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Avoid rapid tax refund loans

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It's tax season, and tax preparers may invite you to get a "Refund Anticipation Loan" or "RAL" a loan borrowed against your expected tax refund. Such a loan may come a few days faster than a refund but you pay extremely high fees to borrow your own money.

A refund anticipation loan is a very short-term LOAN, arranged by a tax preparer and secured by your expected tax refund. You pay finance charges and tax-preparation fees. The loan is repaid when the IRS sends your full refund to the lending bank.

Refund anticipation loans are EXPENSIVE. According to a 2009 report by the Consumer Federation of America and the National Consumer Law Center, consumers paid over $833 million in loan fees on refund anticipation loans in 2007. The average loan costs include a $34 to $130 loan fee and administrative or application fees that can range from $25 to $100.

With all costs and fees, the APR (annual percentage rate) for refund anticipation loans varies from 50 percent to 1300 percent! That's a bad bargain for an "advance" of just a few days.

Refund anticipation loans encourage FRAUD. A 2008 IRS study found that refund anticipation loan filings were 27 percent to 36 percent more likely to be non-compliant than were returns without a loan.,

Consumers need to ask' tough questions:

"How much will I pay for the loan?" The typical refund anticipation loan finance charge for a $3,000 refund is $62-$110, or a 77 percent-140 percent annual percentage rate. Those costs can double or triple with additional fees for tax preparation, electronic, filing or check-cashing.

"What does the fee buy me?" A refund anticipation loan gets your refund to you in one to four days, compared to just seven to 10 days for an ordinary electronic refund deposit to your bank.

Beware also of pay stub refund anticipation loans. Pay stub refund anticipation loans are based on a taxpayer's estimated tax refund as indicated on his or her latest pay stub. They are offered before a taxpayer receives a W-2 form.

The estimated amount, however, may be incorrect and the taxpayer will have to pay the full amount, whether or not the refund is large enough to cover all costs and fees. Pay stub refund anticipation loans charge high fees just like other refund anticipation loans.

IRS data shows that nearly one in 15 taxpayers took out a refund anticipation loan in 2007. Two-thirds of these were low-income workers or Earned Income Tax Credit recipients who can receive free tax assistance. In February, "a list of volunteer income tax assistance and tax counseling for the elderly sites in Iowa will be available at www.IowaAttorneyGeneral. gov.

For more information, contact the attorney general's consumer protection division toll free, 888-777-4590.



Copyright 2010 Sioux County Index-Reporter, Hull, Iowa. All Rights Reserved. This content, including derivations, may not be stored or distributed in any manner, disseminated, published, broadcast, rewritten or reproduced without express, written consent from SmallTownPapers, Inc.

© 2010 Sioux County Index-Reporter Hull, Iowa. All Rights Reserved. This content, including derivations, may not be stored or distributed in any manner, disseminated, published, broadcast, rewritten or reproduced without express, written consent from DAS.

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