TRENTON, N.J. -With tax preparation season now under way, Mercer County Executive Brian M. Hughes echoes Attorney General Anne Milgram by reminding consumers that so-called "fast" or "instant" refunds offered by some tax preparers are in fact loans carrying fees and high-interest rates that actually reduce the amount of the tax refund.
A Refund Anticipation Loan (RAL) is a loan that is secured by the taxpayer's anticipated tax refund and is offered by tax preparation firms and other businesses. RALs have been touted as providing fast cash to taxpayers or a short cut to obtaining a refund.
But the amount of the RAL is the amount of the tax refund, minus interest and fees. The fees may include a loan fee, electronic filing fee, document preparation fee, tax preparation fee and even an additional check cashing fee once the taxpayer receives the loan check. The loan is repaid from the taxpayer's actual refund, which is directly deposited with the lending institution that provided the loan.
"The Mercer County Office of Consumer Affairs is ready to handle any questions or complaints regarding firms or other businesses that promise these tax return loans and don't follow through," Hughes said. "Any consumer who believes he or she has been a victim should immediately call us for assistance."
A 2007 study by the Consumer Federation of America and National Consumer Law Center found that U.S. consumers paid more than $1 billion in loan charges and fees for RALs in 2005. The study also found that RALs are targeted at the working poor, especially taxpayers eligible for the Earned Income Tax Credit, the largest federal anti-poverty program.
New Jersey residents are now protected by legislation that permits free tax preparation centers, or Volunteer Income Tax Assistance (VITA) sites, to offer Alternative Refund Anticipation Loans to low-income New Jersey filers without high fees or interest charges. The Alternative Rapid Anticipation Loan bill also cracks down on predatory practices by companies that charge excessive costs for tax preparation and high interest RALs to low-income workers.
Tax preparers now must follow certain guidelines of professional conduct during transactions with clients. As a result, tax preparers are prohibited from requiring a client to enter into a refund anticipation loan and must be transparent about the costs involved. Tax preparers must also provide itemized statements of service charges, including charges for tax return preparation, electronic filing, and providing or facilitating a refund anticipation loan.
Consumers should find out how long it will take to get their refunds if they file their returns with the IRS without signing up for a RAL. If a taxpayer decides to obtain a RAL, they should carefully read any loan documents provided for his/her signature, especially the fine print. Any such documents should include the following information:
- Annual percentage rate of the loan;
- Schedule of all charges and fees;
- Maturity date of the loan;
- List of all charges for electronic filing;
- Date or period within which the loan money will be received; and
- Who is responsible for paying the loan if it exceeds the actual refund, minus any interest and fees.
Consumers who signed up for RALs without receiving full disclosure of the terms and conditions may call the Mercer County Office of Consumer Affairs at (609) 989-6671 or file a complaint with the Division of Consumer Affairs by calling 800-242-5846 (within New Jersey) or 973-504-6200 or online at http://www.njconsumeraffairs.gov