More anti-tax refund loan evidence; use payday loans
When you need a little bit of extra cash, there are few options as fast, convenient and discreet as payday loans. Yet during tax time, the eyes of some consumers may be captured by the tax refund loan ads of big-box tax preparation services like H & R Block and others. However, tax refund loans do consumers an expensive disservice. This is the focus of a recent article by personal finance author Thursday Bram. She writes for the finance blog Investopedia that tax refund loans are products that should be handled with extreme caution – if they must be handled at all.
Payday loans are cheaper and much more flexible. Why waste money? Pay a flat fee of $15 to $30 per $100 loaned and be done with it. They are not difficult to pay on time, and numerous studies show that as high as 90 percent of customers do pay off their cash advance on time.
Tax refund loan numbers not in your favor
Bram shows that according to National Consumer Law Center research, 12 million taxpayers took tax refund loans in 2004, which is a staggering figure. Imagine how much money they could have saved if they’d explored their options more fully. Sure, it seems easy. The tax preparer offers an advance payout that’s available immediately. How convenient; no need to wait for the IRS to get around to your return and either mail or wire the funds. Once fees for the service are factored in, however, the tax preparer takes a large part of the person’s tax refund.
Bram suggests some alternatives, such as adjusting your W-4 with your employer to reduce withholdings. Cash Advance Mojo suggests something along the lines of an online payday loan if waiting for adjustments isn’t an option.
Of course tax refund loans are a good deal for the preparers. Otherwise, they would not be pushing them to the public this time of year. For one thing, since the loan cannot be more than what the consumer would receive in their refund, the odds that the tax refund loan will be repaid on time is extremely high. If the preparer files all paperwork properly (which big-box tax preparation companies tend to guarantee), how can they lose?
The IRS has tried to crack back tax refund loans
Have I got a tax refund loan to sell you...
They have tried, but nothing has stuck. But the law hasn’t ignored tax refund loans by any means. In 2002, H&R Block settled with the New York City Department of Consumer Affairs over these predatory loans. In 2006, the company went to court again, this time with the State of California.
Bram brings up another troubling ethical issue with these loans: tax preparers can “inflate expected tax returns to improve their profits. While this procedure is unethical, the gamble can sometimes be worthwhile. These tax preparers essentially bet that the IRS will not catch the changes made to their clients’ tax returns and charge higher fees to make a profit.”
Tax refund loans – steal from you, lie to the IRS
Something new is coming. Bram writes that the IRS will roll out the Customer Account Data Engine (CADE) by 2012. Among other things, this can process a consumer’s return within 24 hours and issue refunds within three days. This should effectively eliminate the need for tax refund loans. Thus, if a consumer is in a tough place financially around tax time, they won’t have to wait for any refund money. However, at other times of the year, the need for emergency cash beyond what the budget covers can be met with payday loans.
If you need assistance with tax trouble click tax resolution/settlement.
Whoa – I did not know that about H&R Block. I got a tax refund loan through them last year, but I wouldn’t have if I knew this then. I would’ve gotten myself a short term loan instead.
Hello “pot”, I must be the “kettle”…. what is it with this site? Why does it continually pick on refund loans… Lets forget that Ms.Bram recommends to pay $15 to $30 per $100 loanedfor a payday loan and RALs, on average, are $3.50 per $100 loaned. Lets forget 90% of payday loans are paid off “on time”… even if “on time” may be defined as satisfying last weeks loan with this week’s or that the other 10% are sucked into a cylce they can’t get out of (until taxtime when they use their RAL to finally pay off their payday loan). And please, you’re killing me with your NCLC consumer groups quotes… lets get to the heart of the matter on this latest piece to discredit RALs (why?). Bram has the audacity to bring up “ethics”. Lets remind everyone why there are no national banks doing payday lending – because the federal regulator, the OCC, said they had a predatory nature to them (can you say roll over each payday? No rollover option w/ a RAL) and has never ruled the same on RALs… and that the same consumer groups Bram “quotes” decided to pick on RALs “after” they succesfully got regulators to kick national banks out of payday lending! Ethics? What is this this small loan envy? HELLO!!! McFlyyyyyy…. I hope Ms. Bram gives better advise on Invetopedia. Joe the RAL guy…
Hello “joe the RAL guy”… your pet RAL project will be a moot point in a few years anyway, once the IRS puts CADE into effect… so Biff, guess who won’t be able to separate misinformed taxpayers from their money with unnecessary fees? You, Biff, that’s who… anyone who masquerades RAL as a consumer service
Yo! CA Mojo – The IRS CADE project has had its challenges now for about 5+ years – it’s latest is funding for the rest of the IRS modernization project that make CADE viable. The completion of CADE is a ways out – but your are right (believe it or not). When completed CADE will lessen the need for RALs… and thats a good thing: efficient government. Until then, RALs represent one of the few low cost alternative low-to moderate-income people who are outside of mainstream credit option have. There is no masquerade Mo. The RAL is one of the most highly disclosed consumer loans in the marketplace. RAL consumers know what they are asking for and that its a loan evidenced by high repeat rate and high customer satisfaction rate (90+%). Don’t fall for the consumer group misinformation, half-truths and twisted facts Mo… else you’ll need to believe what they say about YOU too. Don’t fall for the garbage that lower income people aren’t smart enough to know what they are getting (as if so-called rich people do – read the papers). Its an insult to many people who live hand to mouth everyday of their lives for consumer groups and legislators who ate a steak dinner last night to say these consumers don’t know how to handle their affairs. They are plenty savvy Mo. I’m not against payday lending as a choice for consumers. Thats what America is about Mo – freedom/choice. But I am against idiots who portray falsely that, in this case, payday loans are cheaper than RALs – they aren’t. So don’t say it – then, no problem. And for a so-called “personal finance author” (no doubt a hired gun in this case) to say so is totally irresponsible… There are two products in the tax time bank product world (RALs and RACs)that 20 million people take out each year…. they aren’t dummies – they are good people in need. Know the facts Mo. Turn your guns on consumer groups who spread their bacteria around as if it were gold – fool’s gold. When RALs and even payday lending are legislated out of business, where will these people go. Do you think “the Change you can count on” will pay thier high heating bills, pay the overdue rent, their medicine, fix their broken cars, tell them not to worry about bouncing checks…. Consumer groups tell legislators that people should not take these products out and that they should save money in a bank acount to be financially independent… Right! Then those same people just in cab or “the car” and go the Sam and Harry’s…