Action Line: Tax-Time 'Refund Anticipation Loans' to No Longer Be Widespread
January 20, 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.
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