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Beware tax refund loan cousins

By Kay Bell ·
Tuesday, January 3, 2012
Posted: 3 pm ET

Quick cash based on expected federal tax refund amounts, known as a tax refund anticipation loan, or RAL, isn't quite the big business it used to be.

But since this is America where ingenuity is rewarded, similar products have taken the place of these potentially costly refund loans.

First, a quick obituary for the strict refund loans. The efforts of consumer advocacy groups to educate people about the loans' high interest costs, along with the Internal Revenue Service decision to quit issuing information that made it easier to issue them, have led to a steady decline in the tax-related loans. Federal bank regulators also have tightened the screws on these products.

But the idea of getting your tax refund ASAP is still strong. And that's where good old American capitalism and creativity meet.

H&R Block, once a leading tax refund loan provider, announced last September that it would no longer offer tax refund anticipation loans. But the Kansas City, Mo.-based tax preparation giant is giving customers the option of receiving a refund anticipation check, or RAC.

Aimed at filers who don't have bank accounts into which the IRS could directly deposit the refunds, Block says the taxpayers can get their tax money more quickly than they would waiting for Uncle Sam to mail a paper check.

That's true. And the unbanked taxpayer population is a challenge that the Treasury Department is still grappling to solve.

But Block and other companies offering similar filing and refund options also have associated fees. And if the taxpayer gets the tax refund put on a prepaid credit card, another RAC option, there are more fees when the money is withdrawn at ATMs.

And a few RALs are hanging on for dear life.

"Bank Talk," a blog that follows products offered to those without bank accounts, reports that JTH Holding Inc., which runs the Liberty Tax chain, is preparing to go public and its prospectus indicates that it has landed an unnamed nonbank partner to offer a product similar to refund anticipation loans.

The nonbank characterization is important since the underwriter of these new tax refund loans will not be subject to those aforementioned federal rules.

JTH Holding will have to bear more risk for any losses incurred by these so-called instant cash advances. You know what that means. More cost to the consumer. In fact, says "Bank Talk," "JTH acknowledges that the new loans will probably cost more than the old RALs."

Bottom line: Refund loans and their tax-related quick tax cash cousins are not dead yet.

Consider this fair warning as tax-filing season 2012 is about to begin.

Have you ever gotten a tax refund anticipation loan? How did it work out for you?

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January 05, 2012 at 3:00 am

100 million get Refunds in USA. About $320 billion.

The problem is the REFUND. How does congress allow all these people to be overcharged $3000 each? 80% get refunds.

Now 25 million owe IRS $300 billion that IRS has failed to collect. Yet the Harvard educated, non profit employed consumer saver is promoting free Refund services for the poor at tax payer expense.

Online refund fraud is open season soon on all of us.

RAL$ are demanded just like leases on Mercedes. Let the market
Speak without a couple of anti-loan advocates interfering.

January 04, 2012 at 11:42 am

1) Consumer Groups have twisted the RAL facts and, on occasion, have simply lied to gin up attention to the loans. Its interesting how the government has never asked the people who make the loans to explain the product. Why?
2)The last comment hit the nail (almost) on the head. Let's rephrase "Living hand to mouth costs money..." these families NEED ASAP to pay heating bills, make the rent, payoff a payday loan, feed the children ... yet government ALWAYS believes they know what's best for these families - usuall because Consumer Groups told them. Really?
3) Lets continue with the last comment. In reality for people who don't have (nor want) a bank account wait 4 weeks or more even if they e-file for their refund check....not 2 weeks.
4) And finally, the article asks a very good question, "Have you ever gotten a tax refund anticipation loan? How did it work out for you?". Consumer Groups (again) claim these products rip off consumers. Yet, they can produce virtually NO complaints from consumers who use (need) these products. Yet, "20 million" familes use them annually. Neither the banks that offered them, the preparers who offered them, the regulatory agencies who oversee the banks nor even Congress has recieved consumer complaints in any numbers. Seems to me they work out pretty good for many people (except Consumer Groups).

January 03, 2012 at 4:07 pm

Living hand to mouth costs money. Institutions will always find a way to bilk money from the "unbanked" (AKA, the poor).

Anyone who can't wait 2 weeks to get a tax refund is easy prey. In the old days when there were still usury laws the answer was the corner loan shark. Now that is more or less legalized in the form of credit cards and payday loans.

Easy answer: Make more money or live within your means.

Caveat emptor.