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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