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).