While accountants are reaching for aspirin, millions of Americans are reaching for some fast cash this tax season. Unfortunately, those who reach for fast cash in the form of a “refund anticipation loan” are getting hit with interest rates and fees that are out of this world.
The tempting ads are plastered in newspapers and on television for “fast cash refunds”, “express refunds”, or “instant refunds.” The ads offer to get your refund in a day or two, or in some cases even instantly.
What is a “refund anticipation loan”? It’s a loan that borrows against your anticipated tax refund from the IRS. Refund anticipation loans, or RAL’s as they are known in the tax industry, carry annual percentage rates (APR’s) of about 60% to over 700%, a fact that many consumers either don’t realize or simply overlook.
RAL’s are marketed to people who need money the most such as low and moderate income workers. A report by the National Consumer Law Center notes that “about 40% of the 12 million refund loan customers in 2000, were families who received the Earned Income Tax Credit, the largest federal poverty assistance program.” And since the RAL’s often use the term “refund” in their ads, many of those who take the bait don’t realize that they’re receiving a loan and not their actual refund from the IRS.
The fees associated with RAL’s are expensive. For example, let’s say the IRS owes you a refund of $2,000. In order to get a RAL you pay the following: RAL loan fee = $75, Electronic filing fee = $40, tax preparer’s fee = - continued below ...
