Tax season!  Consumers this time of year, especially low income taxpayers, look forward to tax season because they are expecting a large refund.  Many go to a local tax preparer, get their taxes done, have their return electronically filed and walk out in less than an hour with their 'tax refund' in the form of a check.

Sounds like a pretty good deal so far except they didn’t get a refund from Uncle Sam, they got a ‘Refund Anticipation Loan’ from a lender domiciled in a state such as South Dakota or Delaware charging an interest rate that would make a loan shark blush.

According to a study conducted by New York Senator Charles Schumer’s office (see link below), found that “almost 300,000 upstate New Yorkers are losing over $30 million to instant tax refund scams that charge up to 700% implicit interest rates.  The average taxpayer spent $114.00in hidden loans and usurious interest to get a refund only 10 days earlier than it would have been delivered otherwise.  Tax preparation companies prey on taxpayers, often low income, with ‘Refund Anticipation Loans’, (RAL) by offering tax refunds immediately.  However, the loans may include many hidden fees that may amount to high interest short term loans.”

“The bottom line is, paying your own money to borrow your own money is a terrible idea,” said Schumer. “New Yorkers, and people all over the country, are getting ripped off by these predatory lenders, and its time to stop them dead in their tracks. The Feds haven’t done enough to expose these wolves in sheep’s clothing; we have got to do more to expose them and stop them.”

Additionally, Schumer plans to introduce a bill that will require RAL facilitators to disclose: that taxpayers have the right to file an electronic tax return without applying for a RAL; all fees and interest charges associated with the loan; the expected time within which tax refunds are typically paid based on different filing and whether the refund anticipation loan agreement includes a debt collection offset arrangement. Schumer’s bill also permits the Treasury Secretary to impose penalties on RAL facilitators who fail to meet the registration or disclosure requirements.

“RALs are bilking New York taxpayers out of millions and without federal regulation, these usurious lenders will continue to figure out ways to cheat the system,” Schumer said.

Here is an example of one company's fee schedule:

Refund Amt.	Finance Chg.	Account Setup fee	Application fee	APR	Total
500	$7.00	$28.00	$49.00	737%	$84.00
1000	$17.00	$28.00	$49.00	378%	$94.00
2000	$47.00	$28.00	$49.00	241%	$124.00
4000	$77.00	$28.00	$49.00	146%	$154.00

If anyone has already entered into one of these arrangements, please let us know.  The Financial Learning Network supports Senator Schumer's efforts to eradicate these predators.