Most lenders like to request tax return information from a borrower during the loan application process. It is the most reliable way to verify a borrower’s income. To allow this a borrower must fill out and sign a form known as IRS 4506-T: Request for Transcript of Tax Return. This is a manual process still today and one that can slow down the loan approval process.
Back in December 2013 Renaud Laplanche testified on Capitol Hill on small business lending. He was CEO of Lending Club back then and when a Congressman asked Laplanche a question as to how the government can best help he said to make IRS data more easily accessible to online lenders.
Fast forward four years and there appears to finally be some movement on this. Last week Congressman Patrick McHenry (R-NC) along with Senator Cory Booker (D-NJ) introduced a bill that would help the IRS move into the modern age and allow the automated retrieval of tax information through an API.
The IRS Data Verification Modernization Act of 2017 as it is called will require the IRS to create an API that will allow lenders to verify income in real time. Here is what Congressman McHenry had to say about this new bill:
Innovation in financial services has created more convenient and secure ways to meet the demands of American consumers. For financial innovation to succeed, however, Washington must update its information technology infrastructure to keep up with the growth and creativity in the private sector. Our federal government needs to do a better job in updating and securing its technology to make lending more accessible for all Americans. In light of the recent SEC and Equifax breaches, now is the time for Congress to take a leading role in creating a more safe and affordable process so that consumers are protected. This bill takes a small but important step in that direction by modernizing one of the most important processes in the financial system: income verification.