Arizona Consumers Council

Consumers looking to get their tax refund more quickly should reject quickie tax refund loans offered by many tax preparation services.  While it might be tempting to take such a loan as part of a package that includes free tax preparation services, in reality, such loans cost a lot but offer little.  In most cases, according to the IRS, consumers who e-file can get their refunds direct-deposited to their bank accounts within three weeks.

Refund anticipation loan costs vary, but usually run at least $35 to $130.  That’s a big chunk of change, especially when you realize that it’s the cost of borrowing your own money for a week or 10 days.   Tax preparers also offer Refund Anticipation Checks or RACs to their customers who do not have bank accounts.  Tax preparers who offer RACs open a temporary account into which the IRS deposits a refund.  The bank then issues a check, and closes the account.  Like RALs, RACs carry high fees but offer little benefit.

The Arizona Consumers Council recommends that consumers take these steps, instead of handing over a significant portion of their tax refunds:

• Wait for your refund! Waiting a just a few days can mean $50, $60 or even more in your own pocket.
• Have your taxes done for free! Low income taxpayers can take advantage of VITA (Volunteer Income Tax Assistance) or AARP programs.  Use this website to find a location near you for free tax preparation.
• Free File! Use the IRS’s Free File program, where the IRS has partnered with commercial tax preparation and online software companies to provide free federal tax preparation services and e-filing for most consumers.  Tax preparers are not allowed to sell refund anticipation loans through Free File.
• Don’t pay check cashing fees. Have your refund direct deposited.  Open a bank account if you don’t have one.  Or, select a debit card and have the IRS deposit your refund to it.  But be a careful consumer:  read the fine print and don’t pay outrageous fees.
• Watch what you sign. Tax preparers can share or sell your confidential information if they get your signature on a form that allows them to do so.  Read disclosures carefully, and don’t let your secrets be sold.

The Arizona Consumers Council joins CFA and NCLC in calling on state and federal regulators to carefully monitor tax preparers and banks who market these products.   Regulators should keep new banks from making such loans, monitor this lending closely, make sure that banks who offer these loans have adequate capital, and protect consumers by ensuring that staff who offer these products are properly trained and that disclosures to consumers are clear and easy to understand.