Bloomberg’s Jason Breslow reports that Americans are eager to be bamboozled and duped by the lure of tax refund loans. On the side of sanity, only a small amount of research and the sense of a rabbit will reveal that they are exceedingly expensive. It’s better to wait until your automatic refund and not buy into tax preparer propaganda that “millions” of wage earners who earn enough to be taxed don’t have checking accounts.

Yet the troubling trend continues. More Americans applied for tax refund loans in 2007, reversing two years of declines, according to the Consumer Federation of America and National Consumer Law Center. Many are using it to help them pay their bills, a mistake that could easily be rectified if they knew about short-term cash advance loans.

Desperation

“You probably have increased demand because more people are struggling with debt,” said Ira Rheingold of the National Association of Consumer Advocates. “When people are desperate for cash, they’re desperate for cash.”

Tax refund loans are secured loans tied to an expected tax refund. Tax preparers and other lending outlets typically use a taxpayer’s pay stub or car title as collateral. Almost nine million Americans (one in 15 taxpayers) paid around $901 million during the 2007 tax filing year for refund loans. That’s in fees alone, and it’s a staggering amount.

Why? Why?

Chi Chi Wu, a staff attorney at the National Consumer Law Center, stresses how unnecessary tax refund loans are. Yes, they deliver money in one or two, but with a little bit of planning, perhaps budget problems can be avoided. E-filing yourself ensures a full refund with no fees or deductions like those associated with refund loans, and it can go directly into your bank account in less than 15 days.

If 15 days are too long to wait, consider cash advance loans. With a bank account and documentation of steady employment, you can typically get up to $1,500 same day if you qualify. Depending upon the lender, the service fee ranges from $15 to $25 per $100 loans, which amounts to 15 to 25 percent paid in fees. That’s it. It’s easy, and studies have shown that people who use these loans are in no way on the road to bankruptcy because of them.

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We could all use a little bit more money these days. The fact that America is in an economic depression has done nothing but accelerate this need. With tax time upon us, many people are dreaming about what they’ll do with their tax refund, if they’re owed one. Unfortunately, some want their refund even faster than direct deposit can deliver. They go after expensive tax refund loans.

David Ellison of the Houston Chronicle reports that these tax refund loans, also known as refund anticipation loans (RAL), are too much to pay. Since electronic filing with the IRS and direct deposit can have the money in your bank account within 8-15 days, why do people find it necessary to resort to RALs?

Not because RALs are cheap, that’s for sure

Depending upon who does your taxes, taking out an RAL could cost you anywhere from 50 to 500 in APR. According to Ellison, since the bulk of people who take RALs are of low- to moderate-income, the steep fees become even more problematic.

“We like to see either that they are banned or the fees reduced,” said Chi Chi Wu, staff attorney with the National Consumer Law Center. “Really, banning them will probably be safer.”

Banning RALs is seen as a tall order, particularly since the IRS doesn’t seem to want to get involved. They say it is “a financial arrangement between a taxpayer, the tax preparer and the financial institution.” A 36 percent APR cap is a more viable option proposed by many.

There is a better option

Tax preparers like Jackson Hewitt and H&R Block say they make customers aware of all of their options. Their defense of RALs is that “millions” of people do not have personal bank accounts, so they opt for the money upfront since they’d have to wait weeks for it to come in the mail otherwise.

However, some are honest about the product. Nancy Mays, an H&R Block spokeswoman, said that a tax refund loan isn’t the best option for customers. The 20 percent (of “millions”… do I smell number fudging?) of H&R Block customers who use RALs do so because they have an immediate bill that needs to be paid. But here’s a news flash. There is a cheaper option for short-term personal loans. Consumers shouldn’t jump at the first offer out there… there are better options.

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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.

Former President George W. Bush

You may need payday loans after reading this.

Julia Sullivan of National Spending Journal has some bad news for you. If you were lucky enough to receive an economic stimulus check in 2008, that amount will be deducted from any refund you’re due to receive in 2009. Think of it as a Three Stooges-style “nyuk nyuk,” complete with a belt to the chops.

That’s right, you weren’t being given free money like you thought. That was an advance on this year’s tax refund. Doesn’t this news come at a great time for Americans who are wondering if they’re going to have a job tomorrow? Gosh, I’m tickled.

The government takes your money and gives it to bad banks

Remember how good that $600 dollar check felt? American workers were having a tough time then. Now, things are much worse. If you received more than $600 due to a family-sized refund, expect a family-sized reduction this time around. This could very well be part of the economic stimulus incompetent or unrepentantly greedy banks receive under President Obama’s watch. Let’s hope he changes his mind about capping payday loans. They’re much cheaper than tax refund loans.

Here’s Sullivan’s blow-by-blow of what has happened. Apparently, the stimulus was a sign of a change to the 2008 tax code (that’s this season’s taxes). It was an elimination of the 10 percent tax on the first $6,000 in income (which is where the $600 figure for the stimulus checks came from). The  hope was that consumers would spend the money and stimulate the economy.

However, results were less than satisfying. Consumer spending is down, while saving has increased. But have we saved enough for a deeper winter? Guess we’ll all find out for ourselves. Until then, remember that payday loans are an option if you need a short-term bridge over surprise expenses. If you can’t remember how much “stimulus” you received in 2008, check with the IRS here. For more on the “stimulus” program, click here. Plus, check out the video below. Some are trying to turn this stimulus fear into a scam. If you need assistance with tax trouble click tax resolution/settlement.

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In honor of today’s inauguration of President Barack Obama, your payday loan source would like to review some of the high points of Mr. Obama’s upcoming economic plan. Some of the proposals you’ll see here are currently being addressed by the incoming President, while others have yet to be realized. As newsman Tom Brokaw reminded the nation and the world before Obama appeared before the expectant National Mall inauguration crowd, “There are no guarantees.” America’s economy is in need of significant repair, and President Obama will do all that he can to move the country in the right direction. However, significant reforms will take time.

Part I: Stagnant Wages and the Wrong Tax Cuts

Wages for American workers have not kept pace with the skyrocketing cost of living. In-state college education costs have grown by a staggering 35 percent over the past few years. Health care costs have also flown ahead of wage earnings, outgrowing earnings by four times over the past six years. And personal savings? Some might ask, “What’s that?” We are saving at a rate that is at its lowest since America’s Great Depression. Savings should come first, before leisure, before faxless payday loans and most certainly in a way that assures you are free of predatory fees (which most banks and credit unions cannot guarantee). The following chart appeared in a recent New York Times article, and it paints a picture that is indeed sobering:

Tax cuts for the rich instead of the middle class

While some economists argue this, most agree that tax cuts should benefit those who need the relief. Taxation should apply most logically to those in the highest income brackets, in order to achieve economic balance and give citizens real opportunities to succeed. However, tax cuts under former President George W. Bush benefited not those who needed relief, but those who earned over $1 million dollars per year. Bush’s largest tax cut was in fact 160 times greater than whatever the middle class received. The hard-working middle class bearing the brunt of taxes and having their right to payday loans being taken from them are both exceedingly unfair.

Truly, the numbers of the middle class are much larger than those in the upper income brackets, yet the tiniest percentage actually holds an overwhelming percentage of the world’s wealth. It is no different in America, which made the G.W. Bush tax cuts all the more puzzling. A study at the time found that “the effective tax rate for the top 1 percent of taxpayers dropped from 33 percent in 2001 to 26.7 percent this year, a decline of 19 percent. The middle 20 percent of taxpayers saw a decline of only four percent.”

The laundry list against the cuts, continued:

• The top 20 percent of incomes (averaging $182,700 a year) saw their federal taxes decline from 65.3 percent in 2001 to 63.5 percent
• Middle-class incomes bore a greater tax burden; those averaging $75,600 jumped from 18.5 percent in 2001 to 19.5 percent the following year

Phil Singer, spokesman for former Democratic Presidential candidate John Kerry, said at the time that

George W. Bush keeps trying to mislead Americans into thinking we’re turning the corner, but truth is that he is turning his back on middle-class families. The Bush policies are exacerbating the squeeze that working families have been feeling for the last four years.

How does President Obama plan to fix this?

It will be rather difficult to spur employers to increase salaries significantly at this stage in America’s economic recovery (which is part of why payday loans have come to fill a necessary role), so the most logical courses are strategic (not sweeping) tax relief and stimulus packages (the latter of which is already underway). According to the Obama/Biden “Plan for America” Web site, they will achieve these economic ends in this way:

• A “windfall profits tax” will provide a $1,000 energy rebate, because the rising cost of fuels – for our homes, vehicles and commerce engines – has been a major problem. President Obama will increase taxes on oil company profits to give American families this rebate
• A further economic jump start will include a $25 billion “State Growth Fund” that will fill the gap and prevent there from being cuts to health, education, housing and heating assistance, or unfortunate increases in property tax, tolls or fees. Infrastructure, school repair and protecting jobs are central to this growth fund

• 150 million workers, via the “Making Work Pay” tax credit, will receive up to $500 per person, or $1,000 per working family. Obama estimates this will eliminate income taxes for 10 million Americans
• Seniors making under $50,000 will no longer have to pay income tax. President Obama claims this will affect seven million seniors in America and save them an average of $1,400 per year
• In order to simplify tax filings, Obama will require the IRS to produce pre-filled tax forms based upon bank and employer information. By doing so, all consumers will have to do is verify and sign the forms, then return them. Experts estimate this will save up to 200 million total hours of work and up to $2 billion in tax preparer fees. Moreover, it will save consumers from investing in ridiculously expensive tax return loans

President Obama has his work cut out for him when it comes to righting the ship of the United States economy. Your payday loan source will be keeping a close, hopeful eye on how the President deals with these issues, with a particular eye for preserving the financial freedom and well-being of the consumer. When you choose a payday loan, you exercise your right to choose the best possible source for short-term emergency cash. It’s your choice. For more on President Obama’s economic plan for the American consumer, click here.

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But let’s think about it. Since it’s time to file your income taxes, you may be thinking about the size of the refund you are entitled to. If you experience a financial setback at this time, it’s only natural to be interested in the possibility of receiving your tax refund money early, right?

Be careful – tax refund loans aren’t as good as they seem

Tax refund loans, also called instant refund loans or refund anticipation loans, seem like a great thing if you need cash right now. But the costs are steep. Origination fees range from $29.95 to $89.95, and electronic filing fees of $40 are also common. All you typically need to apply is a year-end pay stub, proof of employment and identification. Sure, you can receive all or a portion of your tax refund (up to about $5,000) within a couple of days, but why would you want to when payday loans are available without origination or “filing” fees?

According to About.com, “the fees for the average refund of just under $2,000 extrapolate to an annual percentage rate of 222.5 percent. Yet 12 million taxpayers paid over $900 million dollars in fees last year just to get their refunds a little faster.”

People think they need tax refund loans

Have they heard of no fax payday loans? They a much more attractive option. Yet the new trend persists.

In Atlanta Journal-Constitution coverage of this outrageous phenomenon, we see that people are indeed using tax refund loans to cover cash emergencies. Graphic artist Pat Cameron had medical bills to cover, so he went to Jackson Hewitt for a tax refund loan.

“I know they charge so much, but this will get me through the first of the month,” he said.

The IRS doesn’t endorse such programs, but neither do they openly speak out against them. They encourage taxpayers to use free electronic filing services, which directly deposit any refund monies due into a consumer’s checking or savings account in about 10 business days. For those who can show hardship, there are even special programs available. But if even that is not fast enough, faxless payday loans are a much better option than tax refund loans.

Recession drives people to desperate ends

That’s exactly the category tax refund loans fall under: desperation.

Overdue bills, foreclosures, rent and many other ominous signs are threatening the financial well-being of consumers. Numerous big-box tax preparation companies like H & R Block, Jackson Hewitt and others are swooping in with these high fee, high interest loans.

Suzanne Boas, president of the Consumer Credit Counseling Service of Greater Atlanta, is quoted on the matter in the Journal-Constitution

Generally, we don’t think it’s a good idea to pay such an exorbitant rate to get what would be due to you anyway in a couple of weeks.

Consumers, payday loans are a better option!

If you are due a tax refund, you will receive it in a couple of weeks if you are using free electronic filing with direct deposit. Don’t go the route of tax refund loans unless paying exorbitant fees upon fees, plus high interest are OK with you. Logically, it’s not the best choice. If you need quick cash for an emergency and can’t wait until you have your tax refund safely in your bank account, try payday loans. They’re cheaper, fast and quite discreet.

If you need assistance with tax trouble click tax resolution/settlement.