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.”