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“Magic” Money a Mere Illusion: Refund Anticipation Loans & the Earned Income Tax Credit in West Virginia

August 25, 2009
Consumer Finance

This latest report by the West Virginia Center on Budget and Policy found that in 2007 nearly $13 million were lost by working West Virginians through refund anticipation loans. Out of the nearly 77,000 West Virginians that used a RAL in 2007, nearly 60 percent of them were recipients of the Earned Income Tax Credit, a federal program designed to help low-to-moderate income working families with their tax burden.

Despite the state's strong laws protecting consumers from other forms of predatory lending, the report also found that nearly 5 percent of the federal EITC funds coming into the state went toward paying fees associated with tax preparation and the purchase of RALs.


The report also offers a number of policy recommendations, which include:

  • An educational campaign
  • An increase in the number of free tax preparation sites
  • Actively encouraging taxpayers to set up bank accounts that would enable them to use the direct deposit service of the IRS
  • The collaboration of nonprofit organizations and financial institutions to develop lower-cost alternatives to refund loans.