Due to our nation’s
current economic condition, many Americans may be more dependent on next year’s
federal tax refund because of the recession. Many are eager to get their refund
to help pay off debts, ease strains of pay cuts or job loss. However, many
erroneously associate long waits with refund reimbursement causing people to
utilize Refund Anticipation Loans made available by tax preparers. RALs are
short-term advancements for potential tax refunds. While RALs maybe a good
source of instant cash, BBB wants consumers to understand the true costs
associated with the use of these loans. RALs often have exorbitant interest
rates, and are sometimes offered by fly-by-night tax preparers. BBB suggests
consumers do their best homework this tax season.
RALs are similar to payday loans with interest rates
averaging between 50 and 500 percent. These short-term loans are available to
those expecting a tax refund, however, there are several dangers associated
with their use. In addition to high interest rates, RALs can have hidden
administrative fees and require consumers to pay difference if mistake in
anticipated amount is made.
When considering a RAL, BBB encourages consumers to research
a tax preparation business performance and BBB Accreditation status or to get a
list of BBB accredited accountants, free of charge, at www.bbb.org.
Knowing a business’ history is important because many take
advantage of uninformed consumers with additional hidden fees. According to a
survey conducted by the National
Consumer Law
Center, “RALs drained the
refunds of about 8.7 million American taxpayers in 2007, the last year on which
the Internal Revenue Service provided data. This represents about $833 million
in loan fees, plus over $68 million in other fees.”
In addition, consumers should understand that if the loan
amount is higher than monies received from their refund, they are required to
pay the company the difference. “It’s important to remember that RALs are based
on anticipated tax refunds,” said Norman Wright,
president of your BBB Foundation Serving Northwest Florida. “If consumers end
up getting less money back than predicted, they still have to repay the loan
and may incur hefty fees and fines if they don’t pay off the RAL on time.”
Consumers should also be aware of unethical, costly
practices such as the “convenient” debit card, which can include hidden fees
like charging $20 for every transaction made.
BBB recommends consumers research businesses offering RALs
as well as different costs or interest rates associated with the loans they’re
offering. According to the IRS, who encourages the use of e-filing, “90 million
people used e-file in 2008. E-file supports this growing trend toward
electronic tax filing and payment with benefits like: faster refunds, greater accuracy,
secure and confidential submission, no paper return to mail, file now, pay
later, quick confirmation.” Methods such as these are just as timely as a RAL
and don’t cost the consumer to borrow money that is actually theirs in the
first place.
For additional information and advice you can trust this tax
season, start with bbb.org.
###
