I lump these refund-anticipation loans (RALs) in with those payday loans that most of us rail against. Indeed, RALs, and the vigorish associated with them, make loan sharks blush. Given how quickly refunds get turned around these days -- using electronic filing -- it makes little sense to get a RAL. Still, assuming you are creditworthy enough to get one of these loans, there are some who do not mind paying Guido and Vinnie, also known as HSBC and its buddy, Santa Barbara Bank & Trust, for access to fast cash.
From the Associated Press:While consumers may be expected to know that loans typically require a credit check, the people who seek RALs often have little contact with financial institutions. "The folks who find RALS attractive are not the most sophisticated financially in the country," said Robert Kerr, of the National Association of Enrolled Agents, a trade organization for people who represent taxpayers before the IRS.
Moreover, many people who seek RALs have weak credit histories. "More than half, couldn't get a loan under normal circumstances," said John Hewitt, chief executive of Liberty Tax Service, a tax prep chain based in Virginia Beach, Va. "If the bank wasn't fairly certain that they would get the money from the IRS, they wouldn't get a loan."
RAL programs have been the target of numerous lawsuits in the past decade, including several that accused the tax prep companies of inadequate or misleading disclosures in loan applications. In January, H&R Block reached a $4.85 million settlement with California Attorney General Jerry Brown that prohibits the company from marketing RALs as early tax refunds rather than loans. In its 2008 annual report, H&R Block detailed $113.7 million in costs related to other RAL litigation since 2003. Jackson Hewitt Tax Service Inc., the nation's second largest chain, reached a similar $5 million agreement with the California attorney general in 2007.
Read the rest of the story here (link).
Tuesday, March 17, 2009
Tighter Credit Makes Tax Refund Loans Harder To Get
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In my line of work-I see clients that are surprised we don't offer these.
ReplyDeleteThey should be rewarding us instead. When I was in college I worked at a "1040 mill" pumping out EIC returns. We offered these and most took them-Interest rates (when annualized) often approrached 1000%. They were more if the tax filer was approved for an IRAL (Instant $500-the balance the next day).
I felt like a loan shark offering them-however, thinking back now-most of the "borrowers" were actually EIC tax filiers-they are using other's money to fund their loans.
Enigma, interesting comment at the very end. Doesn't matter much to those folks, then.
ReplyDeleteYeah exactly my point-I did have one person actually TELL me that one time- "it's not my money". VERY FRUSTRATING!
ReplyDeleteFor those that don't know, the EIC is welfare for those that work at low paying jobs. These filers do not get monthly checks, but it is welfare all-the-same.
people who qualify for this type of loan are probably not the type of consumer who need this type of loan.
ReplyDeleteIs it still true that the lender (say, HSBC) can grab the cash if there is any unpaid debt to that same lender? Including "uncollectable" debts outside the SOL?
ReplyDeletePeople that get any sort of meaningful return are suckers in the first place.
ReplyDeleteAnyone who is getting a refund needs to adjust their withholding. Do not give Uncle Sam an interest-free loan.
ReplyDeleteAnd if you do have a refund coming, do your own taxes online with Turbo Tax, and see your refund deposited directly into your bank account a week later. No reason to go to a loan shark.
ReplyDeleteEnigma, the EIC is to help the working poor, not to give non-working people a handout (welfare). Not everyone is fortunate to be smart enough, talented enough or in some cases lucky enough to work at a high-paying job.
Some people work very hard for 40 hours a week and still only come home with $13k a year. They are given a tax break the same way people who choose to have children are given a tax break for each child. Why is that not "welfare"?
It is my experiences that most people claiming it are unmarried and work just the minimum they need to to get the maximum refund.
ReplyDeleteDoes it help some working people? Of Course-but when I have done the same "single mom's" return year after year, and she brings me a 1099-MISC with JUST THE RIGHT AMOUNT of non-employee compensation to get a $8000 EIC refund, something is wrong.
This person, and people like her are working the system. And yes, it is welfare in her case, and many others.
Unfortunately, as long as the "government" is handing out cash, people will figure out a way to circumvent the system.
See here:http://www.topix.com/forum/city/kingsland-ga/TU0RVBVE13IUNAIG2
and here:http://www.taxalmanac.org/index.php/Discussion:Sole_Proprietor_and_Earned_Income_Credit
for discussions of the abuse of EIC.
It is a well known fact that this tax "credit" is one of the most abused government subsidies in existence today.
Abd Uly-
ReplyDeletethose people you mentioned that make $13,000 a year, STILL GET THE CHILD TAX CREDIT.
EIC is above and beyond the CTC.
And here is a W4 withholding calculator link so that people can stop giving the government a nice interest free loan.
ReplyDeletehttp://www.irs.gov/individuals/article/0,,id=96196,00.html
All I'm sayin' is that there are tax credits/breaks/deductions galore, many of which are given purely on the basis of private, optional lifestyle choices that the IRS shouldn't even be aware of, let alone involved in rewarding. To pick and choose which are to be considered "welfare" is a little unfair.
ReplyDeleteAnd no, I don't get anything other than the standard deduction. My private, optional lifestyle choices aren't among the IRS's approved list of those deemed worthy of financial reward. Oh well. Poor me.
"They are given a tax break the same way people who choose to have children are given a tax break for each child."
ReplyDeleteThey are being given money, its a tax credit. Its one thing to have a progressive tax system where the poorest don't pay tax, but its another to not only have the poor pay no tax but hand out money to them.
The EIC also gives incentives for people to have kids that are in no position to have kids. The credit is much higher if you have kids vs no kids.
Uly
ReplyDeleteand that is one of my biggest complaints about the tax code-We have allowed the "government" to influence social policy through the tax code.
COMPLETELY ridiculous of us-and stupid too-just try to repeal part of the code that has a special interest group attached to it-and let me know how that works for you.
Better to never let this happen in the first place. The next time you hear a politician promising this or that in the tax code-TAKE HEED-these people have no business (IMO) having ANY influence over a tax code that should raise revenue (and equitably) and nothing else.
"these people have no business (IMO) having ANY influence over a tax code that should raise revenue (and equitably) and nothing else."
ReplyDeleteThis isn't true. Tax policy is one of the most effective ways to make changes in the economy. They can create incentives for some actions (say domestic production) and disincentives for others (say out-sourcing).
Taxes aren't neutral. They create a set of incentives/disincentives by their very existence , there is absolutely no way to "raise revenue and nothing else".
My point was that the tax code should be designed to collect taxes-once you throw social policy in, you are asking for trouble.
ReplyDeleteIT SHOULD BE (IMO) equitable-clearly we, as a nation, have decided otherwise.
I don't really understand why people take these on. With e-filing, you get your taxes back pretty quickly anyway so why go through the trouble and expense of an RAL? Makes no sense.
ReplyDeleteNot only that, but I still don't understand why people want to give the govt a tax-free loan. I don't like getting a bunch of money back in April. I'd rather get more in my paycheck and leave it at that. But, I'm just different that way. Speaking of taxes, I really need to do mine. *sigh*
"My point was that the tax code should be designed to collect taxes-once you throw social policy in, you are asking for trouble."
ReplyDeleteBut there is no way to tax without it effecting social policies. Will you have a flat tax or a progressive tax? Should you have an income tax at all? etc These choice alone will greatly influence social policy. Ignoring this is just a recipe for disaster, there is no way to tax without it effecting both social and economic policy.
"Speaking of taxes, I really need to do mine. *sigh*"
You can join us procrastinators and file an extension!
Kristy, as noted in the article a lot of these people are not financially sophisticated at all and in MANY cases these people don't have a bank account of any type to be direct deposited in. Getting a refund check can take an additional 2 weeks and then they would have to take the check to a bank to cash it, which if it is several thousand one might not want to be carrying that in cash. And as Enigma stated earlier, to them it isn't THEIR money that they are paying in the sky high fees.
ReplyDeleteCraig T