Refund Anticipation Loans

Refund Anticipation Loans (RALs) are loans arranged by tax preparation agencies like H&R Block, Jackson Hewitt and Liberty Tax Service.  They are also sometimes called "rapid refunds," "fast cash refunds" or "express money." 

You might take out a RAL when you have your taxes prepared.  If so, the preparer will collaborate with a bank that will issue you a loan within one or two days of filing your taxes, and then keep your refund when it comes from the IRS.  The amount of the loan is based on your anticipated refund, minus the fees charged by the tax preparer and bank.  These fees, when calculated as interest, can top a 1300% annual percentage rate!

According to the most recent data, 8.7 million RALs are issued each year – costing taxpayers $900 million dollars.

Taxpayers who file their taxes electronically and request direct deposit of their refunds usually receive their refunds within twelve days.  Taxpayers who take out RALs end up getting their cash only ten days earlier than they would if they waited to get their refund directly from the IRS, making RALs highly unnecessary.

• Facts and Stats

• Free Tax Prep for Qualifying Taxpayers

• Read More About RALs

• Sources for More Information

Refund Anticipation Loan Facts and Stats

• In 2007, Americans paid $900 million to get their own tax refunds about ten days early.

• About 8.7 million RALs were made in 2007 (almost1 in 15 taxpayers received one).

• RALs are targeted at low-income consumers, particularly those eligible for the Earned Income Tax Credit (EITC).  In 2006 RALs siphoned money from 5.7 million EITC-eligible families, draining them of a total of $627 million.  (Read this PDF by the Annie E. Casey Foundation to find out more about the EITC.)

• Sixty-three percent of RAL consumers were EITC recipients in 2006, although EITC recipients make up only 17% of taxpayers.

• The three largest RAL providers are H&R Block (which arranged 4 million RALs in 2006), Jackson Hewitt (1.3 million), and Liberty Tax Service (about 260,000).

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Free Tax Prep for Qualifying Taxpayers

Low and moderate income consumers can get their taxes prepared for free at Volunteer Income Tax Assistance (VITA) sites.  Generally, people making less than $42,000 per year are eligible.  These sites, sponsored by the IRS, won’t pressure customers to get RALs, and they don’t charge fees for tax preparation.  Consumers can locate their nearest VITA site by calling the IRS at 1-800-829-1040.

Senior citizens and military personnel can also get free tax preparation help.  For more information, visit the IRS website.

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More About Refund Anticipation Loans

Additional Problems:

• Deceptive and Confusing:  Consumers are sometimes given RALs without their knowledge – and consumers often don’t realize a RAL is a loan which must be repaid.  A "Mystery Shopper" investigation (PDF) showed that "even when testers were told that a RAL is a loan, many preparers did not give clear price information about RALs… Only one preparer informed the tester how to receive a fast, free refund by e-file and direct deposit.  A few testers were given RALs… by default."

• A Smaller than Anticipated Refund Can Cause Big Trouble:  If a consumer takes a RAL and his or her tax refund is denied, is smaller than anticipated, or is paid to other creditors (such as the IRS for past taxes or to an ex-spouse for child support), the consumer is still on the hook for the loan.  The consumer’s credit rating will be hurt and the bank can proceed with debt collection tactics to recover the money.

Fringe Operators:  "Fringe operators" also offer tax prep and RALs – including used car dealerships and payday lenders.  H&R Block has joined with these operators to provide the tax prep and RALs through its TaxOne subsidiary.

Same Day RALS:  If a RAL is made on the same day that the taxpayer’s return is prepared – usually, the taxpayer must return a day or two later to get his or her money –  lenders charge an additional $25 to $39 fee on top of regular RAL fees.  H&R Block made 1.5 million "Instant Money" RALs in 2004.

IRS Regulations:  In January 2008, the IRS asked for comments from the public on whether it should prohibit tax preparers from sharing tax return information with banks.  It’s the banks, not the preparers to actually make the loans, so this step is essential to the process.  Consumer groups support the IRS’s proposal, since it would effectively end the RAL business.  

The IRS was concerned that RALs give tax preparers an incentive to fraudulently inflate the tax refunds due, enabling themselves to earn higher RAL fees (the higher the amount of the refund, the greater  the fees charged for a RAL). The IRS was  also concerned that RALs exploit low-income consumers.  Although the period for public comments on this proposal ended  in April 2008, the IRS has made no move to implement it.

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More information about refund anticipation loans

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Studies, reports, and more data about refund anticipation loans

AFFIL is grateful to the National Consumer Law Center for their help with this page.
Last Update:  February 2010.