Consumer Affairs Advises Taxpayers to Avoid Costly Refund Offers
Refund Anticipation Loans and Checks take large bite out of federal, state refunds
BOSTON - April 3, 2012 - The Patrick-Murray Administration's Office of Consumer Affairs and Business Regulation today recommended that tax filers avoid so-called Refund Anticipation Loans and Refund Anticipation Checks because the costs attached significantly reduce the size of refunds.
Refund Anticipation Loans (RALs) and Refund Anticipation Checks (RACs) promise consumers’ immediate payments for their refunds, but come with costs so high through fees and interest rates that federal regulators have moved to block all RALs by next year.
"Taxpayers need to know that their refund belongs to them and not to any tax preparer," said Barbara Anthony, Undersecretary of Consumer Affairs and Business Regulation. "Tax services should receive an appropriate fee for their expertise, but these fees and rates are unconscionable."
RALs are bank loans secured by the taxpayer’s expected refund that last about seven to 14 days – until the actual IRS refund repays the loan. And the interest rates can be more than 100 percent, according to the tax service companies.
At a Boston Liberty Tax Service outlet last week, the cost of Refund Anticipation Loans was $61.42 in addition to the cost to file the tax return (either $150 or $200). The taxpayer is charged a short-term rate of 124 percent for the refund anticipation loan, according to company staff. To qualify, a customer must be receiving a refund check of at least $2,000. In the case of a $2,000 refund, the immediate payout would be reduced to about $1,600.
The federal Office of the Comptroller of the Currency has moved against RALs and the accompanying interest rates of more than 100 percent. After this tax season, RALs will no longer be available to consumers, according to the OCC.
As RALS are phased out, tax preparers are turning to a new and still costly financial product, the Refund Anticipation Check. A RAC is a temporary bank account into which the IRS directly deposits a refund check. Consumers access that money through a check or prepaid card. When the money is gone, the account closes automatically.
Consumers typically pay about $30 to set up the one-time-use account, according to the tax service companies. If they opt to receive a paper check, they could end up paying a check-cashing fee, too. If filers put the refund money on the prepaid card, they could get slapped with other use fees.
Recently at a Boston H&R Block store, tax preparers provided a detailed menu of items and costs associated with their H&R Block Emerald Prepaid MasterCard. Those fees included a $2.50 charge for each withdrawal at an ATM machine and a $25 charge to access the funds at a bank teller.
Though generally cheaper than a RAL, enrolling in a RAC program doesn't make a lot of financial sense, either. Consumers would be wiser to open an actual checking account and arrange to have a tax refund directly deposited into it, Undersecretary Anthony said.
Consumers are urged to:
- Beware the extra fees: It costs money to receive a refund in the form of an immediate check from a tax service. A prepaid debit card also will come with a hefty charge each time consumers use the card. And the owner of the ATM may charge a fee as well.
- Use a direct deposit: Even though it may take up to four days longer, consumers avoid any fees and the money will be placed into your personal bank account.
- Pay up front and wait for your refund: Taxpayers will receive all of their refund with this sensible approach.
- General informational inquiry on fees: Before you make a final decision as to how you want to pay for your tax prep services, make sure you understand ALL the options AND the associated fees.
"During tax season, consumers need to remember that they earned all the money in their refund," Undersecretary Anthony said. "It’s your hard-earned income, and it should be all yours and no one else’s. A little patience can be worth hundreds of dollars."
ADVISORY: INTERVIEWS WITH UNDERSECRETARY BARBARA ANTHONY CAN BE SCHEDULED BY CALLING DAN ROSENFELD
Contact – Dan Rosenfeld, Director of Communications,
O-617-973-8767, C- 617-875-5968