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Some come with effective interest rates from 50 to 500 percent.


April 01, 2008

Anchorage, Alaska -Tax season is here and many Americans are looking forward to their tax refunds. With the downturn in the economy, some taxpayers are growing impatient for their checks. Some are even turning to tax preparers who offer instant tax refunds, also called Refund Anticipation Loans (RAL). While RALs are a source of instant cash, the BBB warns they may come with high interest rates.

Instant tax refunds are short-term loans given to the consumer immediately after the tax preparer files their taxes. The tax preparer will then receive the filer's refund check two to three weeks later from the IRS. The effective annualized interest rate for instant tax refunds range from 50 to nearly 500 percent, according to the National Consumer Law Center (NCLC). Some tax preparers further gouge consumers by tacking on administrative fees. According to the NCLC, consumers took out more than nine million RALs in 2006; paying more than $990 million in fees.

"Taxpayers who want to get their hands on their tax refund money right away need to keep in mind that an instant refund can cost more than it helps," said Robert Andrew, President and CEO of the BBB serving Alaska, Oregon and Western Washington. "RALs are based on anticipated tax refunds. If consumers end up getting less money back than predicted, they will owe the money loaned plus hefty fees and fines if they don't pay off the RAL on time."

Instant refunds came under scrutiny in January 2008. The IRS issued a request for comments regarding regulations and restrictions governing RALs-particularly given the bad effect the practice has on low-income households.

Some tax preparation companies offering RALs don't recommend them to their customers. In a written statement to an columnist in February, an H&R Block representative said, "We believe the best option for our clients is to file electronically with the IRS and to receive an IRS direct deposit rather than taking out a RAL."

Before you accept an instant refund, your BBB offers the following advice:

Why not e-File and direct deposit?

The fastest and most secure way for consumers to get their refund is to file their taxes online and then allow a direct deposit of the refund. Taxpayers will receive the money in as little as 8 to 15 days. Some tax preparation companies will help taxpayers set up bank accounts to route the refund if accounts are not already established, although the BBB advises consumers to work directly with financial institutions to protect their account information.

Don't fall for the "convenient" debit card.

Some tax preparers offer to provide instant refunds on "convenient" debit cards. These cards are another way for the tax preparer to make money. Some debit cards include hidden fees, as high as $20 per transaction, and can have limits on how much money consumers can access. This means users have to pay the high transaction fees repeatedly.

Finance purchases other ways.

If consumers are looking to purchase specific high-priced items with their refunds, the BBB encourages them to look into financing options other than RALs, such as store credit promotions or offers that may provide better interest rates.

If you must get a RAL, shop around.

If it is absolutely necessary that a consumer receive their refund immediately, the BBB wants people to know that it pays to shop around and look for a good deal. Fees and rates for RALs vary by tax preparer.

Consult your local BBB.

Go to to get a free reliability report on any company with whom you're considering doing business. The BBB reliability reports provide valuable information on companies.


Source of News:

Better Business Bureau


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Stories In The News
Ketchikan, Alaska