More on Tax Refund Anticipation Loans

    By Brian Wolfman

    The National Consumer Law Center and the Consumer Federation of America have issued a press release warning consumers to avoid tax refund anticipation loans (RALs) and reporting on the state of the RAL industry.  The press release comes in advance of the groups' annual comprehensive report on RALs, which will be available later this month.  To give you a sense of where the NCLC and CFA are coming from, here's an excerpt from the press release:

  Some of America’s most cash-strapped taxpayers – those from low- and moderate-income families – spent nearly $1 billion in the latest year recorded for what is almost always an unnecessary product: the so-called “refund anticipation loan” at income tax time. With another tax season gearing up, consumer advocates at the National Consumer Law Center (NCLC) and Consumer Federation of America (CFA) are warning taxpayers to steer clear of refund anticipation loans (RALs), one of the most avoidable tax-time expenses. New figures reveal that RALs drained about $960 million in loan fees, plus over $100 million in other fees, from the wallets of nearly 9.6 million American taxpayers in 2005. “Taxpayers can save themselves over a billion dollars by just saying ‘no’ to quick tax refund loans,” says NCLC staff attorney Chi Chi Wu. “These loans take a chunk out of your hard earned tax refund, and they expose you to the risk of unmanageable debt if your refund doesn’t arrive as expected.”

     Michelle Singletary discussed the NCLC-CFA findings in her "Color of Money" column in today's Washington Post.  Late last year, NCLC and CFA issued a report on new forms of RALs - - "pay stub" and "holiday" RALs - - which give consumers the opportunity to acquire debt at crushing interest rates year 'round.   I blogged about the earlier report here.

Comments

[Joe Banker]

Interesting news on RALs. The ranting by the NCLC and CFA would have you believe one taxpayer paid $1 billion for one RAL. Some should look differently at RALs and say 20 million cash constrained American Taxpayers got their refund amount a quicker with a RAL or tax time bank product to help pay off their payday lenders early, or payoff Holiday time credit that cost more, or high heating bills, or home repairs that couldn't wait rather than using a higher priced cash advance on their CC if they have one. A Ral simply cost between 3 & 6% of the amount requested. "One time" fee. Reg Z however calls for an APR to be posted. The APR that posts reflects as if the loan was being paid every 11 days for the year (or 33 times). But the "fee" isn't paid "33" times...only once. Ms. Wu of the CFA has said numerous times it is better for these people to wait. Evidence she might not have walked a mile ever in a RAL customer's shoes. Neither CFA, NCLC, the IRS or you have offered to lend money to people in need at a cost of 3 to 6%. Instead you all would prefer to deamonize RALs and tax preparers. That's fine (for you). But it doesn't help the person who needs the money.

[Brian]

Actually, I did not demonize the RAL industry. In any event, I believe that the folks at NCLC and CFA have evidence to suggest that many "buyers" of RALs are not fully informed of the costs and risks of RALs and come to regret their purchases. NCLC and CFA are harnessing evidence to suggest that people think long and hard before they purchase RALs. In other words, they are seeking to counteract the pressure from a self-interested industry that tries to sell as much of the product as possible. Nothing wrong with a little competition of ideas, right? Members of the public are still free to choose to buy RALs.

[Carl Denton]

Can a refusal or a policy of no refund be legal.
if it is not legal then can I get back my money for windows vista
for goods not being satisfactory.

[Payday Loan Advocate]

A tax is a financial charge imposed on an individual or a legal entity by a state or a functional equivalent of a state. These taxes are very important because it is use as a leading financial budget in a certain country. The government to carry out many functions has used the funds that came from tax. Some of the expenditures on war, the enforcement of law, protection of property, economic works like building of roads, bridge and others. Most modern governments also use taxes to fund welfare and public services.

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