Refund Anticipation Loan News
The latest news on refund anticipation loans, refund anticipation checks, and tax refund loans from the Center for Responsible Lending.
- TurboTax Maker Settles Usury Claims for $6.55M
Courthouse News Service 03 Oct 2013
U.S. District Judge Edward Davila approved a $6.55 million settlement of two class-action lawsuits that claim Intuit's free edition of TurboTax included usurious "quadruple-digit interest rates."
- Senators Seek to Cap Interest Rates on Consumer Loans
The Hill 09 Apr 2013
Senate Majority Whip Dick Durbin (D-Ill.) and several other Democratic colleagues have proposed a bill to set an interest rate and fee limit of 36 percent for all open- and closed-end consumer credit transactions...
- Survey: Tax Refunds Will Go to Pay Down Debt, Boost Savings
Boston Herald 01 Apr 2013
About 45 percent of U.S. tax filers will use this year’s return to pay down debt and grow their savings, according to a survey of 251 consumers conducted by American Consumer Credit Counseling. Another 26 percent will put the refund directly into their savings,,,
- A New Variation of a Costly Tax-Time Offer
New York Times Bucks blog 27 Mar 2013
Tax refund anticipation loans -- advances on tax returns, made at high interest rates -- may be less prevalent due to federal crackdowns, but similar financial products are just as expensive. A report by the National Consumer Law Center and the Consumer Federation of America found that some tax preparation firms, including Liberty Tax Service and Jackson Hewitt, still make refund anticipation loans through non-bank partners...
- Need Your Tax Refund? Accessing Early Is Costly
USA Today 20 Mar 2013
Although consumers in a tight spot financially can try to access their tax refunds early, the process usually costs more than it is worth. "It's quite expensive, when you think about it," notes Chi Chi Wu, staff attorney for the non-profit National Consumer Law Center...
- New Tax Refund Loans Carry Sky-High Fees and Rates
CNN Money 06 Mar 2013
While refund anticipation loans (RALs) have all but disappeared due to regulatory tightening, tax preparers and non-bank lenders are offering products that can be just as costly, according to the National Consumer Law Center (NCLC) and Consumer Federation of America. Their report warns against products such as loans offered by Liberty Tax Service, with loans in at least one of the 26 states where they are carried reportedly carrying a $49.90 fee plus an undisclosed amount of interest. An interest rate of 36 percent would cost a borrower about $80 for a 15-day loan of $2,000. Jackson Hewitt, meanwhile, offers tax-time credit lines ranging from $200 to $1,000, at a 35 percent interest rate, a $6.25 monthly fee, and a fee of 3 percent or $10 every time the credit line is tapped. Some tax preparation companies pay customers a portion of the expected refund early, and take the full amount for themselves when it arrives. While this is advertised as "buying" a refund, the NCLC says that it is no different from an RAL. Although such short-term loans may seem appealing to consumers who are strapped for cash, most people already receive their tax refunds in fewer than three weeks if they file electronically.
- Expect to Pay for Fast Tax Refund
USA Today 31 Jan 2013
Lower-income taxpayers may be tempted to use fast-cash products to get returns more quickly, but these options are often more expensive than they need to be. Refund anticipation loans (RALs) are no longer available from banks on a large-scale basis, but there are still some high-cost methods for a quick refund. Liberty Tax Service offers a refund transfer product called Instant Cash Advance, for which a filer can apply if he or she has at least a $1,500 federal refund. In Michigan, a taxpayer using Instant Cash Advance would pay about $101 in fees and interest for a $1,700 loan. The taxpayer would receive the cash in 24 hours to 48 hours upon approval, meaning he or she would pay at least $100 in exchange for getting the tax return two to three weeks earlier than with typical electronic filing. While H&R Block also no longer offers RALs, it does have refund anticipation checks (RACs) -- which allow the taxpayer to deduct tax-preparation fees from the refund, as well as an extra charge of $24.95 to have the return deposited onto H&R Block's prepaid debit card. There is an additional fee of $54.95 to have a paper check mailed to the taxpayer as part of the RAC program. Consumer advocates point out that many of these extra fees are unnecessary when lower-income taxpayers could qualify for free tax assistance and have refunds directly deposited into a bank account or prepaid debit card. "We're always concerned when consumers don't receive the entire balance of their tax refund," remarks Tom Feltner of the Consumer Federation of America. "The desire to get a refund sooner is being used to get consumers to pay for tax preparation." His organization is additionally concerned that tax preparers could then perpetrate a "bait and switch" maneuver on filers. A consumer could pay $400 or $400 for the tax preparation services, for instance, hoping to qualify for a refund anticipation loan but then be turned down for the RAL because of limited dollars available for such loans. "They could be offered nothing at all," according to Feltner. Advocates also worry about filers being talked into getting a tax-related loan that is made by a payday lender instead of by a big bank.
- These Tax-Time Refund Offers Should be Avoided
Today 29 Jan 2013
Taxpayers who expect a return but cannot afford to pay a tax preparer upfront to process their refund may be tempted to choose a Refund Anticipation Check (RAC), which will deduct the cost of tax preparation from the refund when it is issued. With an RAC, the filer gets a temporary bank account where the IRS can issue the refund via direct deposit. The bank issues a check or debit card for the refund -- less the tax preparation charge -- and then terminates the linked bank account. Banks usually charge $30 to $35 for this service, meaning that a taxpayer who spends $30 to defer payment of a $200 tax preparation bill for three weeks ends up paying what is equivalent to an APR of 260 percent. "With a RAC you pay a fee to finance the expense of tax preparation, and we don't think that's a smart idea," says Tom Feltner of the Consumer Federation of America. "We always warn people to be wary of financial products that are sold alongside tax preparation." The National Consumer Law Center (NCLC) estimates that about 18.4 million taxpayers received an RAC in 2011. Some find themselves unknowingly signed up for the product, with the preparer adding it automatically or referring to it as “direct deposit” instead of an RAC. Either way, NCLC's Chi Chi Wu says an RAC will not get a filer his or her return any faster than if they simply file electronically and have the funds deposited on an existing prepaid debit card or in an existing bank account. Moreover, many filers -- including elderly and low-income taxpayers -- qualify for free tax preparation.
- Rapid Tax Refund? Not So Fast!!!
Better Business Bureau 23 Jan 2013
For consumers in need of quick cash, a rapid tax refund or refund anticipation loan (RAL) might sound like a good option. However, such convenient cash comes at a high cost. Taking out an RAL could incur a check fee, an account processing fee, a refund estimate fee, an e-file fee, a transmission fee, and/or a tax preparation fee. Such fees could add up to as much as $1,000. Taxpayers who need quick cash should first learn what fees are applicable before agreeing to the terms of an RAL. Consumers should read the fine print of any contracts, and comparison shop to find the best option. Possible sources for information include the Better Business Bureau's Business Reviews on companies and their state’s Attorney General Web site.
- Action Line: Tax-Time 'Refund Anticipation Loans' to No Longer Be Widespread
Tulsa World 20 Jan 2013
Some consumers in a hurry to get their tax returns have sought a refund anticipation loan (RAL), immediate cash from tax preparers that is secured by the expected refunds. A year ago, the price for typical RALs of $1,500 was $61.22, with an additional $29.95 for a refund anticipation check (RAC) for the remainder of the consumer's refund. The $61.22 fee amounts to an APR of 149 percent for the taxpayer's own money. The Center for Responsible Lending (CRL) said in February 2012, "This is the last year high-cost, high-risk RALs will be made, at least on a large scale, by banks." In December 2011, the last few banks that issued RALs settled with the Federal Deposit Insurance Corporation and agreed to stop making these loans after April 2012. RALs will no longer be a widespread industry practice, although "an occasional fringe lender" could issue them, the CRL reported. Taxpayers could still be vulnerable to tax preparers and banks that still offer RACs, which can carry heavy add-on fees. Taxpayers are advised not to accept RACs, which involve tax preparers and their partner banks opening a temporary bank accounts for the IRS to directly deposit tax refunds for taxpayers that do not already have an account.
- Liberty Tax's Parent Company Told to Pay $1.3M in Ad Case
Virginian-Pilot (VA) 19 Jan 2013
A California appeals court recently ruled that JTH Holding Inc., the parent company of Liberty Tax Service, must pay $1.3 million in penalties over misleading ads. The decision upholds a trial judge's finding that Liberty deceived customers through refund anticipation loans (RALs) and electronic refund checks. Liberty was found to have falsely portrayed its RALs as IRS tax refunds and to have failed to educate its staff about the legalities in advertising or control its franchisees. The trial judge ordered JTH to pay $1.17 million in civil penalties plus $130,000 in restitution and permanently barred Liberty from advertising RALs as tax refunds. Consumer advocates have long criticized RALs provided by large U.S. tax preparers, citing excessive interest rates and fees.
- Money Matters: Some Tax Refund Products Prove Costly
Arkansas Matters 09 Jan 2013
When filers want their federal tax refunds sooner, some tax preparation services offer short-term loans secured by the expected return. These services, however, usually include high fees paid by consumers who are, for all intents and purposes, borrowing their own money. Arkansas Attorney General Dustin McDaniel has issued a Consumer Alert to inform state taxpayers about the risks of products such as Refund Anticipation Checks (RACs) and Refund Anticipation Loans (RALs). The products, he cautioned, are "not much faster" than getting the refund from the IRS via direct deposit. Moreover, many taxpayers can file their federal returns for free, which can help them avoid the fees associated with RACs and RALs. RALs have become more rare, but RACs are growing in popularity. With RACs, tax preparers and their partner banks open a temporary bank account where the IRS can directly deposit a tax refund, then charge consumers fees of about $30 for the service, in addition to tax preparation fees -- which are all subtracted from the consumer's refund. The Arkansas Refund Anticipation Loan Act requires tax preparers to provide specific disclosures with products such as RACs, including a schedule of fees and the specific conditions related to an RAL or RAC.
- Despite Promise, Federal Tax-Refund Debit Cards a No Go
New York Times 08 Jan 2013
A Treasury Department pilot program that issued prepaid debit cards to low- and moderate-income families during the 2011 tax season is "a concept with a promise" but will not be renewed this year due to low uptake last year, a Treasury official has confirmed. It was hoped that the option would save the government money by reducing the volume of paper checks sent out, while helping low-income filers avoid expensive refund anticipation loans. It also was considered a way to better serve "unbanked" taxpayers, who could continue to use the card for everyday financial purposes -- such as payroll direct deposit, ATM withdrawals, and bill payment. However, a report from the Urban Institute found that although roughly a third of the cards issued through the MyAccountCard program were used in the first months, the remaining two-thirds of individuals who received cards never used them. The report said it could be that people found the "multiple steps" needed to use them "cumbersome." It suggested that in the future, such accounts be low-cost, easy to use, and available early in the tax season to encourage their use.
- Who Needs an Income Tax Refund Anticipation Loan or Check? Absolutely Nobody
Yahoo! Finance 20 Dec 2012
Refund anticipation loans, considered a form of predatory lending, essentially ended in 2012; but a banking product known as a refund anticipation check (RAC) is set to take their place in 2013. The Department of Treasury explains that RACs are temporary bank accounts, established on behalf of a taxpayer, that can receive a direct deposit refund. This is a bank deposit, not a loan, and is limited to the size of the refund, minus any applicable fees. For taxpayers without a bank account, RACs may expedite refunds by up to six weeks, and they also let filers pay for tax preparation fees out of the expected refund. The National Consumer Law Center says that the average cost of RACs is about $30 to $32; but tax preparers may charge their own "add-on" fees, ranging from $25 to hundreds of dollars. However, many low-income taxpayers can e-file for free, saving on both tax preparation fees and RAC fees.
- Chasing Fees, Banks Court Low-Income Customers
New York Times 26 Apr 2012
Large U.S. banks increasingly are striving to land low-income customers with alternative products that can bear high fees -- including prepaid cards, check-cashing services, and short-term emergency loans -- partly because such products are largely excluded from recent financial regulations. Kimberly Gartner of the Center for Financial Services Innovation says unbanked ...
- Good Riddance to the Tax Refund Loan
Reuters 17 Apr 2012
Refund anticipation loans are among the financial products that rely on low-income communities that may not have access to fair credit or traditional banking products. More than 90 percent of people who applied for these loans in 2010 were low-income, according to IRS data. The refund anticipation business took off around 2000 after the IRS reintroduced the debt indicator, which allowed lenders to check whether a borrower had any debts that would put a refund in jeopardy of being seized. By partnering with larger banks, tax preparers that advanced refunds at high interest rates could be protected against state usury laws by claiming to be agents of the banks. In the summer of 2010, the IRS shut down its debt indicator tool after reports of fraud and misuse among loan programs. Thanks to renewed regulatory oversight, as of this past April 30, refund loans are no more. Still, many low-income urban neighborhoods have a “payday alley” full of storefronts offering high-interest loans against a consumer's paycheck. Research has established that these loans can be debt traps that keep borrowers in a cycling of new loans. As consumer advocates and state lawmakers work to limit these lenders, five national banks have stepped in to fill the gap with checking account “advance” products. A group of 250 consumer advocacy groups and civil rights organizations have written to warn bank regulators of these new products. “It took a while on refund anticipation loans,” says Kathleen Day of the Center for Responsible Lending. “It took a while – and a recession – before they did their job on mortgage lending. And our basic message is we don’t want them to wait” on bank payday lending.
- Instant Tax Service Accused of Fraud
CBS 2 Chicago 16 Apr 2012
The Better Business Bureau (BBB) has received warnings about many tax preparers, including Instant Tax Service in Chicago. A radio commercial for the service promised $1,000 to people filing their taxes. Rita Vigil went to Instant Tax Service seeking the $1,000 and was actually promised a refund of $7,178. However, when she received her refund check, "it was a $589 difference," she said. Instant Tax Service representatives have referred questions to its corporate headquarters in Dayton, Ohio, where it fields complaints from across the United States. Consumers have filed about 800 grievances with the BBB against the firm. BBB President Steve Bernas warns taxpayers to be careful of refund anticipation loans. "It’s not your money," he explains. "It’s actually a loan, so you’re going to pay upwards of 30 to 40 percent APR, which can equate to thousands of dollars that you’re just losing." The U.S. Justice Department has filed a federal lawsuit to shutter Instant Tax Service for intentionally preparing and filing fraudulent tax returns, while charging high fees to do so.
- Tax Refunds Being Used to Pay for Bankruptcy Filings
USA Today 12 Apr 2012
According to a recent study by the National Bureau of Economic Research, more than 200,000 cash-strapped households will use their tax refunds this year to fund bankruptcy filing and the legal fees associated with it. While it is normal for personal bankruptcy filings to spike around this time of year, the trend has been more pronounced since the cost of filing surged under new laws in 2005. The study found that many more families have had to postpone filing until they can afford to pay the high fees. The average cost of legal and administrative fees related to bankruptcy filings soared from $921 in 2005 to $1,477 in 2007, according to the U.S. Government Accountability Office. Legislators changed the law to reduce bankruptcy abuse by people who could afford to pay off their debts, but did not want to. "But if you want to curtail abuse, raising the cost is not a good way to do it," said Jialan Wang, assistant professor of finance at Washington University in St. Louis and one of the study's authors. "The people who really need bankruptcy are the ones who will be unable to pay for the fees."
- Bill That Would Crack Down on Tax Refund Anticipation Loans Passes Illinois Senate
Canton Daily Ledger 30 Mar 2012
The Illinois Senate has unanimously passed a bill to offer greater consumer protection from the high costs of tax refund anticipation loans and refund anticipation checks. Rep. Michael Zalewski will sponsor the bill in the state House. "The only thing taxpayers should anticipate with these so-called ‘refund’ products are costly fees and smaller tax returns," Attorney General Lisa Madigan said. "This legislation will limit a refund anticipation loan’s excessive costs and better protect consumers in communities where these products are heavily marketed." Senate Bill 3523 would crack down on the costs and fees of tax refund anticipation products and strengthen the disclosure of these fees. The bill also grants added protections for consumers who obtain refund anticipation loans from non-bank lenders, such as payday lenders. These loans can have interest rates up to 150 percent, potentially reducing a taxpayer’s refund by as much as 20 percent before they even receive it.
- Tax Preparer Sued by Illinois Attorney General
Examiner.com 29 Mar 2012
Illinois Attorney General Lisa Madigan recently filed suit against Tenn.-based Mo' Money Taxes in a bid to force the firm to stop doing business in the state and to pay $800,000 in restitution. The legal action was filed in response to a growing number of complaints by low-income taxpayers who never received refunds prepared by the company. Madigan said that approximately 2,400 people in the state never got their money after using the company. "Without customers' permission, this company filed annual tax returns riddled with errors and charged taxpayers exorbitant, undisclosed fees, but worst of all, it failed to provide consumers with their refund checks," she explained. Madigan said the delay in refunds has lead to financial hardship for some. The suit alleges that Mo' Money filed tax returns without consumers' authorization, which in some cases were full of errors. It also charged customers high fees to file state tax returns but never actually submitted the filings. Madigan is advising consumers who used the company to contact the Internal Revenue Service to ensure their filings were processed and accepted.