Avoid Tax Refund Anticipation Loans

While most people are recovering from the holiday season, large commercial tax preparers like H&R Block, Liberty Tax and Jackson Hewitt once again have begun huge marketing campaigns offering tax preparation services and tax Refund Anticipation Loans (RALs).  These campaigns largely target working families living in poverty, especially those that will be receiving the Earned Income Tax Credit (EITC). 

This government benefit is intended to help working families make ends meet, not pay tax companies for an expensive loan. But according to IRS data over 56% of all RAL borrowers are EITC recipients. In fact, one out of every three EITC recipient gets a RAL. CRC contends that RALs are not a benefit for hard working tax filers but rather another expensive and predatory short-term loan product that rips people off.   Customers of paid tax preparers who receive their refund immediately or within a couple of day are probably receiving a RAL rather than their actual refund.

These loans are risky. If the amount of a customer’s refund is more than she will actually receive from the IRS, she must pay back the excess money from the RAL.  If a tax filer’s refund is denied or “frozen” for auditing purposes, the RAL borrower is responsible for paying the money back to the bank that sold her the RAL.  If the RAL is not repaid, the borrower could be assigned to a debt collector which will ultimately damage her credit rating.

Low income workers that claim the EITC could receive as much as much as $4,500 if their families’ total household income is less than $38,348.  There is a better option than a RAL.  Tax filers that electronically file can have their refunds directly deposited into their bank accounts within five to ten working days.  Or these tax filers can use the services of a Volunteer Income Tax Assistance (VITA) site and get their tax prepared for free.

RALs consist of many fees.  The loan fee for a refund of $2,000 may be as much as $100.  The tax preparation fee can run as high as $150.  Finally, many RAL borrowers will pay a check cashing fee, which in this case would be $65.  Thus, RAL customers could pay over $300 just to receive their refund. 

RALs are completely unnecessary.  Anyone earning less than $40,000 can have their taxes prepared for FREE at a Volunteer Income Tax Assistance (VITA) site.  For those earning below $54,000 the IRS has a free file program on the internet (www.irs.gov). 

Please help CRC spread the word about RALs.  Bay Area residents can find a VITA site by either calling 2-1-1 or 1-800-358-8832.  For sites located throughout California, the IRS toll free hotline is 1-800-829-1040.  The Franchise Tax Board’s web site at http://www.ftb.ca.gov/individuals/vita/sites.asp also lists a comprehensive list of all VITA sites in California.