does not impose the excessive fees assessed by check cashing services and refund anticipation loan providers. In 2001, an estimated $839 million intended to assist low-income families went to commercial tax preparers and affiliated national banks for tax assistance, electronic filing of returns, and high-cost refund loans, according to the Brookings Institution.

"This grant program will help expand access to tax preparation services and provide an opportunity to bring people into mainstream financial institutions such as banks and credit unions, and allow working families to keep more of their earned EITC benefits," Akaka said. "An account at a bank or credit union provides consumers alternatives to rapid refund loans, check cashing services, and lower cost remittances. In addition, bank and credit union accounts provide access to saving and borrowing services found at mainstream financial institutions. More of these programs are necessary to provide tax preparation assistance and to encourage the use of mainstream financial services."

Qualifying tax-exempt organizations, federally insured depository institutions, State or local governmental agencies, community development financial institutions, Indian tribal organizations, Alaska Native corporations, Native Hawaiian organizations, and labor organizations would be eligible for this grant program.