Mr. AKAKA Mr. President, I am proud to cosponsor the Taxpayer Protection and Assistance Act of 2005. I thank Senator Bingaman for introducing this bill and working closely with me over the years to protect taxpayers and expand access to financial services. I also appreciate all of the efforts of Senators Baucus, Smith, Grassley, and Pryor on this important piece of consumer protection legislation.

The earned income tax credit (EITC) helps working families meet their food, clothing, housing, transportation, and education needs. Unfortunately, EITC refunds intended for working families are unnecessarily diminished by excessive tax preparation fees and the use of refund anticipation loans (RALs). According to the Brookings Institution, an estimated $1.9 billion intended to assist low-income families via the EITC was received by commercial tax preparers and affiliated national banks to pay for tax assistance, electronic filing of returns, and high-cost refund anticipation loans in 2002. Interest rates on RALs can range from 97 percent to more than 2,000 percent. The interest rates and fees charged on this type of product are not justified given the short duration and low repayment risk of this type of loan.

Mr. President, this legislation is a good start towards improving the quality of tax preparation services, providing relevant and useful disclosures about the use of RALs, and expanding access to low- and moderate-income families to mainstream financial services. The Act will provide the Department of the Treasury with the authority to regulate individuals preparing federal income tax returns and other documents for submission to the Internal Revenue Service. Fifty-seven percent of EITC overclaims were made on returns put together by paid preparers. This Act requires examinations, education, and oversight of paid preparers and urges citizens to utilize the services of an accredited or licensed tax preparer. This should improve the quality of tax preparation services available to our citizens.

In addition, the Act will require RAL facilitators to register with the Department of the Treasury, and comply with minimum disclosure requirements intended to improve the understanding of consumers about the costs associated with RALs. The Act also requires that the Department of the Treasury conduct a public awareness campaign intended to improve the knowledge of consumers about the costs associated with RALs. We need consumers to know more about the high fees associated with RALs and what alternatives are available, such as opening a bank or credit union account and having their refund directly deposited into it.

I am pleased that authorization language for a grant program to link tax preparation services with the opening of a bank or credit union account is included in this legislation. It is estimated that four million EITC recipients are classified as unbanked, and lack a formal relationship with a financial institution. Approximately 45 percent of EITC recipients pay for check cashing services. Check cashing services reduce EITC benefits by $130 million. Having a bank account allows individuals to take advantage of electronic filing, thus eliminating the excessive fees that check cashing services and refund anticipation loan providers assess. 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 products and services found at mainstream financial institutions, such as savings accounts and reasonably priced loans.

This grant program builds upon the First Accounts initiative which has funded pilot projects that have coupled tax preparation services with the establishment of bank accounts. An example of such a project is the partnership that has been established by The Center for Economic Progress in Chicago. We need more of these types of programs intended to provide much needed tax preparation assistance, and encourage the use of mainstream financial services.

I urge all of my colleagues to support this legislation. This is an important first step towards improving the quality of tax preparation services. I look forward to continuing to work with my colleagues on additional consumer protections and initiatives to bring more people into mainstream financial services, such as what I included in S. 324, the Taxpayer Abuse Prevention Act. Thank you, Mr. President.