No More Refund Anticipation Loans After This Tax Season

We’ve been warning people for years to steer clear of the “refund anticipation loans” that get you your tax refund ASAP but at the cost of usurious interest rates and fees. And between growing consumer awareness that RALs are a bad deal and the bigger banks dropping out of the business, only one bank has been backing the loans — and that’s all about to end.

That final financial institution involved in the RAL game, Kentucky-based Republic Bank & Trust, had been involved in a legal battle with the FDIC over the loans. Ultimately it was all settled this past December, with the upshot being that Republic would no longer issue RALs after April 2012.

However, the loans are still available to taxpayers this season — and just like every previous year they’ve been offered, the loans should be avoided.

Reports the National Consumer Law Center:

This year, for Jackson Hewitt and Liberty Tax customers, Republic Bank is charging $61.22 for a RAL of $1,500, which translates into an APR of 149%. If the refund exceeds $1561.22, the taxpayer is charged another $29.95 when the remainder of the refund arrives in the form of a RAC, for a total of $91.17 in fees.

The NCLC calculates that in 2010 alone, around 5 million taxpayers paid around $338 million in loan fees, plus over $48 million in other fees, because of RALs.

The fee-laden, high-interest loans have often been accused of being marketed to the people who need their refund the most. According to the IRS data, 92% of taxpayers who applied for a RAL in 2010 were low-income, and two-thirds (66%) were recipients of the Earned Income Tax Credit.

“It’s good riddance to RALs as big business,” says Chi Chi Wu, staff attorney at the National Consumer Law Center (NCLC). “Millions of hard-working families will save money and face less risk as RALs made by banks disappear from tax time.”


Edit Your Comment

  1. Derigiberble says:

    I don’t see how you could even swing the normal payday loan excuse of “but there is a high risk of default!” when the check is coming from the US Treasury based on returns that you helped prepare. There’s really no excuse for that sort of fee.

    I suppose they have to pay for those people to dress up in costumes and dance on the sidewalk.

    • frank64 says:

      There is risk, at least sometimes there was child support or some other non payment of tax issue that would result in not getting the refund.

      • EarlNowak says:

        Up until last year, the IRS would note in its e-file acknowledgement if there could be a potential seizure of the refund for any reason.

        They stopped last year to make it more risky for RAL providers (seriously!)

    • rugman11 says:

      It’s a convenience fee. Frank64’s point below makes it clear. If you need that money for car repairs it might be worth the $60 to get your hands on $1500 now rather than having to wait a few weeks.

    • Citizen says:

      The risk of default is higher that you might think. The reason is that you do not need your W2s and what not to get a RAL, you can get one based upon your pay stubs. The place then has to hope that you come back and do your taxes and pay it back. The risk is that the people with the RAL will then use the W2 to file a separate tax return to get twice the refund and the bank that gave the RAL will be out the money.

  2. frank64 says:

    I worked for H&R Block and the clients really, really wanted those, even when we told them they would only have to wait about two extra weeks and it was real expensive. Those that got the EIC were thinking $2800 now or $2870 three weeks later, who cares about the $70. Although I think they are better off being forced to wait, it comes under the heading of saving them from themselves.

    The one real problem I see it that they didn’t have the money to pay for it themselves, and the loan took care of that. I know many will say that it is easy, they could do it on their own. No. some can’t read, or at least read well enough to understand how to fill out the simple forms.

  3. techstar25 says:

    I’ve never understood these things. You’ve already waited 12 months. What’s another two weeks?

    • ArizonaGeek says:

      It may not even be two weeks, we got our state return in about 5 days and our federal return in about 10 days.

  4. 10,000 Hours says:

    Wait, if it can be argued (as it is so often here on Consumerist) that “Food stamps are good for the economy because it gets money into the hands of low-income people, who will then spend it at businesses that provide a good or service”, aren’t RALs ‘good’ as well? Low income people are using tax money to pay a 3rd party business to provide a service. What’s the difference? (Other than the obvious: with food stamps, the govenment is giving people other peoples’ money to spend, but with a tax return, people are choosing to spend their own money how they want.)

    • Buckus says:

      Your state doesn’t charge you 149% interest on food stamps to get food stamps in your hands now instead of in 2 weeks.

      • Doubting thomas says:

        except that figure is glaringly dishonest. It is a one time payment, not an annual interest rate. The actual percentage is just a hair over 4%. These days I would not choose to pay that, but in my leaner days those 2 week might have made the difference between a bill getting paid on time or not, which would have hurt my credit even more and probably cost me more than $60 if it was my rent.

    • who? says:

      I’m not sure I get your point. The people who get the RAL’s will still get tax refunds, they just get bigger refunds a couple of weeks later. Then they have an extra $60-90 that they’re probably going to use to contribute to the local economy. If they get a RAL, yes, they’ve spent the $60-90, but it’s basically pure profit for some remote corporation. It doesn’t go into the local community, and it probably isn’t going directly to pay someone’s salary.

    • Awesome McAwesomeness says:

      I make that argument quite often b/c it is true. There is no denying that. It’s an example of trickle up economics.

      I also think that if someone wants to spend part of their tax refund to get it early, that should be their right.

      I don’t really see someone making a choice as to how to spend money they earned at a job in the same light as government entitlement benefits paid by taxpayers that end up helping the rich as much as the poor (while the rich scream socialism.) I just think it would be great to get to see the reaction of every single asshole who whines about entitlements if the government stopped every single one for just a month. Since it would negatively affect pretty much every single retail business, including banks, it would be pure awesomeness to see people eat their words and beg the government to give the entitlements back to the poor/elderly. It really could devastate our economy.

  5. Torchwood says:

    I’ll just have the refund direct deposited to my checking account. I hear that it’s absolute free for this service.

    • Buckus says:

      Don’t worry: Bank of America will somehow weasle their way into this somehow and the IRS will only issue refunds on Bank of America debit cards.

  6. Cat says:

    Don’t worry, folks. RALS are not banned, or against the law. The last bank that issued them has stopped doing so. Someone will step in and help themsel… I mean, the poor.

  7. areaman says:

    Surprised no one has brought up these two points:

    1) “I make my own refund at home” or It’s better to pay $1000 when I file .vs getting a $1000 back

    2) The person quoted in this post is named Chi Chi Wu!!!

  8. mydogspot says:

    “Millions of hard-working families will save money and face less risk” — Nanny “Chi-Chi” Wu

  9. JonBoy470 says:

    Low income folks are economically vulnerable, and tend to not have savings, living paycheck to paycheck… They may be the ones who could most use the money NOW… Saying you should be able to wait two weeks or whatever is easy when you’re sitting on $30K in your checking account and you’re not worried about where money for car repairs or medical bills is going to come from. Besides, quoting the interest rate as 349% or whatever is disingenuous, because the term of the loan isn’t nearly that long.

    Using the $2800 vs. $2870 example from above, what you really need to be asking is “Is it worth 2.5% of your return to get it today, rather than in two weeks? For some people, getting their money today is, in fact, important enough to them that they’re willing to pay 2.5% of their return for it. Then again, I’m of the opinion it’s not government’s job to save people from themselves…

  10. Awesome McAwesomeness says:

    If there is a demand for them, and people understand the fee, then I see no problem. An adult should be able to make a decision as to whether they want to pay a convenience fee to get their money early, plain and simple. Why do we need the government telling people how to spend their money?

  11. voogru says:

    Now they will just go to loan sharks and other lenders who are even worse. Good job.

    Hey wait a minute, tax refund? You mean the government took more money from people than they should have?

    What’s wrong with this picture? I seem to remember something about unreasonable search and seizure in the Constitution…

    • Lucky225 says:

      I seem to remember something in Article 1, Section 9, oh yeah here it is:

      No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken

      Then this ’16th amendment’ that was never properly ratified tried to modify that sentence, which still appears.

  12. dwtomek says:

    SSo you’re telling me payday loans are still shit if you change the name from payday to taxday?!

  13. GoSpursGo says:

    “This year, for Jackson Hewitt and Liberty Tax customers, Republic Bank is charging $61.22 for a RAL of $1,500, which translates into an APR of 149%. If the refund exceeds $1561.22, the taxpayer is charged another $29.95 when the remainder of the refund arrives in the form of a RAC, for a total of $91.17 in fees.”

    WRONG. The APR is really 124.14% for the RAL, calculated on 12-day cycle. The 29.95 applies to all bank products (ERC,ERD, RAL). It is not only incurred if your refund exceed 1561.22. Stupid people need to be saved from themselves. It’s not like the bank can force anyone to sign up.

    Stupid people need to be saved from themselves.

  14. adent1066 says:

    One positive thing about Jackson Hewitt, I can usually tell how bad a neighborhood is by their presence.

  15. HowardRoarksTSquare says:

    The government needs to stay out of this – these people know the risks/rewards of getting a RAL.

  16. xanxer says:

    Efile with direct deposit. Money was in my account in about 5 days. If you can’t wait 5 days, you’ve got bigger problems.