For those who pay their taxes (and if you don’t, move to Switzerland right now)–getting a refund is actually one of the better scenarios in the complicated procedure of getting back what a person with a lower income didn’t earn. However, a procedure in this country called a Tax Refund Anticipation Loan (RAL for short) was used by low-income individuals who panicked that they wouldn’t get their refunds until November. The loan procedure is still happening now (however in a limited way recently) but with reservations from consumer watchdog groups, banks and Attorneys General who think the process is too risky and giving the process of loans a bad name when the act of borrowing is already out of control in America. So what is it that those who want to keep America’s financial picture in more pristine condition find so offensive about Refund Anticipation Loans?
Well, for some–it’s more about the people themselves who attempt to get them rather than the process itself. However unfair that automatically equates to a class system in this country, a lot of low to middle-class Americans who didn’t get one iota of help from the Bush Administration tax breaks live by the quasi-J.G. Wentworth credo: “It’s my money…I’m going to get it when I need it!” And a lot of loan sharks are out there still to give Refund Anticipation Loans to anyone who desperately needs the likely three-figure sum they’ll get as a rebate at the end of every year.
The biggest challenge with getting one of these loans is with the high-end interest rates that a loan company varies widely–depending on how shady they may be. The argument is that some of the people getting the loans aren’t really educated on how high the APR rates are and risk having to pay back more than they can afford if the IRS has a screw-up (yes, the chances for screw-ups there still exist) and the person doesn’t get their refund. The fees associated with a RAL are nothing unusual either–and you’d think many of the populace (reportedly 12 million Americans attempted these loans around the middle of this decade) would know that fees are a way of life in everything. In this case, the fees exceed the typical loan situation.
Typically, the first fee in the cycle would be what the fee they receive to get their taxes processed–which is (unless you find a generous CPA)–around $120 now. Then the smaller fee would be the application fee to get the RAL prepared by the CPA. After that, it’s off to the lender (whoever that might be) who will charge a person up to as much as $100 in loan fees. Of course, you can do the simple math here why the person wanted to get the RAL in the first place if they happened to not have the money available to pay their tax preparation fees.
Preparing your taxes and acquiescing to the IRS can be a strange circular process for some people out there, huh?
What happened when the big tax preparers like H&R Block almost were put on the…um, chopping block for providing RAL’s?
disadvantaged people who are basically forced into getting a Refund Anticipation Loan. As with a lot of shady characters in America, though, they manage to stay within the confines of the law…while somehow still coming out ahead. Taking advantage of people with small incomes in this country (or around the world) should really be akin to crimes against humanity. But there unfortunately isn’t a way into the legal system to protect people when it’s part of a circular process the lower-income people can’t control.
The initial good news was that, with a lot of loan companies offering these loans at exorbitant fees that drove a final nail into the financial ruin of some people–supposedly trustworthy Jackson Hewitt and H&R Block started offering RAL’s to their clients. Well, you may see one of these tax preparation stores on as many street corners as Starbucks now–but it doesn’t mean they aren’t afraid to make as much as money as they can by straddling the line of how it works within the frame of legality. Knowing full well that approx. 15% of Americans fall under the Earned Income Tax Credit demographic–H&R Block realized that 15% is still a sizable chunk of America who would logically be attracted by a loan against their refunds in the inviting confines of a familiar tax preparation company. And so H&R went for the RAL market as a way to slaughter their competition.
What those people who went for H&R’s heavily-advertised RAL’s didn’t know was that they were going to be charged with fees that even exceeded some of the shadiest loan companies out there. That’s right, they basically took advantage of those uneducated on the realities of RAL and reportedly charged huge amounts in interest as well as other fees. Keep in mind that this was reportedly only in certain states and not necessarily happening in every H&R Block in the nation.
After several lawsuits filed against H&R Block (and dozens of others against loan companies) that were all thrown out by various judges who only adhere to the law and nothing else–an RAL became one of the biggest moral dilemmas in the financial world in relation to taxes and taking advantage of the working poor. Because H&R Block was doing it–then you know that Jackson Hewitt had to join in out of competitive purposes. It wasn’t too long ago when they offered RAL’s six months before tax season started so people could use their loan money by Christmas already. The fact that the people getting the loan weren’t even required to go back to the company to get their taxes prepared just made RAL’s too attractive to people.
So what’s become of RAL’s as of the time of this article? All of the mainstream tax preparation companies have ended up dropping the availability of them–but only because of recent legal issues reaching too-dangerous territory. All it would take is one judge to finally see the ethical light on what’s really behind RAL’s and make a lawsuit pending against H&R Block or Jackson Hewitt win–ultimately forcing them to pay back what they’ve taken in ridiculous fees from vulnerable people.
Many banks have dropped RAL’s, too, which means that true principles in class fairness may just have a chance to win out in this country. On the other hand, if low-income families can’t get a refund loan–then they may not be able to pay the tax preparation fees their CPA socked them with–let alone any tax money that they owe or regular household expenses.
Yes folks, welcome to the vicious circle again of the IRS and our tax system that may not provide fairness for anybody as long as it has to exist and not be refined even more than it already has…