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Borrowed Time: RAL Usage Among EITC Recipients in Native Communities

April 30, 2009

The Earned Income Tax Credit (EITC), which supplements the earnings of low-to-moderate income working families, returns over $44 billion each year to these households and their communities and lifts approximately five million people above the poverty line. Unfortunately, paid tax preparers have weakened the economic impact of the EITC by over $600 million a year by offering Refund Anticipation Loans (RALs) that give EITC recipients quicker access to their refunds in return for high fees of 50-500 percent APR.

Households in communities of color are disproportionately impacted by high-cost RAL products. While few studies have focused on RAL usage by Native Americans, anecdotal evidence points to high rates of RAL usage in and near reservations, and Native leaders have identified RALs as a significant issue in their communities.


In this paper, we provide new data showing the disproportionate use of RALs among EITC recipients in Native communities. An analysis of EITC recipients in 10 states with large shares of Native American population and lands finds that:

1. EITC recipients in Native communities use RALs at greater rates than those in non-Native areas.
In nine of the 10 states studied, "Native Population Counties" (those with Native land and an overall population comprised of at least 10 percent Native Americans) had higher rates of RAL usage among EITC recipients than non-Native counties.

% of EITC recipients getting RALs

Native County

Non-Native County

North Dakota
South Dakota
New Mexico
Key Finding 1: In all but one state (WA), more RAL usage among EITC recipients in Native counties.

2. RAL usage among EITC recipients rises as the share of Native Americans in the overall county population increases.
In most of the states in our analysis, we find a moderate to strong positive statistical correlation between an increase in the share of Native Americans residing in a county and the usage of RALs among EITC tax filers.

3. EITC recipients' use of RALs in Native communities is quite high even in remote, rural areas.
Generally, tax filers in rural areas are less likely to get a RAL, perhaps because of a longer distance to commercial tax preparers offering such products. This trend does not hold for Native communities, and some of the highest rates of RAL usage among EITC filers are found in very rural reservation communities.

4. Significant EITC funds are being drained from Native communities by RAL fees.
EITC recipients pay an estimated $250, on average, for tax preparation and a RAL. With large shares of a community using these products, a significant amount of EITC refunds are diverted from the households and communities for which they were intended. In return for this high cost to the community, EITC recipients merely receive their refund one to two weeks earlier than they otherwise would.

Enacting the following recommendations will help prevent the draining of needed tax refunds from Native American communities by both reducing the demand for the RAL product and improving the terms under which RALs are offered.


  • Create more VITA sites offering free tax preparation and asset building opportunities.
  • Enact rate caps on RALs and other high-cost loans, similar to Military Loan Act's 36% APR limit.
  • Conduct public education campaigns in Native communities.


The following maps showcase the impact of tax refund loan across the state and their concentration in Native American communities.

Refund Anticipation Loans in Montana

Refund Anticipation Loans in North Dakota

Refund Anticipation Loans in South Dakota

The report and additional data tables are available at: (under "Research" tab).

For more information, contact:

Sarah Dewees First Nations Development Institute 540.371.5615 or Leslie Parrish Center for Responsible Lending 202.349.1854.