Internal Revenue Service to stop cooperating with RAL lenders

Monday, December 31st, 2012 By

Form 1040

E-file that 1040, and with direct deposit you may not need a Refund loan. Image from Wikimedia Commons.

The Internal Revenue Service has announced that it will no longer provide certain information to tax preparers issuing refund anticipation loans. More than once has the product been decried. Opponents have contended that they can be worse than payday loans. An RAL, or Refund Anticipation Loan, is a loan product that depends on the tax return of a borrower. A portion of the total is deducted, and the filer is given a check that day. The only hitch is that this short term loan is not that simple should the return not get accepted.

Even the IRS thinks refund loans are bad

Internal Revenue Service Commissioner Doug Schulman announced in a press release on Aug. 5 that the IRS would no longer provide a “debt indicator” figure to tax preparers for the purposes of administering a refund anticipation loan. He also stated that it no longer seemed prudent to do so. The Internal Revenue Service allows people with adjusted gross incomes (AGI) less than $57,000 to e-file for free and have their returns wired via direct deposit within 10 days.

Electronic filing has become the rule

More than 70 percent of all tax returns are filed electronically. According to Bloomberg, H&R Block reports its average RAL loan to be about $3,000, and the average fees are $62. The term is just less than two weeks, which is about the average term of a payday loan or small personal loan. An RAL with the preparation fee and interest carries a fee of $187 on average. H&R Block, one of the largest tax preparation services in America, lent more than 2 million of these loans last year. The change in policy will affect the 2011 tax season.

Expensive way to get some cash

Refund anticipation loans carry more risk than your average cash advance. If a tax return is accepted, the transaction is closed and a person has just accepted a little less than they would get for instant cash. If a return is not accepted, the principle plus fees and penalties must be paid, which is a hard dollar for people that are already hard up. The usual RAL borrower, according to the Washington Post, has an AGI of $35,000 or less.

Further Reading

Statement from the IRS


Washington Post

Previous Article

« Jeffrey Cox Twitter gaffe slays another career with social media

Jeffrey Cox was recently fired from his attorney job because of comments made on Twitter. Using social media can have real world consequences. Fired
Next Article

Ways to manage finances in 2010 »

Although there are financial changes coming to the market, consumers are still cautioned to manage finances on their own to avoid hardships. Consumers are still cautioned to manage finances on their own.

This post has one comment

  1. Paul says:

    Waiting for the IRS to give you money (it's your money by the way). is bad news. Budget yourself throughout the year and change your W-4 withholding to keep your money in your pocket!

Trackbacks / Pingbacks

    Leave a Reply

    Other recent posts by Sam Hoober

    For-profit colleges have highest rate of default on student loans

    A recent study by the Department of Education looked at student loan default rates. Students from private, for-profit schools defaulted most.

    Celebrity credit and debit cards should be avoided

    Celebrity endorsed prepaid debit cards seem great because it's a person from TV endorsing a product. Those cards aren't usually a good idea.
    Kim Kardashian

    B of A buys bad guaranteed loans back from Fannie and Freddie

    Bank of America has recently put aside some serious cash to compensate Freddie and Fannie for bad guaranteed loans B of A is responsible for.
    B of A