Consumer Groups Warn About Tax Refund Loans

ABC News
February 11, 2010
Fahmy, Dalia

Over 8 million Americans -- approximately one in 17 taxpayers -- who were unwilling or unable to wait for their tax refund took out refund anticipation loans (RALs) in 2008. According to the Consumer Federation of America (CFA) and the National Consumer Law Center, these cash advances -- which often have annual interest rates as great as 500 percent -- cost Americans $806 million in interest and fees in 2008 alone. Taking tax-preparation fees out of the loan in advance lets providers "obscure how expensive tax preparation is because if you don't have to take the money out of your billfold or write a check, you might not notice how much you paid," says Jean Ann Fox, director of financial services at the CFA. "It enables tax preparers to charge a multiplicity of fees and hide what the total cost is going to be." It is important for filers to know that they can file electronically and receive their refund quickly by direct deposit for free, keeping all of it for themselves instead of, as Fox says, "sharing some of it with a banker." RALs usually are provided through a tax preparer's partnership with a big bank; and H&R Block, Jackson Hewitt, and Liberty Tax have all been sued in public and private lawsuits for misleading consumers. The national rate of RAL use is falling, however, which can be attributed to volunteer tax preparation networks and better-educated taxpayers.
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