Lawmaker Wants Restrictions on Tax Refund Loans

Arkansas News Bureau
March 26, 2009
Lyon, John

With the support of Arkansans Against Abusive Payday Lending, AARP, the NAACP, and other interests, Arkansas Rep. Darrin Williams (D-Little Rock) is pursuing consumer protections for residents who seek cash advances on their income tax refunds. The legislator was due on March 27 to introduce a measure forcing businesses that offer "instant refunds" to notify borrowers of any fees that they could incur. Under an amendment to the Arkansas Deceptive Trade Practices Act, the lenders would have to clearly spell out a fee schedule in their place of business and in a document included with each loan application. They also would have to display a disclosure statement noting that the customer is borrowing against a tax refund, that extra fees could apply if the refund does not arrive in time, and that a tax return typically can be expected in about eight to 15 days without taking out an instant refund and paying extra fees. The amendment also would bar several practices, including compelling borrowers to enter loan agreements in order to complete a tax return; making untrue statements about a loan to a customer; and failing to process a loan application in a timely manner. Refund anticipation loans tend to target low-income consumers, but Williams' proposal does not attempt to slash the fees on such products. They can range from 40 percent to as much as 700 percent because the out-of-state banks that offer them are not subject to state law that caps interest rates at 17 percent. Still, says Williams, his bill does provide disclosure "so Arkansas consumers know what they're getting."