All it takes is a little patience.
When tax returns are completed for taxpayers by a professional, many of them elect to take out a Refund Anticipation Loan with their preparer instead of waiting for the refund check from the Internal Revenue Service. RAL fees accrued by consumers were $960 million in 2005, stated the National Consumer Law Center and Consumer Federation of America in a recent study.
“If they wait three or four days or a week longer, they will get all the money back without having to go through that,” said Donald Hull, president of Hull Company Accountants. “It?s just absolutely absurd.”
Accounting agencies and chain tax preparing firms are teaming up with banks to fund these loans. The effective annualized interest rate for a RAL based on a 10 day period (the average amount of time it takes to get a refund), can range from about 40 percent for a $10,000 loan to between 85 and 170 percent for a $2,500 loan, the NCLC/CFA study revealed.
In Maryland, this falls close to predatory lending, with Lectric Law Library defining the state interest rates at around a legal rate of 6 percent and a general usury limit at 24 percent.
“It?s the same interest rates, just different people,” said Al Giovetti, a certified public accountant, and state director of the Maryland Society of Accountants. “Instead of guys in chalk stripe suits breaking peoples legs, they are doing it through the bank.”
While interest rates on RALs have dropped in many areas, new types of loans are being introduced, pay-stub RALs and holiday RALs. These types of loans give out estimated amounts of returns even further in advance based off of paychecks before many employers send W-2?s out.
In the end, it comes down to wait a little now, or pay a lot later, Giovetti said. “Why can?t they wait seven days, why can?t they wait 10 days, why can?t they wait two weeks?”
