Get ALL of Your Tax Refund

Feb 15, 2012 by

Ah, you gotta love those marketing people. They came up with “Refund Anticipation Loan”—truly one of the great cases of lipsticking a pig. The pitch: “Why suffer the horrible inconvenience of waiting a few weeks for your income tax refund check when we’d be pleased to lend you the money right now!” (At 600% interest!)

refund anticipation loans are a rip-offSo What’s a Refund Anticipation Loan?

RALs are offered to tax preparation firm customers who have a refund coming. The firm will immediately lend the customer an amount in the vicinity of the expected refund—less fees. To be sure the customer doesn’t decide to spend his or her refund when it arrives on anything except repaying the RAL, the paperwork requires a re-direction of the customer’s tax refund to the lender, making it easy for the lender to assure it’s paid first. The net result is a big bite out of the taxpayer’s refund.

Effective annualized interest rates on RALs run as high as 600%, surpassing even some payday loans. Further, as low and moderate-income people are those most likely to be in urgent need of cash (and perhaps also less educated than average about personal finance), RAL marketing has targeted this group—the people least able to afford the steep fees and interest. More than half of all RAL borrowers are recipients of the Earned Income Tax Credit.

RALs in Decline, RACs on the Rise

H&R Block, once a leader in the RAL business, announced last September it would stop offering the product. After being sued for its RAL practices by several state attorneys general, Block may have concluded that legal costs and settlements would outstrip even its hefty RAL fees & interest if it stayed in the business.

However, like many in the business, Block is instead offering Refund Anticipation Checks—an immediate refund check, less the requisite, and significant, ‘processing fees,’ of course.

Get Your Refund Fast and Free

As described in yesterday’s post, you may well be eligible to access online tax preparation software, and to get face-to-face help in preparing your forms, FREE. Why pay H&R Block or Intuit (maker of TurboTax) anything, if you’re eligible for free help?

And now everyone can use the IRS’s e-file electronic tax filing service for free. Use free e-file, and if you have a refund coming, provide your bank account number for direct deposit, and you may get your refund within just a couple of weeks—not long to wait! And by waiting patiently, taxpayers get 100% of their refund, not what’s left over after a tax preparation firm skims its fees for doing nothing of value.

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