Refund Anticipation Loans

Every year, millions of Americans take out loans on their tax refunds, and every year tax preparation companies rake in millions in interest and fees. These controversial loans haven’t escaped the notice of consumer advocates… and now Uncle Sam is weighing in.

Tax preparation services want your business, and do lots of things to get it. They advertise… some even stand by the road and flag you down. And nearly all offer refund loans: short-term loans secured by your impending refund check. Most consumer advocates hate them:

“People end up paying much more than they could and much more than they should to get their own money back. Triple digit interest rates.”
-Lisa Donner, ACORN

Tax Preparation companies make huge money from these loans. And despite the high fees, many consumers can’t seem to resist them.

“They gotta have their money now. They just insist having their money now. And until the IRS starts giving them their money in two days, they’re going to make this a salable product.”
-Hal Roberts, H&R Block

Over the years, this bitter debate has been the source of everything from picketing to lawsuits. Last year the IRS proposed new rules that would keep tax preparers from furnishing taxpayer information to the banks that make these loans. That could radically reduce refund loans. But, that proposal is still just that: proposed.

In the meantime, if you’re considering a refund anticipation loan, be aware of two things: first, you could be paying an exceedingly high interest rate to borrow your own money. Second, with electronic filing, you can get your refund in a week. Isn’t that rapid enough?

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Comments & discussion

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  • gioia

    In this video piece, I heard Stacy Johnson to say, "tax preparation companies make huge money from these loans". I'm not sure where he is getting this information, but as an owner of a tax prep company, I know WE do not make any additional money when a client elects to pursue a RAL (Rapid Anticipation Loan). The BANK giving the loan makes the additional money that is charged. Yes, our tax prep fees can be/are taken out of the money that is sent back to our client (for many people, this is a plus, because they don't have to pay our fee up front). But the fee for our service is the same whether the client chooses the RAL or simply waits a week or so that it takes for electronic filing.

    I agree that the bank fees for a RAL are akin to highway robbery, but make no mistake, the tax company does not receive the fee that is charged for the loan.

    • Stacy Johnson

      Hi Gloria,
      While your company doesn't make any money from refund anticipation loans, let me assure you that many of our nation's largest tax preparation companies do. The California Attorney General recently settled a lawsuit with H&R Block to the tune of 5 million dollars for the deceptive marketing of these loans. (Google H&R Block Settlement.) About half of this settlement was to refund fees that it had collected from its clients for these loans. Jackson Hewitt and Liberty Tax Service have been similarly and successfully sued for deceptive practices in the marketing of these loans. So they're apparently finding a way to collect fees for this service.

      Thus my statement that "tax preparation companies make millions from these loans" was accurate. However, you have taught me something. I didn't realize that other (presumably smaller) services don't make money from them. In the future, I'll add rephrase and say "SOME companies make millions from these loans." Thanks for writing.

  • gioia

    Sorry, I meant "Refund" Anticipation Loan…

  • gioia

    Sorry, I meant "Refund" Anticipation Loan…

  • Marian

    You better do some more researching. We do not get millions for doing RAL's. I do believe it was a problem with the paperwork. Some were not having the truth in lending signed or were not using it at all. Every client that comes through my office gets to see exactly how much every 'BANK' product offered will cost them. As stated previously by Gloria, we do not get any of those fees. Those are the BANKS FEES.

    I for one do not like the RAL's and hate the fact that people want them. Time and time again I ask why don't they just put that money in their pocket, and time and time again I hear, "I don't care what it costs I want my money the fastest way possible.

    Until those products are outlawed we will offer what the people want to stay competitive. I for one would not miss the all the extra work I do for NOTHING!

  • Marian

    You better do some more researching. We do not get millions for doing RAL's. I do believe it was a problem with the paperwork. Some were not having the truth in lending signed or were not using it at all. Every client that comes through my office gets to see exactly how much every 'BANK' product offered will cost them. As stated previously by Gloria, we do not get any of those fees. Those are the BANKS FEES.

    I for one do not like the RAL's and hate the fact that people want them. Time and time again I ask why don't they just put that money in their pocket, and time and time again I hear, "I don't care what it costs I want my money the fastest way possible.

    Until those products are outlawed we will offer what the people want to stay competitive. I for one would not miss the all the extra work I do for NOTHING!

  • http://www.creditloan.com/ Loans

    The fees are quite high on the anticipation loans, and the APRs are astronomical. It's interesting though that people still utilize them. Obviously there is a need for short term loans, and while it might be a good idea for the government to get involved, can they really? It has taken forever to get laws passed through congress for credit card reform, but is it realistic to think that this will be accomplished anytime soon?

  • http://www.creditloan.com/ Loans

    The fees are quite high on the anticipation loans, and the APRs are astronomical. It's interesting though that people still utilize them. Obviously there is a need for short term loans, and while it might be a good idea for the government to get involved, can they really? It has taken forever to get laws passed through congress for credit card reform, but is it realistic to think that this will be accomplished anytime soon?

  • gioia

    In this video piece, I heard Stacy Johnson to say, "tax preparation companies make huge money from these loans". I'm not sure where he is getting this information, but as an owner of a tax prep company, I know WE do not make any additional money when a client elects to pursue a RAL (Rapid Anticipation Loan). The BANK giving the loan makes the additional money that is charged. Yes, our tax prep fees can be/are taken out of the money that is sent back to our client (for many people, this is a plus, because they don't have to pay our fee up front). But the fee for our service is the same whether the client chooses the RAL or simply waits a week or so that it takes for electronic filing.

    I agree that the bank fees for a RAL are akin to highway robbery, but make no mistake, the tax company does not receive the fee that is charged for the loan.

    • Stacy Johnson

      Hi Gloria,
      While your company doesn't make any money from refund anticipation loans, let me assure you that many of our nation's largest tax preparation companies do. The California Attorney General recently settled a lawsuit with H&R Block to the tune of 5 million dollars for the deceptive marketing of these loans. (Google H&R Block Settlement.) About half of this settlement was to refund fees that it had collected from its clients for these loans. Jackson Hewitt and Liberty Tax Service have been similarly and successfully sued for deceptive practices in the marketing of these loans. So they're apparently finding a way to collect fees for this service.

      Thus my statement that "tax preparation companies make millions from these loans" was accurate. However, you have taught me something. I didn't realize that other (presumably smaller) services don't make money from them. In the future, I'll add rephrase and say "SOME companies make millions from these loans." Thanks for writing.