Tough Economy Expected to Spark Surge in Tax Refund Loans

Anchorage Daily News (AK)
January 21, 2010
Pugh, Tony

Consumer advocates worry that the economic crisis will prompt more cash-strapped taxpayers to obtain refund anticipation loans (RALs) in the upcoming tax season, especially with more money going to taxpayers due to higher income thresholds and credit amounts for the earned income tax credit. National Consumer Law Center staff attorney Chi Chi Wu says a $3,300 RAL costs taxpayers about $65 currently, down from $100 in 2007, but the lower fee still amounts to a 72 percent annual percentage rate -- double the standard 36 percent rate on other small loans -- given that the loan usually is repaid by the Internal Revenue Service (IRS) within a couple of weeks. Wu points out that the APR is about 50 percent for a $10,000 loan but close to 500 percent for a $300 loan, and these rate structures lead consumer advocates to believe RALs are predatory. Moreover, taxpayers are required to pay the full loan amount out of their own pockets if the IRS does not issue the expected refund. Consumer Federation of America financial services director Jean Ann Fox says, "American taxpayers need every dollar of their refunds, and waiting just a week or two will put more money in their pockets."

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