Refund Anticipation Loan News

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The latest news on refund anticipation loans, refund anticipation checks, and tax refund loans from the Center for Responsible Lending.

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  • 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.
  • Cooper Earns TRO Against Tax Preparer 
    Legal Newsline 26 Mar 2012
    North Carolina Attorney General Roy Cooper recently announced a temporary restraining order against Instant Tax Service and Eden Kidane, its owner. Cooper filed a lawsuit against the Charlotte-area tax preparer, alleging that the company engaged in multiple tax violations, including failing to disclose fees for refund anticipation loans and filing taxes for consumers without their permission. The lawsuit asked the Wake County Superior Court to permanently ban the firm from offering illegal services for tax preparation and refunds for anticipation and instant loans. Instant Tax Service allegedly released television and radio advertisements in December offering loans of up to $1,000. Taking information from consumers' pay stubs, which they submitted to qualify for the loans, Instant Tax Service allegedly filed tax returns without consumers' permission. Customers who did give Instant Tax Service permission to file their tax returns complained that the company did not disclose its fees. It allegedly charged fees of up to $800 for returns that would have cost about $200 at other national tax preparers. Cooper's Consumer Protection Division received six written complaints and 130 phone complaints about Instant Tax Service locations.
  • Beware of Rapid Tax Refunds 
    El Paso Inc. (TX)  26 Mar 2012
    With the tax deadline only a few weeks away, some filers may be tempted to take out a tax refund anticipation loan in hopes of getting their money back more quickly. But the Center for Responsible Lending (CRL) and other consumer advocacy groups say the loans are bad news. "Either way you go, whether it's the refund-anticipation check or the refund-anticipation loan, you are going to be out of a good bit of money that could be in your pocket," warns Charlene Crowell, communications manager at CRL. The group points out that rapid refunds often have high interest rates and fees -- as much as 150 percent -- and that high-cost tax services rake in as much as $11 billion annually from an estimated 30 million households. Crowell recommends that consumers simply use the IRS' direct deposit option, which deposits tax refunds within five to 10 business days -- but with zero fees.
  • Avoid the Prepaid Tax Refund Debit Cards 
    San Francisco Chronicle 23 Mar 2012
    Many companies, including TurboTax and H&R Block, offer prepaid cards for tax refunds; but there are questions about whether receiving a tax refund in this form, rather than as a check or direct deposit, is financially prudent. According to Creditcards.com, filers who choose debit cards may get their refund sooner than via check or direct deposit; they can also be more secure than paper checks and help avoid cash-checking fees. However, prepaid cards also come with fees -- such as a $5.95 monthly maintenance fee with TurboTax's prepaid card -- or costs for ATM withdrawals. The TaxAct prepaid card, for example, has a monthly fee of $2.50 and an activation fee of $16.95. Individuals who choose to receive their refunds on a prepaid card should understand the fee structure and know how to avoid those additional costs. Rather than use an ATM and paying fees, they can choose to get cash back when they use the card at retail centers. Instead of using a prepaid card, taxpayers may consider starting a savings account with the refund.
  • Strategies Cut Risk of Overpaying Tax Preparer 
    USA Today 20 Mar 2012
    Unlike many services where consumers can find out how much a service costs before having it performed, tax preparers often leave clients wondering how much of a hit their wallet is going to take. A 2010 "mystery shopper" investigation by the National Consumer Law Center (NCLC) and other organizations found several instances in which tax preparers evaded questions about the costs or refused to provide an estimate. According to NCLC attorney Chi Chi Wu, this lack of transparency creates opportunities for everything from additional fees and fraud. Most tax preparers say they cannot provide an estimate until they review each individual's needs and circumstances. While many base their fees on the number of forms, the amount of time needed for each form varies widely. In order to avoid paying too much for the service, consumers should request a free consultation, stay away from refund-anticipation loans, consider doing their own taxes, and look into free sources of tax preparation assistance.
  • Intuit Wants Suit Over 'Predatory' TurboTax Fee Tossed 
    CIO 20 Mar 2012
    Intuit has asked the U.S. District Court for the Northern District of California to dismiss a class-action lawsuit brought by Tasha and Fredierick Smith, who claim the company's TurboTax Online tax-preparation service charged them a "predatory" fee. When the couple used TurboTax Online to file their 2010 tax return, they chose to have the $86.90 fee taken out of their refunds. Intuit also charged them a $29.95 "Refund Processing Fee" that set up a direct-deposit account for their federal refund. According to the suit, that fee amounted to a "refund anticipation loan," a "predatory" financial instrument. "Thus plaintiffs paid $29.95 for an approximate 14-day loan of $86.90," according to the complaint, resulting in an "exorbitant quadruple-digit interest rate" that violated California's usury laws. The Smiths' suit asks the court to recognize class-action status for themselves and others who used TurboTax Online. It also seeks unspecified damages and an injunction against Intuit. However, the company has argued that the Smiths' case has no merit because the Refund Processing Service on Intuit's Web site is not a "refund anticipation loan." In its motion to have the case dismissed, Intuit said that the Smiths could have paid their tax-preparation fees with a credit or debit card but chose to deduct the cost from their returns. It also says that the plaintiffs' challenge is against "a separate fee for the second option that was charged not by Intuit, but by a third-party bank that assisted them with the transaction." A hearing on the company's motion is set for June 1.
  • 'Maxed Out' Predicted the Financial Crisis, But It Might Have Been Only the Beginning 
    Washington Post 16 Mar 2012
    "Maxed Out" film director James Scurlock says the financial problems he discussed in his 2006 film were really just a precursor of greater ills to come. Scurlock -- whose project foreshadowed the subprime mortgage crisis, consumer debt crisis, and financial meltdown that would come to the fore two years later -- said in reference to the Obama administration's policies and regulations, "What we basically did was press the reset button and in some cases made those problems much worse. Deposits are far more concentrated today because of the mergers the bailout enabled, so the money is in fewer hands today than it was then. Unemployment is nearly double what it was when the film came out." He also notes that 1.4 million homes are in foreclosure or are in the foreclosure process, and personal bankruptcies are on the rebound. Scurlock says he is among the critics of how President Barack Obama has handled the 2008 crisis, and he adds that it takes away from the administration's credibility that Larry Summers and Ben Bernanke are still in advisory roles when they were among those who failed to prevent the crisis in the first place. "Maxed Out" also featured a segment with Senate candidate Elizabeth Warren, the main cheerleader behind the Consumer Financial Protection Bureau. Scurlock says that in the film, "what she basically said was [that] you can't have banks making more and more money as their customers are going broke faster and faster. That's not sustainable."
  • Tax Refund Services Can Take Bite Out of Benefit 
    Bradenton Herald (FL) 12 Mar 2012
    Companies that offer to prepare tax refunds quickly for a low fee or even for "free" may seem appealing, but these programs often come with excessive costs and can end up siphoning a significant chunk out of a filer's return. A case in point is Karen Everette of Raleigh, N.C., who took her W-2 form to Liberty Tax Service after seeing the company's promotion of a $50 immediate refund for customers who filed their returns there. Everette received the $50 and was told her refund would be $292; but by the time Liberty deducted fees for preparing her taxes, she received just $13.50. Jennifer Toney, owner of the local franchise, said Liberty offers a form-based service and argued that Everette was "fairly charged" for the tax return she had prepared; but Everette said she never would have gone to Liberty if she had known about the egregious fees ahead of time. Chris Kukla, senior counsel for the Center for Responsible Lending, says lower- and middle-income workers are increasingly susceptible to offers that promise to prepare tax returns and deliver quick refunds for fees lower than an accountant would charge. One Durham-based nonprofit that connects low-income workers with free tax preparation services said Liberty and similar companies are not doing anything illegal but that their advertisements are misleading. The Internal Revenue Service's Volunteer Income Tax Assistance (VITA) program prepares tax forms free of charge for individuals earning less than $50,000. Consumer groups say if taxpayers still choose to use a tax-preparation service or a CPA, they should request an estimate ahead of time and ensure the price includes both federal and state returns and fees for additional forms and that it also explains how many forms are needed to file the return.
  • Tax Refund on Prepaid Debit Card Could Carry Heavy Fees 
    Opposing Views  07 Mar 2012
    This tax season, some states -- including South Carolina -- are issuing tax refunds on prepaid cards unless taxpayers specifically request payment in another form. Taxpayers in the state who use the prepaid card at an ATM will pay nothing the first time but could pay as much as $10 for every withdrawal after that. Cards issued to taxpayers in other states, including Oklahoma and New York, also include fees that charge for multiple ATM visits and/or inactivity. Individuals should also be aware of expiration dates for the cards; New York's refund card expires after 18 months, while South Carolina's expires after one year. While the cardholder can call toll-free and have an expired card replaced, South Carolina charges a $5 "account closure" fee to get a new card. Consumer advocates urge taxpayers who receive tax return cards to go to the issuing bank and withdraw all of the funds at once to avoid any unnecessary fees and to read the fine print to avoid extra charges.
  • Bucking Regulators, Tax Preparers Offer Refund Loans 
    CBS News 06 Mar 2012
    At least a couple of the nation's largest tax preparation firms, including Jackson Hewitt and Liberty Tax, are still offering controversial refund anticipation loans (RALs), which critics say prey on low-income filers. H&R Block and others, meanwhile, technically have scrapped their RAL programs but have developed slightly different -- but even more expensive -- variations on the short-term advances, which are repaid with a borrower's tax refund. Block's comes in the form of an Emerald Advance line of credit. Offered right before tax season, it carries a $45 one-time fee and a 36 percent APR and must be repaid by Feb. 15. Spokesperson Gene King says a borrower is not obligated to repay the Emerald Advance loan with a tax refund, though many borrowers find it "convenient" to do so. Block also now offers refund anticipation checks (RAC) in lieu of RALs. It prepares a filer's taxes and signs him or her up for a speedy return. The customer receives a check for the tax refund, minus Block's tax-preparation charge as well as a fee of $34.95 for the RAC. Regulators have pressured banks to stop offering RALs, arguing that the products are now "unsafe" because the IRS has stopped revealing which customers will be receiving a refund. Preparers say they are seeking other ways to provide these products to borrowers despite regulators' concerns, claiming that customers continue to demand such loans even though the costs are high.
  • Sweep Nets Hundreds of NYC Tax Preparers Violating Laws 
    Accounting Today 29 Feb 2012
    A two-week blitz by the New York City Department of Consumer Affairs (DCA) on the practices of tax preparers resulted in nearly 850 inspections citywide and netted more than 1,000 citations to preparers who falsely represented their qualifications, violated consumer rights, or unlawfully advertised refund anticipation loans as "instant" or "rapid" refunds. Agency officials said they issued violations to about one out of every three preparers they inspected, and the total fines from the sweep could reach $1 million in punitive damages. DCA Commissioner Jonathan Mintz and his department targeted tax preparers charged with prior violations last year and in 2010 in addition to other preparers located in neighborhoods with large minority populations and high usage of refund anticipation loans. The department is urging residents to take advantage of free or low-cost tax preparation options and to claim the Earned Income Tax Credit.
  • Refund Loans: Goodbye and Good Riddance 
    MSN Money 21 Feb 2012
    This year marks the last filing season that any of the country's major tax preparers will offer refund anticipation loans (RALs), high-cost loans that often charge annual percentage rates (APRs) of more than 100 percent just to get a taxpayer his or her own money faster. The IRS helped bring about the death of the RAL when it announced in 2011 that it would stop furnishing a "debt indicator," meaning the tax preparer could no longer check to see if a filer was owed a return and therefore would be able to repay an RAL. The banks responded by retreating from the RAL business, and the few preparers left that offered such loans placed more and more restrictions on them to mitigate their exposure. Today, only one bank still offers RALs -- Louisville's Republic Bank & Trust Company -- and only one preparer is offering them, Jackson Hewitt. According to the National Consumer Law Center (NCLC), obtaining a $1,500 RAL from Jackson will cost approximately $61; and if that loan is outstanding for just 10 days, that amounts to an APR of 149 percent. The NCLC says tax preparers are responding to this setback by now offering "refund anticipation checks," which basically act as temporary bank accounts and target unbanked taxpayers. Tax preparers and banks that offer this service can charge $30 to $32 for each refund; and tax preparers may levy their own "add-on" fees, which can amount to hundreds of dollars. Consumer groups say refund anticipation checks are about half the cost of RALs, but are not that much faster than filing a return for free on the IRS Web site, which in most cases issues the refund in the form of a direct deposit or a prepaid card in fewer than two weeks.
  • Consumer Groups Applaud End of Tax Refund Anticipation Loans 
    NorthJersey.com 15 Feb 2012
    Four regulatory agencies have issued rules that effectively ban banks from issuing refund anticipation loans (RALs): short-term loans that use filers' anticipated Internal Revenue Service tax returns as collateral and for which banks can charge egregious interest rates as steep as 150 percent. Consumer groups have long complained that the loans prey on low- and moderate-income earners who do not have bank accounts into which federal refunds can be direct deposited. "Over 80 percent of RALs were sold to low-income taxpayers," according to attorney Chi Chi Wu of the National Consumer Law Center. "Two-thirds of them are bought by people eligible for the earned-income tax credit," a federal tax break for low-income working households. While putting the kibbutz on RALs will protect some taxpayers from greedy lenders, consumer activists say it will not resolve the underlying issue of individuals not putting their money into bank accounts. That is a common problem among low-income earners, Wu said, especially immigrants from nations where people either cannot get bank accounts or do not trust banks. Consumer advocates point out that individuals without bank accounts must wait up to two weeks longer to receive their IRS refund by check in the mail, which is a long time to wait for people who live from one paycheck to the next. The other concern is that many low- to moderate-income workers cannot afford to pay someone to prepare their returns.
  • Refund Anticipation Loans Target Black Tax Filers 
    Amsterdam News 09 Feb 2012
    Tax season is underway, which means tax preparation firms once again are selling low-income filers on the "convenience" of refund anticipation loans (RALs). Amsterdam, N.Y., officials, however, recommend looking at other options before taking the loan that could be more costly in the long run. RALs, like payday loans, offer immediate cash from a refund but come bundled with the standard fees that tax preparers charge on top of interest rates that can reach as high as 600 percent. Findings from the Woodstock Institute show that black taxpayers are 3.6 times more likely to get RALs, and black tax filers also spent 3.3 percent of their refund on RAL fees. New York City Department of Consumer Affairs Commissioner Jonathan Mintz says the city offers several tax-filing services that come with fewer costs than RALs. Residents can file their taxes three ways: at Volunteer Income Tax Assistance (VITA) sites, where households with children and annual income less than $50,000 and individuals earning less than $15,000 can get free tax help; H&R Block and the city have partnered to offer tax preparation at a cost of just $29 for households with children that earn less than $41,000 a year and single filers earning no more than $31,000; and free online tax filing via TurboTax for people earning less than $57,000, thanks to a partnership by Intuit Inc. and One Economy Corporation. Mintz is also encouraging New Yorkers to take advantage of the SaveUSA program, which lets filers open a savings account with at least $200 from their refund for a year and accrue $0.50 for every dollar saved, with a maximum $500 match.
  • Tax Refunds: Yours to Keep, Not Lose to High-Cost Lenders 
    Westside Gazette 02 Feb 2012
    Every year, tens of millions of moderate- and low-income U.S. households spend about $11 billion on high-cost tax services such as Refund Anticipation Loans (RALs) and Refund Anticipation Checks (RACs). Providers advertise these products as helpful and convenient to customers, though they typically charge interest rates as high as 150 percent. According to a survey of self-reported RAL users by FINRA Investor Education Foundation, 13 percent of African Americans reporting getting a RAL in the past five years, while only 6 percent of whites did. Underbanked and unbanked individuals are most vulnerable to expensive RAL and RAC services -- but they also are eligible for the federal Earned Income Tax Credit (EITC), which ranges from $464 to $5,751 this tax season, depending on family size. According to the Federal Deposit Insurance Corporation, Latino and African-American communities together account for more than 60 percent of all unbanked households in the country. Rather than throwing a percentage of tax refunds away on RALs and RACs, consumers would get a fairer shake by using one of the free tax services available, which can be found online at http://rspnsb.li/wxAmeA. Local IRS offices also offer to help individuals or direct them to a qualified preparer.
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