As an educated consumer you may wonder why people would choose to use a Refund Anticipation Loan when they can e-file and receive their refund in only a few days.

According to a new secret shopper study being reported by the National Consumer Law Center, there is evidence that consumers are being systematically mislead into signing up for Refund Anticipation Loans and that other, more consumer friendly options are not being disclosed.

Secret shoppers who visited tax preparers (including Liberty Tax, H&R Block and Jackson Hewitt) in Philadelphia and North Carolina were given inaccurate information about their refund options and were not told that a “RAL” was actually a loan. Several of the tax preparers also made serious errors processing the returns.

“Two testers were required to file amended returns to fix errors and one tester withdrew after the preparer advised him not to include investment income on a return, essentially recommending tax fraud,” the report says.

The stories told by the secret shoppers are troubling. Preparers used misleading language to try to hide the free e-file option, or, in some cases, simply refused to disclose it. In one case, the option that looked like “free e-file” turned out to be something called a “Refund Anticipation Check”:

Another tester reported: [KH] was asked to fill out a two-sided form with her personal information. On the back of the form were three options she could choose for receiving her tax refund, described as: (1) RAL (24-48 hours), (2) Direct Deposit (10-14 days) and, (3) Check by Mail (6-8 weeks). The fees for the various options were not disclosed, so [KH] asked the tax preparer if she had a fee schedule. The preparer told her that a fee schedule was not available, but all of the fees would be broken down for her once the return had been prepared. The “Direct Deposit” option turned out to be a RAC, not the free e-file, direct deposit option. Later on, after the preparer finished completing the return, she again reviewed the options for receiving the refund proceeds, but this time omitted the free “Check by Mail” option.

You can read the entire report (PDF) here.

Mystery Shopping Test on RALs; IRS Comments [CL&P Blog]

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