Common Law - The FindLaw Consumer Protection Law Blog

Don't Pay to Borrow Your Own Money - Avoid Tax Refund Loans

With that warm and wonderful time of year- tax time - rapidly approaching, the Attorney General of California is reminding taxpayers to avoid the expensive tax refund anticipation loan. These loans, sometimes advertised as "early tax refunds" are not refunds, they are loans with sometimes triple digit interest payments and numerous fees associated with them.

According to a News Release by the office of the CA Attorney General, the refund anticipation loan is a short-term loan secured by a taxpayer's anticipated income tax refund. To obtain a tax refund loan, taxpayers file electronically with a tax preparer who works directly with a bank to advance the refund as a loan, minus tax-preparation costs, a loan fee and other charges. The Internal Revenue Service (IRS) then sends the taxpayer's full refund to the bank.

According to the National Consumer Law Center (NCLC) and the Consumer Federation of America (CFA), loan fees can range from $34 to $130 and other add-ons alternately referred to as application, administrative, e-filing, service bureau, transmission, or processing fees, can range from $25 to several hundred dollars. According to the NCLC, new figures reveal that refund anticipation loans drained the refunds of about 8.4 million American taxpayers in 2008, costing them in the neighborhood of $738 million in loan fees, plus over $68 million in other fees. The country's most financially vulnerable taxpayers, those from low and moderate-income families, lost about $800 million from their refunds in the last year.

Even companies with well-known names have been under scrutiny for their refund anticipation loan practices. In January 2009, CA Attorney General Jerry Brown secured a $4.85 million settlement with H&R Block that prohibits the company from marketing refund-anticipation loans as early tax refunds.

The IRS will provide your actual tax refund free of charge. Taxpayers who file electronically and have their refund directly deposited by the IRS into their bank account will usually have their refunds in 8-15 days.

If you are considering taking out a refund anticipation loan, you can receive advice from IRS support programs including the Volunteer Income Tax Assistance Program (VITA) Program and The Tax Counseling for the Elderly (TCE) Program. More information on these programs can be found at: www.irs.gov/individuals/article/0,,id=107626,00.html.

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