23 Feb Consumer Groups Warn About Tax Refund Loans
? -- Mark Winslow, a medical physicist from Upland, Calif., was in no rush for his refund when he walked into H&R Block a couple of years ago to have his taxes prepared. So he declined the tax preparer's offer of a so-called quick loan to tide him over until the Internal Revenue Service check arrived.
"I thought the interest rate was outrageous," Winslow, 37, said of the annual interest rate of more than 19 percent, on top of a processing fee.
But millions of Americans lack Winslow's patience and buy pricey refund-anticipation loans, or RALs, instead of waiting for their free IRS checks.
Such loans, he added, don't make sense if a taxpayer is expecting a refund within weeks
Consumer advocates have warned taxpayers for years about the loans that, they say, drain millions of payday loans Alaska dollars out of U.S. tax refunds each year.
Indeed, 8.4 million Americans took out RALs in 2008, costing them $806 million in interest payments and fees, according to data recently published by two consumer advocacy groups; the Consumer Federation of America and the National Consumer Law Center. RALs often carry annual percentage rates as high as 500 percent, according to the law center, with an average RAL of $3,300 carrying a rate of 72 percent.
Refund-anticipation lenders often target low-income taxpayers, especially those who receive the Earned Income Tax Credit, according to the IRS. About 1 in 17 tax returns filed in 2008 involved a RAL.