taxes

More anti-RAL efforts

It's quite clear that Uncle Sam doesn't like refund anticipation loans, or RALs. Congress and other government agencies have been trying for years to eradicate these high-interest loans that impatient taxpayers get instead of waiting for their official IRS refund checks.

The latest effort to end the loans, or at least keep the heat on providers, comes via a Government Accountability Office, or GAO, undercover investigation of tax preparers earlier this year. The Congressional investigative arm wanted to find out what tax preparers disclose to clients about the loans' fees.

Using Internet searches, GAO investigators identified 22 different tax preparers across the country and called them to ask about RALs, as they are popularly called. Posing as taxpayers, they also visited 18 tax preparers in the Washington, D.C., and Baltimore areas.

The upshot of the undercover work? The tax preparers visited by the GAO generally were willing to provide information about RALs, but did not use a consistent method to calculate their advertised lending rates.

"All five preparers that completed federal and state tax returns for our fictitious individuals gave an estimate of the fees and finance charges associated with a RAL, and most calculated the refund amount available after deducting fees," said the report. "However, we found that tax preparers did not use a consistent method to calculate the (annual percentage rates) in their advertisements and at least one preparer did not calculate its advertised APR according to Truth in Lending Act requirements."

Fuel to the anti-RAL fire: The GAO investigation is a clear indication that the government is gong to keep holding RAL providers' feet to the fire in the hopes that they'll eventually dump the products. Just look at the most recent anti-RAL efforts.

First, the IRS nixed any mention of refund anticipation loans from its Free File Web page. As noted in Bankrate's January 2007 story on the free online tax prep and filing service, "Free filing in, refund loans out," the concern was that vendors would use a captive filing audience to sell the high-interest products to taxpayers.

Then, a few months later, the loans came under fire again. On tax filing day 2007, the House passed yet another "Taxpayer Protection Act." Although the measure has yet to be enacted, it includes a provision to halt the IRS practice of providing debt indicators to businesses that offer predatory refund-based loans.

A debt indicator is an IRS notice that alerts tax preparers that a portion of a filer's refund will be used to pay off outstanding government debts. Opponents of debt indicators say the notices are essentially a government-provided credit check mechanism for RAL providers.

And this filing season, folks waiting for economic stimulus payments discovered that if they got an RAL, it could slow down receipt of their rebates. The details of how and why are hashed out in my previous blog item, "Where's my rebate?"

So while the federal government hasn't yet decided to step in and outlaw these commercial loans, it's sure clear that Uncle Sam and all his offices are going to keep trying to make it more difficult for them to be offered.

That's why savvy taxpayers would be well-advised to take note of refund loan alternatives.

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