Stop "Instant Tax Refunds" That Rip Off the Poor

There are few things worse than tax season, and one of them is predatory lending from institutions that are supposed to be helping their customers, not extorting them. Major banks and tax preparation companies across the country are kicking into high gear for this spring's refund anticipation loans (RALs), commonly known as "instant tax refunds." These popular loans allow low-income taxpayers to receive their refunds a few days early in exchange for colossal fees and sky-high interest rates, often ranging from 50 to 500 percent.

The process for getting an RAL is simple. Person A consults a tax preparer like H&R Block or Jackson Hewitt for help filing her taxes. The preparer explains that Person A can shorten the wait time for her refund if she applies for an instant tax refund. The fees may be steep, but the the high-interest loan -- ahem, the "refund" -- will be available in a matter of days. The tax preparer then contracts with a bank to provide the loan, charging hefty administrative and bank fees and high interest rates in the process.

Instant tax refunds prey on the unstable financial conditions of the poor. Tell the CEOs of tax preparers and banks to stop offering them. "Like most high-interest/high-fee financial services," explains the Consumer Federation of America, "RALs disproportionately target low-income consumers, particularly those eligible for the Earned Income Tax Credit (EITC)." While the EITC normally provides a key source of income for poor communities, corporations simply view it as an additional funding source. Since the credit is typically awarded as a tax refund, banks and tax preparers intervene in the tax filing process, piling on outlandish fees for a loan that simply isn't necessary.

By using the IRS' Traditional Free File online tax filing service, it's cheap and easy for low-income Americans making $57,000 or less in 2009 to electronically file their taxes online. And the implementation of new IRS technology has decreased the waiting period for tax refunds to around 10 days with direct deposit. Refund anticipation loans only speed up this process by a few days.

But major banks know that instant tax refunds are big business, pulling  in at least "$833 million in loan fees" and "over $68 million in  other fees" every year, according to the National Consumer Law Center. So the loans, while avoidable, continue.

Major financial institutions should get out of the predatory lending business immediately. Tell Bank of America, CitiGroup, JP Morgan, and Wells Fargo, along with tax preparers H&R Block and Jackson Hewitt, to put the interests of taxpayers first. Ask them to stop offering costly and unnecessary refund anticipation loans and help low-income customers open free or low-cost checking accounts, ensuring that they can file for direct deposit and receive their tax refunds in the shortest time possible.

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