High tax season is over, which means that the rush for refund anticipation loans, or RALs as they are usually called, also has quieted down.
But the effects of these short-term, high-interest loans linger. Opponents of the loans (their arguments are detailed in the fact sheets collected at this Center for Responsible Lending Web page) point to the fees and subsequent credit problems that often crop up in connection with RALs.
That’s why lawmakers, as well as the IRS, are still trying to wipe them out, or at least make them much more difficult for companies to offer.
The latest effort to keep the heat on providers comes from a Government Accountability Office, or GAO, undercover investigation of tax preparers. Earlier this year, the investigative arm of Congress decided to find out what tax preparers disclose to clients about RAL fees.
Using Internet searches, GAO investigators identified 22 different tax preparers across the country and called them to ask about RALs. In addition, GAO representatives posed as taxpayers and stopped by 18 tax preparer offices in the Washington, D.C., and Baltimore areas.
And their findings? The tax preparers visited by the GAO generally were willing to provide information about refund loans, but did not use a consistent method to calculate their advertised lending rates.
"All five preparers that completed federal and state tax returns for our fictitious individuals gave an estimate of the fees and finance charges associated with a RAL, and most calculated the refund amount available after deducting fees," said the GAO report. "However, we found that tax preparers did not use a consistent method to calculate the (annual percentage rates) in their advertisements and at least one preparer did not calculate its advertised APR according to Truth in Lending Act requirements."
Fuel to the anti-RAL fire: The GAO investigation is a clear indication that the government is gong to keep holding RAL providers’ feet to the fire in the hopes that they’ll eventually dump the products.
In addition to this investigation, the IRS has banned any mention of refund anticipation loans by companies participating in the Free File program.
Earlier this year, the agency announced that it is considering new rules on the marketing of RALs and "certain other products" in connection with tax return preparation.
Last year, the House has passed a "Taxpayer Protection Act" that, while it has yet to be enacted, does includes a provision to halt the IRS practice of providing debt indicators to businesses that offer predatory refund-based loans.
A debt indicator is an IRS notice that alerts tax preparers that a portion of a filer’s refund will be used to pay off outstanding government debts. Opponents of debt indicators say the notices are essentially a government-provided credit check mechanism for RAL providers.
And during this 2008 filing season, RALs have messed up delivery of money to folks waiting for economic stimulus payments. In these cases, filers who got the loans discovered that the early money slowed down receipt of their rebate money.
When it comes to RALs, this is one instance when it’s a good idea to pay attention to Uncle Sam’s advice and avoid these high-cost loans.
Rachel
As an experienced tax preparer and CPA Prospectus, I am morally and professional opposed to RALs. They are designed to take advantage of low-income taxpayers who lack the education and tax savvy to know better. Just use eFile and Direct Deposit! You’ll have your money within 7-20 business days. And if you don’t have a bank account, then just have patience for your refund check– it’s better than the 60%+ APR rates and credit rating problems.
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