Legislation Would Shine Light on Tax Refund Loans

Baltimore Sun
March 2, 2010
Ambrose, Eileen

With thousands of Baltimore residents signing up for over-priced refund anticipation loans (RALs), Maryland lawmakers are considering legislation that would help consumers to be more informed about the product as well as ban certain loan-related fees. Consumer advocates have long agreed that taxpayers are better off filing electronically and waiting 10 days for the IRS' direct deposit, especially in light of the 50 percent to almost 500 percent annual interest rates on loans ranging from $10,000 to $300. U.S. consumers paid approximately $800 million in loan and loan-related fees in 2008, according to a new report released on Feb. 26 by the Consumer Federation of America and the National Consumer Law Center. Maryland's General Assembly is seeking to pass legislation requiring fees and examples of annual percentage rates to be displayed prominently as well as requiring that those pitching RALs to disclose that taxpayers could file electronically with the IRS and get a direct deposit refund in eight to 15 days. Additionally, loan applicants would receive written and verbal disclosures and be reminded of the fees they could avoid. Perhaps the most significant provision in the bill -- according to Chi Chi Wu, staff attorney for the National Consumer Law Center -- prevents tax preparers from adding application fees or other charges on top of what the lender charges for the loan. The legislation would take effect on Oct. 1 if passed.

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