The Internal Revenue Service on Thursday announced a policy shift that could combat the use of refund anticipation loans, the short-term loans that give taxpayers quick access to cash but usually at a high cost.

In a notice, the IRS announced that starting in the 2011 tax-filing season, it would no longer provide tax preparers and financial firms with a key debt indicator banks use to facilitate the refund loans.

"We no longer see a need for the debt indicator in a world where we can process a tax return and deliver a refund in 10 days," IRS Commissioner Doug Shulman said. "With e-file and direct deposit, these taxpayers now have other ways to quickly access their cash."

The IRS move comes just months after the agency announced plans to regulate tax-preparation firms such as H&R Block Inc. (HRB) and Jackson Hewitt Tax Service Inc. (JTX) for the first time.

Shumlan noted that the loans are often targeted at lower-income taxpayers. They're secured by a taxpayer's anticipated tax refund. Traditionally, the IRS has provided banks with a "debt indicator," which the banks then use as an underwriting tool. The indicator has given banks and tax preparers key information about how much of the refund the taxpayer will actually see after accounting for any tax liabilities or other debts.

However, consumer groups have advised consumers to stay away from refund loans because they usually come with high fees and interest rates.

-By Maya Jackson Randall, Dow Jones Newswires; 202-257-6313, maya.jackson-randall@dowjones.com
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