:The Flash Advancer

While accountants are reaching for aspirin, millions of
Americans are reaching for some fast cash this tax season.
Unfortunately, those who reach for fast cash in the form of a
“refund anticipation loan” are getting hit with interest rates
and fees that are out of this world.

The tempting ads are plastered in newspapers and on television
for “fast cash refunds”, “express refunds”, or “instant
refunds.” The ads offer to get your refund in a day or two, or
in some cases even instantly.

What is a “refund anticipation loan”? It’s a loan that borrows
against your anticipated tax refund from the IRS. Refund
anticipation loans, or RAL’s as they are known in the tax
industry, carry annual percentage rates (APR’s) of about 60% to
over 700%, a fact that many consumers either don’t realize or
simply overlook.

RAL’s are marketed to people who need money the most such as low
and moderate income workers. A report by the National Consumer
Law Center notes that “about 40% of the 12 million refund loan
customers in 2000, were families who received the Earned Income
Tax Credit, the largest federal poverty assistance program.” And
since the RAL’s often use the term “refund” in their ads, many
of those who take the bait don’t realize that they’re receiving
a loan and not their actual refund from the IRS.

The fees associated with RAL’s are expensive. For example, let’s
say the IRS owes you a refund of $2,000. In order to get a RAL
you pay the following: RAL loan fee = $75, Electronic filing fee
= $40, tax preparer’s fee = $100. Total fees associated with
your RAL = $215 which is more than 10 percent of your estimated
refund. The APR on your refund loan equals a whopping 142
percent!

Many low and moderate income workers are without bank accounts
and wind up paying an additional fee to set up a one-time-use
account so that their IRS refund can be direct deposited.

Before giving in to the temptations of refund anticipation
loans, ask yourself if you really need your money that quickly.
If you can wait just a bit longer for your refund you’ll line
your own pockets with extra cash rather than forking it over to
a RAL lender.

A great way to save money at tax time is to go to a Volunteer
Income Tax Assistance (VITA) site. VITA sites provide free tax
preparation to low and moderate income taxpayers and are
sponsored by the IRS. They can be found in libraries, community
centers and other locations during the tax season. To find a
VITA site call the IRS general help line at 1-800-TAX-1040 or
visit www.tax-coalition.org.