Refund Anticipation Loan News
The latest news on refund anticipation loans, refund anticipation checks, and tax refund loans from the Center for Responsible Lending.
- 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.
- 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.
- 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.
- 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.
- 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.
- Conn. to Issue Debit Cards for Refunds
Waterbury Republican American 01 Feb 2012
The Connecticut Department of Revenue Services (DRS) announced that the approximately 450,000 tax filers who received refund checks in the mail last year will instead get their state refund on a debit card this year. The department has contracted with JPMorgan Chase, which will issue some 400,000 debit refund cards to taxpayers this season. DRS Commissioner Kevin Sullivan said issuing refunds this way is easier for taxpayers and refund recipients, who will not have to rely on check-cashing services that charge steep fees. Additionally, he said, the debit cards come with extra layers of security. "You can't just take it out of somebody's mailbox and start using it," said DRS spokeswoman Sarah Kaufman. "It requires activations with some specific kinds of secure questions." The refund card, once activated, functions like any other debit card, and comes with only one fee: a $1-a-month servicing fee on any balance still remaining after one year, Kaufman said. Connecticut, New York, and Oklahoma are just some of the states going nearly paperless this tax refund season, she noted. The Internal Revenue Service plans to issue its own refund debit cards this tax season to unbanked U.S. households, officials said.
- The Savvy Consumer: Tax Refund Loans May Have Gotten Riskier
Fort Worth Star-Telegram 27 Jan 2012
The current tax season is the last time that banks will be able to offer refund anticipation loans (RALs), a high-cost service that allows consumers to get their tax returns faster. Regulators have stamped out the practice, and the few remaining banks that still offer them have said they will stop after this year. Payday and other short-term lenders in Texas, however, are already positioned to fill the void, say consumer advocates. "Now that bank regulators have closed the back door for banks to help tax preparers make short-term, high-cost loans, those same companies are turning to non-bank lenders," warns Ann Baddour of Texas Appleseed, a public interest law center based in Austin. There is still much to learn about RALs from non-bank entities, according to the senior policy analyst, who cites one "risk factor" as trust that the company will extract its fees only and directly deposit the rest of the refund. The National Consumer Law Center's Chi Chi Wu says another problem is cost of RALs, which is about $100 to $200. That equates to a steep APR, she notes, given that the loan is only for about two weeks; and because many payday lenders in Texas are not subject to limits on how much they can charge, the cost of an RAL can be set wherever they determine. "Consumers have even more reason to avoid RALs made by payday lenders," agrees Jean Ann Fox from the Consumer Federation of America. "These RALs are likely to be more expensive and riskier."
- Why You May Not Get All of Your Tax Refund
KFOR.com 24 Jan 2012
Oklahoma taxpayers who have no bank account to accept a direct deposit of their tax refund now will receive their refund on a debit card rather than in check form, as mandated by a new state law. Paula Ross of the Oklahoma Tax Commission says filers who do not have bank accounts no longer will have to pay traditional check-cashing fees to receive their refund. However, the debit card has several fees attached, which can be triggered if the taxpayer is not paying attention. Those potential costs include a $1.50 monthly fee if the card is not used at all for 60 days; a $0.75 fee if the cardholder transfers the balance to a bank account online; and a $2 fee if more than one withdrawal is made on that card at a bank. "We do realize it's their money, but with any business, all the debit card companies do have that non-usage fee," Ross said. "So there wasn't a way for the Treasurer to avoid that." To avoid debit card fees, cardholders should either cash out the entire balance or not wait 60 days to use it.
- Tax Season 2012: Fewer Opportunities to Rip Off the Poor
Chicago Now 20 Jan 2012
It might sound preposterous to take out a loan with an interest rate of 500 percent, but it is a common practice during tax filing time. Tax preparers nationwide have offered refund anticipation loans, meaning they will advance filers the money they expect to collect later from the U.S. government. These sketchy loans, which historically have targeted low-income communities, are finally on their way out, according to Karen Harris at the Sargent Shriver National Center on Poverty Law. Thanks to a settlement between the Federal Deposit Insurance Corporation and Republic Bank Corp., the bank no longer will provide such products. After the U.S. agency sent a cease-and-desist order to Republic in 2011, other large banks also decided to stop issuing the loans. According to a 2011 study by the Urban Institute, receiving "instant" cash can cost as much 12 percent of a filer's refund. The price of tax preparation is usually no more than $187 to $350, the study found. Additional fees can vary from $57 to $117 -- or more for an instant refund. The most worrisome part of the anticipation loans was how they targeted poor neighborhoods. According to a Treasury Department report, nearly half were issued in just 10 percent of the country's ZIP codes. Most of those who received them were the working poor -- those earning a median adjusted gross income lower than $20,000. Additionally, minorities were much more likely to use these services -- 13 percent of the people who received these loans were African Americans, 9 percent were Latinos, and only 6 percent were white, the Urban Institute found.
- Beware of Refund Loan Cousins
MSN Money 16 Jan 2012
Refund anticipation loans (RALs) -- fast money based on projected federal tax refunds -- are not as popular as they once were, but similar products have taken the place of these potentially costly advances. Although consumer advocacy groups, federal regulators, and the Internal Revenue Service have made aggressive efforts in recent years to educate consumers about these kinds of loans and make them more difficult to obtain, the idea of getting a quick tax refund is still alluring. H&R Block, once a top tax refund loan provider, announced in September that it would stop offering RALs. However, the tax preparation giant is giving customers the option of receiving a refund anticipation check instead. Block says the checks, aimed at filers who do not have bank accounts into which the IRS could directly deposit the refunds, mean taxpayers can access their money more quickly than they would waiting for the government to mail an official paper check. But what Block and other companies fail to advertise is that their refund options come with associated fees. And if the taxpayer gets the tax refund put on a prepaid credit card -- another option -- there are more fees when the money is taken out at an ATM.
- Pre-Refund Loans Fading Into Past
Portland Press Herald 20 Dec 2011
Tax-refund loans were once a large source of profits for banks and tax-preparation companies, but increased pressure from U.S. bank regulators and consumer advocates are causing them to disappear. The shift away from the loans has happened gradually over the past few years, starting with the Internal Revenue Service deciding to stop telling tax preparers and banks whether refunds would be garnished to cover other debts. Bank regulators at the FDIC and the Office of the Comptroller of the Currency, meanwhile, have publicly questioned whether the loans were safe for consumers. The phasing-out trend came to a head after a Dec. 8 settlement agreement between Republic Bancorp and the FDIC. The firm agreed to stop providing the loans after the upcoming tax season, pay a $900 penalty, and submit to supervision of its tax-refund business. Consumer advocates have long said that refund-anticipation loans prey on low-income workers. Although RALs are all but dead, H&R Block and other tax preparers are turning instead to refund anticipation checks -- which targets filers with bank accounts. Moreover, Chi Chi Wu of the National Consumer Law Center warns that payday lenders and other questionable businesses may step in to fill the void left by the demise of RALs. Her organization is pressing states to regulate refund anticipation checks.
- No More 'Instant Refunds' From Tax Preparers After This Year
ConsumerAffairs.com 12 Dec 2011
Consumer advocates are celebrating the end of high-cost refund anticipation loans (RALs) that are frequently pitched to low-income tax filers as "instant refunds" but that come with steep borrowing costs. The last bank offering the product has been forced out of the business through a settlement with the Federal Deposit Insurance Corporation (FDIC), which stipulates that Republic Bank & Trust close out its RAL program after the end of the upcoming tax season, or April 30, 2012. The FDIC agreement also levies a $900,000 civil penalty on Republic and incorporates a plan for the bank to adopt a system of verifications to ensure that its associate tax preparers perform their future tax settlement activities with appropriate propriety. Republic will have to look over all advertising for tax settlement products at the partner preparer's offices as well as carry out audits, including unplanned onsite visits and mystery shopper surveys, at 10 percent of preparer locations. "The FDIC action is an important step toward protecting families who struggle to make ends meet from unfair bank credit products and practices," stated Jean Ann Fox of the Consumer Federation of America. The National Consumer Law Center's Chi Chi Wu agreed but said her group also strongly recommends that the FDIC also establish a regulatory standard for refund anticipation checks, which will still be allowed.
- Republic Bancorp in Kentucky Exiting Tax Refund Lending
American Banker 12 Dec 2011
Kentucky-based Republic Bancorp and the Federal Deposit Insurance Corp. have come to an agreement that will end months of litigation between the two entities. As part of the compromise, Republic will stop offering its refund anticipation loan products after the 2012 tax season. The FDIC, meanwhile, will terminate a 2009 cease-and-desist order on the bank involving the controversial practice. Additionally, the two sides created a plan for enhanced oversight of tax preparers. Finally, a pending civil money penalty of $2 million was slashed to $900,000.
- Are Christmas Loans and RALs Your Only Options for Holiday Shopping?
Forbes 04 Dec 2011
Forbes personal finance columnist Kelly Phillips Erb notes that heightened scrutiny from federal regulators has limited the ability of many companies to offer advance loans, including refund anticipation loans (RALs) and Christmas loans from H&R Block. These products are basically loans secured by the promise of a tax refund. In the case of Christmas loans -- which typically are used to bankroll gift shopping -- H&R Block has offered loans in November and December to be paid by the borrower in installments or by having the borrower sign over part of his or her coming tax rebate. With higher defaults on these loans and pressure to lower interest and fees for the products, along with the demise of a free IRS "debt indicator" that many providers use to determine RAL eligibility, many of the traditional offerings have been pared down. Borrowers considering applying for a Christmas loan, RAL, or other loan secured by a tax refund might want to consider these other strategies. First, adjust tax withholding so that less money is coming out of each paycheck. An individual can talk to their tax professional for recommendations or can grab their last tax return and pay stub and use the IRS withholding calculator, located on its Web site. Erb says one of the excuses she frequently hears from taxpayers about waiting for a big refund check in January or February rather than taking it out by lowering withholding is that a refund check acts as a forced savings account. Erb recommends addressing this issue by opening a legitimate savings account. She also advises consumers to simply spend less, to locate and use a free tax preparation service in order to take advantage of all deductions and credits, and to look into other short-term loans that are not tied to their tax refund.