Untitled Document
By now you’ve seen the TV commercials or had a
flier stuck in your screen door that describes how quickly a particular
company can do your taxes and get you your refund. And, chances are,
you’ve seen retailers’ ads enticing consumers to spend those
rebates just as quickly on everything from toys to Toyotas. With the 2008 income-tax season under way, Illinois
consumer advocates and government officials are cautioning people to slow
down when it comes to signing up for those speedy refund-anticipation
loans, also known as RALs — short-term loans that commercial
tax-preparation firms such as Kansas City, Mo.-based H&R Block and
Parsippany, N.J.-based Jackson Hewitt can issue to customers who are
expecting income-tax refunds. Here’s how RALs work: The tax-prep service,
which typically has a separate lending arrangement with a banking
institution, calculates a borrower’s expected refund and advances the
customer the cash. If the refund is less than originally anticipated,
however, the customer must pay the difference and may also incur exorbitant
administrative and filing fees or hidden interest charges. The practice has come under increasing scrutiny in
recent years, and consumer groups say that refund-anticipation loans are
just another way of preying on people struggling to make ends meet.
“Predatory lending in Illinois is a thriving business right
now,” says Lynda DeLaforgue, co-director of Citizen Action/Illinois,
a Chicago-based consumer-advocacy organization.
Critics allege that companies mislead the poor,
minorities, and military families who may be desperate for an immediate
payout. According to H&R Block’s 2007 annual report, the company
continues to fight a number of civil lawsuits related to its RAL business.
In Springfield, most storefront tax-preparation businesses are located on
the city’s east side and north end. Cash-strapped families needing to fix the family car
or buy a new bunk bed for a pair of growing boys might view RALs as a
godsend. But often the convenience comes at a heavier price than people
realize. Providers charge between $30 and $120 in fees for the service, and
annual interest rates are around 40 percent. Combined, the fees on RALs can
eat up as much $200 of the average taxpayer’s refund of $2,400,
according to the IRS.
In January, Gov. Rod Blagojevich initiated a campaign
aimed at educating the public about the risks associated with RALs, saying
that the loans “take advantage of those who need their whole refund
the most.” Blagojevich also announced free income-tax counseling for
low-income families offered through the Department of Human Services. In
addition, the Illinois Department of Revenue and the Illinois Department of
Finance and Professional Regulation have launched a Web site dedicated to
providing citizens with information about RALs, as well as other, cheaper
methods of filing income-tax returns.
State Sen. Jeffrey Schoenberg, D-Evanston, and
Illinois Attorney General Lisa Madigan proposed legislation in 2005 that
would have banned companies from offering RALs, but the bill died in
committee. Susan Hofer, a spokeswoman for the IDFPR, the agency
that issues state professional licenses in such areas as cosmetology and
accounting, says that states can do little because the federal government
oversees the tax-preparation industry. “That’s something we’ve been
frustrated with,” Hofer says. Hofer adds that IDFPR is considering the possibility
of requiring state licenses for individual tax preparers, but she says that
doing so may be difficult, given the temporary and seasonal nature of the
high-turnover positions. Until there is better regulation of the business,
state officials are warning consumers to recognize that RALs are not just
advances on their expected tax refund, but can be expensive loans. “Consumers are sometimes unaware that
tax-refund loans come with high fees and are actually high-cost short-term
loans,” says Robyn Ziegler, a spokesperson for Madigan. “We
urge consumers to consider filing their taxes electronically with a direct
deposit to obtain their refunds quickly.”
Contact R.L. Nave at rnave@illinoistimes.com.
This article appears in Feb 7-13, 2008.
