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Are Rapid Refund Loans Another Form of Predatory Lending in Our Community? (2646 hits)

Each and every year, millions of Americans willingly give the government interest free loans when they over pay their taxes directly from their pay checks. The government takes that money, invests in the global marketplace and makes a ton of profit with that money. The income tax refund is basically returning the taxpayers’ money that was overpaid, without any interest. In other words, thank you very much for letting Uncle Sam use your money. Now you can have back exactly what you handed over to the government out of your paycheck every week. See you next year!
As the Income Tax preparation season is gearing up to a frenzy as more and more employees receive their W2 Forms from their employers, it is time to discuss Rapid Refund/Anticipation Loans. Why would anyone want to pay for a loan to borrow their own money with interest? Are people being purposely mislead to believe that they are getting their actual income tax refund faster! Or do they believe all the advertisements of enticement for getting their money refunded in as little as 24 hours, 48 hours or 1 week?
If this is such a great deal, then why did the Office of the Controller of Currency (which is an independent bureau of the U.S. Treasury Department), order HSBC Bank to terminate their agreement with H&R Block for the purpose of Refund Anticipation Loan products in late December 2010? Ouch!
According to the Internal Revenue Service, electronic filing (or e-filing) refunds are sent out or deposited within 3-10 days! In many cases, the time difference between getting a refund anticipation loan and the actual refund is just a few days. Therefore taxpayers who file their returns electronically and use direct deposit will get their refunds within about 10-14 days. Direct deposit can also be used with prepaid cards for those who don't have bank accounts.
Unfortunately most people don’t know that a Refund Anticipation Loan is not their actual income tax refund. It is in fact a loan made by a third party financial institution that is basically guaranteed by their estimated income tax refund. If you waited all year to get your income tax refund, why can’t you wait a few more days to get ALL of your hard-earned money for your family?
The Center for Responsible Lending not only warns consumers about rapid refund anticipation loans, they also have video and numerous resources for assistance to make wiser decisions concerning their money. "Tax refund loans are short-term loans secured by a borrower's expected tax return. The typical interest rate on a tax refund loan can range from 50% to over 500% (depending how long it takes the IRS to process the tax forms)." "While tax refund loans are advertised as a quicker way for taxpayers to receive their expected tax refund, in most cases these loans only speed up the process for a few days or less."
So in reality Refund Anticipation Loans fall into the same category of predatory loans as the high interest rates charged at pay-day-advance companies another big financial trap in almost every African-American community. These short-term, high interest refund loans are offered mostly to low- and moderate-income taxpayers who can least afford them. Sounds like the old neighborhood loan shark from back in the day, the only difference is they won’t come and threaten bodily harm to you or your family. They just convince you to borrow you own money with high interest and put your family deeper into debt (possibly add another ding on your credit score to make it even harder to get a real loan later on down the road.)
A Treasury Department study found that fees charged in association with these loans -- including tax preparation, setup fees and fees for e-filing returns -- range from 5% to 25% of the refund amounts, with the higher amounts applied to the smallest refunds. Research from the Consumer Federation of America and the National Consumer Law Project that translates those costs into annual interest rates found they can be as high as 72% on an average refund loan of $3,300.
If you are not sure on how to prepare your own income tax return, or can not afford to pay someone else to do prepare your tax forms, the Internal Revenue Service (IRS) offers programs that provide free tax help to low- to moderate-income people and the elderly. By preparing your taxes at one of their sites you save yourself the hassle of any unexpected administrative fees and keep more of your hard-earned money. Most of these locations stay open right up to the filing deadline. Call 1-800-829-1040 or visit the website http://www.irs.gov to locate the nearest site and make an appointment to get your taxes prepared in a manner that will help you keep more of your hard earned income in your pocket.
Posted By: Darlene Robinson
Wednesday, February 2nd 2011 at 3:28PM
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They are. There is no need to pay the fees and interest in what is essentially a very high interest loan with your return as collateral. These shysters prey on the poor simply because the people can't wait a few days longer or think they can't prepare the return themselves.

If you go to the IRS site, there are on line tax return preparers THEY recommend where you can prepare you return and have it safely direct deposited into your checking account, or a debit card, in most cases FOR FREE or a small fee, usually no more than $10 dollars. The site walks you through the steps. All you need is your W2 forms and the patience to sit down for 1/2 hour. Typically returns are processed within a few days.

It makes no sense to give these shysters hundreds in fees when it can be done, for free!


Wednesday, February 2nd 2011 at 4:21PM
Thank you Clark for the comment! We are so wrapped up in convenience that we are giving away millions of dollars a year on these types of loans. This has got to stop.
Wednesday, February 2nd 2011 at 4:25PM
Darlene Robinson
people will find a way to get your money thats why we need to be informed and pass this information out to the people ! thank you CLARK AND DARLENE !!
Wednesday, February 2nd 2011 at 5:03PM
DAVID JOHNSON
Thanks David. I want to know when are we going to wake up and realize that we are target by every major corporation (financial and retail) because we are known as consumers (or spenders)? If we learned how money really could work for our advantage and use our $900 billion dollar collective income to support our own businesses we would be thriving....not just trying to survive pay-check-to-pay-check.
Wednesday, February 2nd 2011 at 7:10PM
Darlene Robinson
Darlene this is Good Stuff!
I try to tell my co-workers all the time the rip off fees they pay for going to those rapid refunding. It is too much, but they insist they just can't wait a few extra days. I want all my refund check. I don't want to share it with money lending goblins! So I have learned it's patience and pay in waiting. If you want extra money, find that it's worth it to wait a few more days.

GOOD STUFF!!
Wednesday, February 2nd 2011 at 7:38PM
MIISRAEL Bride
one more time the IRS will do it for free and you can evenhave it deposited to a Walmart card if you don't have a checking account!!! In just a few more days and save you possibly thousands of dollars in fees for sure some hundreds...
Wednesday, February 2nd 2011 at 10:29PM
Thanks for the info sis!
Thursday, February 3rd 2011 at 11:39AM
Siebra Muhammad
Thanks for all the positive feedbackand support on this one, MIISRAEL, Mozell, Irma & Siebra! I feel that if I helped just one family from giving their hard earned money to these legal loan sharks I have made a huge accomplishment. Of course my goal is to inform and empower as many of our people as possible with resources to help brothers and sisters in our community to improve their economic situation.
Thursday, February 3rd 2011 at 12:58PM
Darlene Robinson
We can look closer at the word FREE...the air we breath is "free" but it can cost you much hospital bills if not your life. (smile)
Thursday, April 10th 2014 at 6:47PM
...or, here maybe a greater warnign sign for 'free'...no one is in business to loose money...so Darlene please keep reminding us of this and you Miisrael keep trying to get your co-workers to look out for themselves (smile)

as fo rme, I just remember a quote from years ago, "You can not cheat an honest man", but you can cheat someone looking for something for nothing is what this means. (smile)
Thursday, April 10th 2014 at 6:47PM
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