Tax Refund Loans: Too Expensive During a Depression

Tax refund loans: wrong product, wrong time

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. ... click here to read the rest of the article titled "Tax Refund Loans: Too Expensive During a Depression"