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Beware of refund loan cousins

Tax refund anticipation loans may be nearly dead, but watch out for similar products that provide your refund early -- and come with high fees.

By MSN Money Partner Jan 16, 2012 7:57PM

This post is by Kay Bell at cash based on expected federal tax refund amounts, known as a tax refund anticipation loan, or RAL, isn't quite the big business it used to be.


But since this is America, where ingenuity is rewarded, similar products have taken the place of these potentially costly refund loans.


First, a quick obituary for the strict refund loans. The efforts of consumer advocacy groups to educate people about the loans' high interest costs, along with the Internal Revenue Service decision to quit issuing information that made it easier to issue them, have led to a steady decline in the tax-related loans. Federal bank regulators also have tightened the screws on these products.


But the idea of getting a tax refund ASAP is still strong. And that's where good old American capitalism and creativity meet.


H&R Block, once a leading tax refund loan provider, announced last September that it would no longer offer tax refund anticipation loans. But the tax preparation giant is giving customers the option of receiving a refund anticipation check.


Block says the checks, aimed at filers who don't have bank accounts into which the IRS could directly deposit the refunds, meane taxpayers can get their money more quickly than they would waiting for Uncle Sam to mail a paper check.

That's true. And the unbanked taxpayer population is a challenge that the Treasury Department is still grappling to solve.


But Block and other companies offering similar filing and refund options also have associated fees. And if the taxpayer gets the tax refund put on a prepaid credit card, another option, there are more fees when the money is withdrawn at ATMs.


A few refund anticipation loans are hanging on for dear life.


Bank Talk, a blog that follows products offered to those without bank accounts, reports that JTH Holding Inc., which runs the Liberty Tax chain, is preparing to go public and its prospectus indicates that it has landed an unnamed nonbank partner to offer a product similar to refund anticipation loans.


The nonbank characterization is important since the underwriter of these new tax refund loans will not be subject to those aforementioned federal rules.


JTH Holding will have to bear more risk for any losses incurred by these so-called instant cash advances. You know what that means: more cost to the consumer. In fact, says Bank Talk, "JTH acknowledges that the new loans will probably cost more than the old RALs."


Bottom line: Refund loans and their tax-related quick tax cash cousins are not dead yet.


Consider this fair warning as tax-filing season 2012 gets under way.


More from and MSN Money:


Jan 19, 2012 2:18PM

It's so easy for us to criticize people that use these rals but I'm not getting foreclosed on, my car isn't about to be reposessed and the utility company is not about to shut off my power in the middle of winter.  I have a job and can pay the bills, but what about peope that are struggling?  Getting cash in a couple of days vs. a couple of weeks can mean the difference between paying the bills and getting evicted. 


I usually buy my soda for cheap in bulk but sometimes I'm willing to pay more for the convenience of buying it from a vending machine.  Shouldn't I have the choice to pay more for that soda if I want the convenience of buying it when I want it?  If someone wants to spend more to get their refund $ quicker shouldn't they have the fredom to make that choice for themselves?

Jan 18, 2012 2:31PM
Why do some people feel the need to tell others what to do? If I am willing to pay fees to get money within one or two days instead of weeks whose business is that? MINE!!! Why do you assume I don't know what I am doing? Because I'm willing to pay for the convenience? Sure, If I don't need the money right away, a few weeks won't matter. However, if I need it now, what is a few extra dollars to get it? Especially since it is coming out of MY tax refund not yours!!!!

I truly do not understand how people can be so blind to these RAL Cousins.  One thing for sure and certain, for those who file their taxes with the anticipation of getting an Emerald Card for HnR block and whatever card your tax preparer uses, there is a $3500 limit per day for purchases.  If you plan to make a bigger purchase than $3500 at one time, you will be declined because of their policies which Im sure no one bothers to read.... The FINE PRINT!

Be aware of the hidden fees and taxes dealing with all these tax preparers because they know how to squeeze your money from you.... They are ripping peoples faces off and if Turbo tax can get your taxes done affordably, why the heck are these agencies charging anywhere from $200 to $500 to enter the same information that you can do for free on the IRS website?  


Jan 17, 2012 11:40AM

I have two words to describe this situation: stupid and unethical.

 Stupid. That describes the consumer. It's beyond me why anyone would pay such outlandish fees to get their money a week or two earlier than if they would simply file electronically and have the refund amount credited to their bank account. For those who don't have a bank account, tough. Clean up your act. Be responsible. Educate yourself. Get a bank account.

  Unethical. That describes the tax preparers offering this "product." They are/were taking advantage of low-income people to line their own pockets.

Jan 21, 2012 5:04PM
I would say it is up to the individual to decide their options, though I do agree there are a lot of unethical practices out there taking advantage of people. I have had my share of ludicrous loans myself, so fed up with how much I pay in interest I pretty much limit myself to that anymore!  Unfortunately people tend to get themselves caught in a vicious cycle that keeps them broke, it is up to us to break that cycle and put ourselves in a better scenario.  Hard times are not easy to cope with, lay offs, divorce - the list goes on.  However in my experience it seems it is the little people who suffer at the hands of  these predators, they prey on those who are coping with misfortune and I do feel these scumbags should be dealt with - it is an unethical practice . However moral and ethical options should be set up, don't point the finger till you have endured hardships yourself - I'm a single father raising 2 boys on my own and I have a fair idea of what it is like to get your money when you need.  Not everything goes according to plan, though we do make lots of sacrifices to get to where we have to be.  
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