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Tax Refund Anticipation Loans Will Soon Become Ancient History — Dollars and Sense

CarbonNYC, Flickr

If you’re one of those impatient people who gets a refund anticipation loan (RAL) from a tax preparer, enjoy it while it lasts — after this year, those loans are going away. And it’s probably for your own good.

In years past, RALs have come under fire from consumer advocates who say that in exchange for getting a tax refund a few weeks faster, banks issuing the loans were charging staggering interest rates of between 40 and 700 percent. In fact, back in 2006, H&R Block was sued for routinely overcharging customers on RALs.

The National Consumer Law Center (NCLC) reports that in 2010, RAL issuers collected upwards of $338 million in loan fees from around 5 million taxpayers — most of whom could least afford them. IRS data reveals 92 percent of taxpayers who asked for RALs during that time period were low-income.

As a result of all the bad press, many larger banks stopped issuing the loans, leaving only one institution — Kentucky-based Republic Bank & Trust — in the RAL business. But after doing battle with the FDIC, it too is folding up its tent and will no longer issue anticipation loans after this year.

“It’s good riddance to RALs as big business,” says Chi Chi Wu, a staff attorney at the NCLC. “Millions of hard-working families will save money and face less risk as RALs made by banks disappear from tax time.”


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