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.

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).

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.

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.

More information about refund anticipation loans

Description
Title
Date
Organization
Resource ListCFA: Payday loans and RALs  2010 Consumer Federation of America
Article New Report: African Americans and EITC Recipients are Much More Likely to Take Out RALs January 22, 2010 The Woodstock Institute
Brochure
List of Free Tax Preparation Sites in New York City (PDF)
January 2008
NEDAP
Brochure
Your Tax Refund Money is Yours, Avoid Tax Refund Loans (PDF) (Also available in Spanish) California Reinvestment Coalition
Fact Sheet
Refund Anticipation Loans Fact Sheet California Reinvestment Coalition
Resource List
RALs Briefs and Factsheets The Center for Responsible Lending
Brochure
Don’t Pay Triple-digit Interest to Borrow Your Own Tax Refund (PDF)
 Consumers Union
Brochure
Don't Pay to Borrow Your Own Money: The Risks and Costs of Tax Refund Anticipation Loans (PDF)  The National Consumer Law Center
Resource List
Payday, Auto Title and Refund Anticipation Loans The Woodstock Institute
Article
Anti Refund Anticipation Loan Campaign2006
CRA-NC

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Studies, reports, and more data about refund anticipation loans

DescriptionTitle
Date
Organization
ReportRapid Rip-Offs: Tax Refund Anticipation Lending in New York City  2010 Neighborhood Economic Development Advocacy Project (NEDAP)
Report
Beginning of the End?: Major Changes to Quick Tax Refund Loans Industry (PDF) January 19, 2010  The National Consumer Law Center and the Consumer Federation of America
 Report "Magic" Money a Mere Illusion: Refund Anticipation Loans and the Earned Income Tax Credit in West Virginia July 2009 West Virginia Center on Budget and Policy
 Report

 Borrowed Time: Use of Refund Anticipation Loans Among EITC Filers in Native American Communities

 2009 Native Assets Research Center
Report
Tax Preparers Take a Bite Out of Refunds: Mystery shopper test exposes refund anticipation loan abuses in Durham and Philadelphia (PDF)
April 2008
The National Consumer Law Center
Report
Coming Down: Fewer Refund Anticipation Loans, Lower Prices from Some Providers, But Quickie Tax Refund Loans Still Burden the Working Poor (PDF)
March 2008
The National Consumer Law Center
Resource List
RALs Reports and Papers The Center for Responsible Lending
Resource List
RAL Reports, Analysis, Background Information, and Policy Platform The National Consumer Law Center
Resource List
Payday, Auto Title and Refund Anticipation Loans The Woodstock Institute
Report
The High Cost of Refund Anticipation Loans in North Carolina (PDF)
January 25, 2007
CRA-NC
Report
One Step Forward and One Step Back: Analysis of Efforts Against High Priced Refund Anticipation Loans (PDF)
January 2007
Consumer Federation of America
Report
Analysis of Tax Refund Anticipation Lending in NYC 2002 - 2005 (PDF)
January 2007
NEDAP
Report
Testimony of Jean Ann Fox: “Financial Services Issues: A Consumer’s Perspective” (PDF)
September 15, 2004
Consumers Union
Letter
Letter to Governor Arnold SchwarzeneggerSeptember 3, 2004
Consumers Union
Policy Analysis
How You Can Help Working Families: Recommendations to Address Costly Tax Preparation (PDF)
2004
Children's Defense Fund

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

Americans for Fairness in Lending (AFFIL) and Americans for Financial Reform (AFR) are partnering to reform the nation's lending industry and financial system to protect Americans' neighborhoods, homes and pocketbooks.

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