Stay Away From Tax Refund Anticipation Loans

I saw a big billboard for Jackson Hewitt showing a broadly smiling woman of indeterminate ethnicity holding a fistful of money that she just got by getting a refund anticipation loan, and it reminded me of how we need to do our annual telling of people to once again stay away from said refund anticipation loans.

The way they work is that the lender, often in the form of a tax preparer, fronts you the refund you’re expected to get. In exchange for getting your refund a few weeks in advance, you pay them interest on the loan that can vary from 40-700%. Not a good bargain, just a tax on the impatient and those bad at math. In fact, H&R Block was once sued for systematically overcharging customers on refund anticipation loans. If you need your refund as speedily as possible, just e-file and get it direct deposited into your bank.

(Photo: Noah Berger)

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  1. Bladefist says:

    unfortunately this has to be stated.

    If you go out and get a ‘payday’ loan for your tax refund, you are an idiot.

  2. Tracy Ham and Eggs says:

    If you file online (free for most of the people in this country, especially those who would take these loans) then you can usually get your refund in a week or two.

  3. AlteredBeast (blaming the OP one article at a time.) says:

    Hey, I’m of indeterminate ethnicity, and I’d love a fist full of cash! Where do I sign up??

  4. Caprica Six says:

    yea, sadly some people will see the ad and commercials for the quick cash and take advantage of the *fast cash!* I have been happy doing my taxes on turbo tax online (no need to but the software) and e-filing. Sure, I may pay a few $$ to do it via turbo tax/quicken, but hey, they aren’t taking my money via a high interest rate loan!

  5. bohemian says:

    If your using H&R block or Jackson Hewitt your probably not well informed either. There is a couple that runs a franchise of Jackson Hewitt locally. Both are as not particularly bright people but smart enough to run a couple of other shady businesses in town. They told me how they find people and how they train them. They are just people off the street with some basic computer based training. These experts probably know less about taxes than you do.

    Basic forms are not that hard. If your unsure drop the money on Turbo Tax instead. Or find an accountant or tax attorney to do yours if they are that complicated.

  6. joeblevins says:

    I know a few that do it every year. I am a horrible person that fews my refund every year as a windfall. But I am smart enough not to pay for anticipation loans. We just efile ASAP and wait for the bank account to be updated. Then we blow it like irresponible Americans. In reality, most goes to debt and home improvement.

  7. FreemanB says:

    It still amazes me that people can’t wait the one week it would take to get the money if you filed electronically. Most tax prep places are a ripoff. They don’t do anything that you can’t do with TurboTax(Or equivalent software). My advice is to use TurboTax. If you have something that it can’t handle or you aren’t sure about, go to a professional CPA. Otherwise, the person you are dealing with at the local Liberty Tax probably doesn’t know anymore than you do.

    I had a friend who spent some time as a manager of one of the local tax prep places. He said their training consisted of one class that lasted a few hours, and it was entirely on using their software. So essentially you are paying someone else to punch in the numbers for you. They aren’t any more likely to get the numbers right than you are.

  8. laserjobs says:

    God Damn I need to get into this business. Nothing like fleecing the stupid.

  9. Starfury says:

    I use Turbotax online and like it. I used to pay someone but then realized that the forms she was filling out I could do online for about 1/4 of the cost. We tend to get a fairly good federal return which I promptly spend.

    On property taxes.

    If we have to pay the state; that check goes out on 4/14.

    I know our local mall will have these tax booths in them ripping people off.

  10. cmdr.sass says:

    @laserjobs: Perhaps you should consider a career in politics.

  11. zundian says:

    @Tracy Ham and Eggs:

    I always file online, get my refund and have it spent* by the middle of February.

    *paying off credit cards or paying down car loans.

  12. smitty1123 says:

    Why does the person’s ethnicity (let alone if it’s a man or a woman) even matter?

  13. Chryss says:

    My in-laws use H&R Block, have for years, and I cannot dissuade them from this path. AUUUGH.

  14. Tracy Ham and Eggs says:

    @zundian: I waste mine most years. I spend all year investing/saving responsibly, and my return is rarely that high, so its my “mad money” each year. Last year it got banked for furniture for the house I was building, but this year its going to probably be a game system or a pool table (depending on amount).

  15. theblackdog says:

    As soon as I get my student loan interest form, my taxes are so done. I can wait the week for the money to come in, then use it to pay off my credit card :-D

  16. Crotty says:

    The loans are obvioulsy a rip-off. However, the target for this are lower-income, less educated people (the refund is typically the earned income tax credit applies to low incomes, or used to be) many of whom may not have home access to a computer, and juggling kids, work, etc, making it difficult to use the public library or internet cafe to file. Also, many don’t have the basic skills. It’s not ‘stupidity’ per se, but ignorance. The choice isn’t presented as, “do you want to be charged 100% annual interest?”, rather it’s “do you want most of your money RIGHT NOW, or all of it LATER?” What’s needed is education, but of course the only parties interested in educating lower income people about interest rates and taxes are Jackson Hewitt and H&R Block.

  17. My wife worked for H&R Block for several years, and it really isn’t that bad. No, the employees are not “professionals” in the sense that they are accountants, but frankly most people NEVER need that level of financial advisor.
    They do have to go through a lot of training and no, it’s not just computer-based. She had to attend in-person classes for a period of at least two months. She had to take a test afterwards, which did not guarantee employment. We had to pay for thr classes, but it wasn’t unreasonable and her wages easily made up the cost by the end of the tax season.

    You have to rememebr that many people do not own a computer, and this does not just mean those who can’t afford it. If you do own a computer and want to use TurboTax or the like, guess what else you need? Internet access. Hint: Most Americans do not have internet access at home.

    Also, for those who have complex tax situations such as living abroad, changing citizenship, divorced, etc. it can just be too stressful to try and do it on your own.

    All that being said, the refund advance loans are a serious scam. It’s true H&R Block was smacked down for that. My wife and her co-workers did not like H&R Block offering it, but she was free to play it down.

    Jackson-Hewitt in North Carolina was completely shut-down thanks to massive fraud. They were openly encouraging customers to lie on their taxes, and not surprisingly a lot of people sought out Jackson-Hewitt for that reason. Guess how many ex-JH employees can not only face criminal charges but audits as well?

    One last thing to remember: Tax preparers at these sort of places are held accountable by the IRS for fraud. Even if the preparer is unaware of something in a clients tax situation (ie. unreported income), the IRS can come after them for assisting in tax fraud. So it’s not exactly a risk-free proprosition to work in such a place.

  18. Oh, and doing your taxes online?

    BAD, BAD IDEA.

    The number of risk vectors in such a thing is just insane. You have to trust your ISP, the other companies ISP, the datacenters, the emloyees of the ISPs and datacenters, etc etc…

    Just don’t do it.

  19. zibby says:

    99.9% chance if you’re at this site you already know this.

  20. morganlh85 says:

    Unless you have an emergency I don’t see any reason for these loans considering the fees they charge. My mom used to do this with HR Block and she got part of the settlement from that lawsuit. Now she just waits the two weeks to get her money.

  21. morganlh85 says:

    @Jeff the Riffer: That’s silly.

  22. GearheadGeek says:

    These are probably the same people who see their refund as “free money” because they can’t do the math and realize that they should’ve adjusted their withholding at the beginning of the year and had that money in their OWN account. My goal is to always pay, but less than $100.

    Even for the people here who’ve said their refund goes to paying off bills or property taxes, would you be better off if you applied that money to your bills through the year?

    Taking a borderline-usurious loan to get YOUR OWN MONEY that you didn’t bother to keep from the government during the course of the year is just plain stupid.

  23. Tracy Ham and Eggs says:

    @Jeff the Riffer: yeah, most americans do have internet access, dont know where you came up with that. I think the last number I saw was 75% have HOME access to the net.

    As for the “risk vectors”, I would rather take my chances that some random person at an ISP can hack the encryption on these sites then trust some undertrained tax preparation center employee to discard any records correctly. As someone who has been in personal finance for years, some local offices idea of “security” is putting your information in an unlocked cabinet until they run out of room or move, and then chuck it in a dumpster.

  24. bobpence says:

    You folks like the gummint hold onto your money? I owe at the end of the year. Less than $1000, less than 10% of my total liability, but I still end up owing. Even if you get your “refund” right away, you’ve waited on average six months to get your own money.

  25. darkened says:

    @smitty1123: Because that added in makes it very clear the implications of their targeted audience. And stereotyping their audience in the same way, of course stereotyping wouldn’t exist if it wasn’t true more than it was false…

  26. Javert says:

    This article reminds me of the warnings to not look directly at solar eclipse.

    @Jeff the Riffer: Wow. Paranoid much? As other posters have noted, when dealing with paper filing, a person does not even need to have a gram of intelligence to steal your information whereas if it is at least difficult to do with an online filing.

  27. FreemanB says:

    @Jeff the Riffer: I think you meant “If the preparer is aware”, not unaware. They won’t be penalized for something they don’t know about. However, if they aren’t reasonably certain that the tax return is correct, they can be held responsible if it turns out to be wrong. I just wanted to clarify that.

  28. m4ximusprim3 says:

    @Jeff the Riffer: Sorry to disagree, but the less physical people between me and the e-file, the more secure the transaction is. The H&R people are just typing it in their program and e-filing it anyway, with the added risk of my overworked, underpaid “tax consultant” deciding to sell my info to the scuzzy guy in the back alley for a frappucino.

    On the other hand, “you’ve got people!”

  29. NikkiSweet says:

    I know people have lots of bad experiences with these kind of places… I work for Jackson Hewitt during the tax season because it gives me a chance to help people in my community. We offer free return prep for college students and senior citizens. I’ve volunteered at the IRS, doing the same thing, and those people were horrible!

    I don’t push any of the loans to anyone. I will flat out tell people that they’re looking at an interest rate of some ungodly amount. I will tell people that have a very simple return exactly what they need to fill out and send in to the IRS so that they don’t have to pay our fees.

    As far as the training goes… the franchise I work for requires you to pass testing, and the IRS requires you to pass a tax test before you’re even allowed to work. I’ve worked for JH for 5 years, I’ve never had any major problems that were caused by my mistakes on returns, and everyone in my office has years upon years of training and on-the-job experience.

    (sorry if not all of that was coherent… I’m recovering from the flu, and on meds)

  30. Alexander says:

    Thanks Consumerist readers, you have opened my eyes and now I see the light. I will, from this day forward, do not file my taxes until I can telepathically transmit my tax information to an IRS cyborg. The risks are just too many:
    -Do it online: No doubt a 1337 Hax0r will steal my identity.
    -Do it with H&R: Ugh, I’m sure this off-the-street bum turned tax preparer will:
    1) Sell my info for a frappucino
    2) Put my info on a file cabinet where it will be sold for a frappucino
    3) Put my info directly in the dumpster
    4) Oh, and once this bum tax preparer inputs my info online, there is that 1337 Hax0r again!
    – Do it by good old fashion snail mail: You crazy! Some bum will surely open your mail and steal your identy. No doubt too the mail man will also open the mail and steal your identity! Let’s not overlook the obvious too…USPS sucks! I’m sure they’ll lose your mail and send it to some bum instead! There goes hour identity. The photocopies you made? Oh uh, some bum will break into your house, take the copies, steal identity! But wait a minute, I use turbo tax (I did not do it online…don’t be silly) so now my information is stored safely and encrypted on my computer! Hmmm…let me introduce you to mr 1337 Hax0r! We are all screwed…it’s clear the world has been taken over by bums tax preparers and 1337 hax0rs…I’ll be in my cave…

  31. snoop-blog says:

    i always go to the same local guy. filing for me and my fiance was free last year because of his referral program. actually my fiance made $25 profit off his referral program so, do our taxes for free and make $25 is usually a good deal.

  32. burgundyyears says:

    When it comes to using tax-prep services, I imagine most consumerist readers have worked in the same state all year long, are citizens, and have one or two W-2s, some nominal capital gains or losses, and maybe some 1099-INTs. Obviously, you don’t need a lot of help to deal with that. Once you start to break out of the mold on even a few of these fronts, it can get incredibly complex. That’s when tax-prep services can come in handy.

    P.S. CPAs are, for the most part, not tax experts. You want an EA (enrolled agent).

  33. chiieddy says:

    I’m probably going to get a refund this year because I likely overestimated my tax liability due to the first year I’m filing as married. I’ll adjust it next year as appropriate and hope to get the correct offset for paying my state taxes. Luckily, TurboTax Online has a pretty good W-4 management tool.

  34. hapless says:

    @Jeff the Riffer:

    Intuit and H&R Block realize that many people lack internet access. This is why their products support things like print, fax, and pdf output.

  35. NikkiSweet says:

    Oh, just FYI. I used to work tech support for a company that contracted with Intuit for their TurboTax software. We were issued an update to not tell customers about a download they were going to roll out on March 1st, which would fix a calculations problem that affected W-2’s.

    I’d never *ever* use TurboTax because of that. They waited an extra month to patch a problem, even though they know most low to middle income people will have filed by the third week in Feb.

  36. Quite obviously, an employee who works at a tax prepration shop has access to all your sensitive data. So yes, there is risk that said employee (or other employees in the office) could copy the data and sell it or abuse it.

    However, the exposure of such data at a tax preperation agency is limited to the people in the office and the systems of that preperation company. You have the opportunity to physically meet the person(s) who will work the return, observe the security of the office itself, etc.

    You have NO such opportunity when dealing with a purely on-line service. There’s no transparency so you don’t know how the data reaches the company, what networks it goes through or how is stored. You have no idea who within the service provider can view your returns. Nor how the data is archived or handled. How much of customer’s data does Intuit backup? Who handles the backup tapes? How are they shipped? Are they encrypted.

    The nature of doing taxes has always been that you have a whole lot of sensitive data in one place and a bunch of people have to see it to process taxes (your employer, the IRS, tax professionals, etc). You can’t eliminate the risk of data leakage, only minimize it.
    Online tax prepration is a new field that isn’t scrutinized enough by appropriate agencies and doesn’t have sufficient oversight.

    And yes, I know what I’m talking about. And I am paranoid, with very good reason.

    Breaches.
    Breaches.
    Breaches.
    Breaches.

  37. chiieddy says:

    @Jeff the Riffer: So you’re telling me that if I walk into H&R Block and watch them enter my information into their program (which I can buy in the store), I’m less likely to be subject to a data breach? I call bullshit on that.

  38. skeleem_skalarm says:

    When I worked at HRB I tried to steer everyone I knew away from these loans, but few listened. The poorest of the lot were the ones who always took the loan. It made me want to tear my hair out. It’s amazing what people will pay for the privilege of using their own money.