By the Division of Banks

CONSUMER ADVISORY: REFUND ANTICIPATION LOANS

The Massachusetts Division of Banks Opposes All High-Rate Refund Anticipation Loans

Given the consumer protection concerns of RALs, the Massachusetts Division of Banks (Division) opposes the predatory interest rates associated with most RALs and supports the following positions:

  • The Division urges consumers to avoid high-rate RALs.
    • Consumers should electronically file income tax returns.
    • Consumers should request direct deposit to your checking or savings account.
  • The Division encourages out-of-state banks to refrain from making high-rate RALs. No Massachusetts banks offer these high rate products.

What is a Refund Anticipation Loan (RAL)?

A RAL is a loan borrowed against the amount of your anticipated income tax refund and often includes extremely high interest rates and fees.

Tax return preparers sometimes advertise what they refer to as "Rapid Refund," "Fast Cash Refund," "Express Money" or "Instant Refund." These very tempting offers get you your anticipated refund immediately or within a day or two. What many people don't realize is that there is a high price to pay and that what is being offered is actually a high-cost loan.

If you don't receive your refund or if it is smaller than anticipated, you will have to repay the full loan.

Why We're Concerned

One of the most controversial aspects of RALs is the fact that they are often targeted to low-income workers who qualify for the Earned Income Tax Credit, a federal and, in many cases, state-supported tax policy to support low-income working families. In addition, although Massachusetts has attempted to rein in the interest rates and fees associated with RALs, national banks and their agents who make RALs have claimed broad preemption authority and continue to make RALs available.

Don't Pay to Borrow Your Own Money

Your tax refund is money that you worked hard to earn. Don't give it away. Most taxpayers don't realize that they can have their refund in two weeks or less - even without receiving a costly RAL. To avoid the temptation of getting a RAL and to save money at tax time:

  • If you have an urgent bill to pay, ask creditors for more time until the tax refund check comes from the Internal Revenue Service. Don't take on a new expensive debt to pay an old bill.
  • File your tax return electronically and have your refund deposited directly into your bank account. This will speed up your refund. Some refunds will be deposited in as few as 10 days.
  • If you do not have a bank account, consider opening one. A list of banks that participate in the Commonwealth's Basic Banking for Massachusetts program, as well as a description of the program's low-cost bank account, is available at Basic Banking for Massachusetts.
  • For free tax preparation, low- to moderate-income tax payers can take part in the Volunteer Income Tax Assistance program, which is coordinated by the IRS. VITA sites can be found in libraries, community centers, local governmental offices, non-profit organizations, and other locations during tax season. Most locations offer free electronic filing to expedite the receipt of tax refunds. To locate the nearest VITA site, call 800-829-1040. For more information on the VITA program, visit the IRS website.
  • The AARP Tax-Aide program provides free tax preparation and assistance services to millions of low- and middle-income taxpayers, with special attention to those ages 60 and older. Electronic filing and online counseling are also offered by the program. To find the tax-aide nearest you, visit the AARP website.

Need Help or More Information?

If you have a RAL or would like more information on RALs, please contact the Massachusetts Division of Banks at (617) 956-1500 or go to their website. Or, contact the Massachusetts Department of Revenue at (800) 392-6089 or go to their website.