Rapid-Refund Loans Dwindling

Fort Wayne Journal Gazette
February 15, 2010
Connelly, Eileen AJ

Consumer advocates are celebrating a drop in the use of rapid-refund loans from about 10 million in 2008 to approximately 8.4 million in 2009. Some of that drop can be attributed to Jackson Hewitt Tax Service Inc. losing about half of its funding for refund anticipation loans (RALs) after Santa Barbara Bank & Trust was denied approval to make the loans by federal regulators. Additionally, H&R Block Inc. is moving away from what CEO Russ Smyth called an "overemphasis" on "fast money" that ultimately damaged the company's image. People applying for RALs often have limited income and shaky credit histories, and banks have made it substantially more challenging for these types of applications to be improved by tightening lending standards in the wake of the financial crisis. The greatest disadvantage to an RAL is the exorbitant cost it bears from fees for tax preparation, setup, and e-filing returns that can range from 5 percent to 25 percent of the refund amount. Additional fees can be generated when the RALs are deposited onto prepaid debut cards. "They're a complete rip-off," declares New York-based CPA and tax attorney Alan Strauss. "It's like legalized loan sharking." The National Consumer Law Project estimates that an average refund loan of $3,300 could carry an annual interest rate as high as 72 percent. The IRS advocates electronic filing, which can get taxpayers their refunds within 10 days in the form of a direct deposit into a bank account, a prepaid card, or a mailed check.
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