Refund Anticipation Loans - Blog Posts

Dory Rand
July 17, 2013

Yesterday I celebrated my first five years with Woodstock Institute. When I joined Woodstock as president in 2008, the financial crisis was just getting into full swing and the future was quite uncertain. 

January 6, 2011

2010 was a heartening year for consumer advocates working to eliminate income tax refund anticipation loans (RALs), the high-cost loans that strip assets from low-wealth tax filers. First, the Office of the Comptroller of the Currency (OCC), the federal regulator of national banks, issued a policy statement regulating the provision of RALs that strengthened its hand compared to previously unenforced policies. On the heels of that announcement, Chase announced it was leaving the RAL business. Chase was the second of the three major banks who provided RALs to withdraw, following Santa Barbara Bank & Trust’s forced exit in 2009. In August, the IRS announced it would stop facilitating the preparation of RALs by providing information on a borrower’s debts to tax preparers. Finally, the year ended with more happy news: the OCC ordered the third main RAL provider, HSBC, to stop providing RALs, leaving H&R Block without a bank partner for the upcoming tax season. Republic Bank and Trust, an FDIC-regulated bank that is currently the last bank around to provide RAL financing, is even limiting the amount of funding available to its RALs, including those arranged by Jackson Hewitt. With few financing options left for tax preparers who want to make wealth-stripping loans to working families, this could be the beginning of the end for RALs as a meaningful market.

January 6, 2011

2010 was a heartening year for consumer advocates working to eliminate income tax refund anticipation loans (RALs), the high-cost loans that strip assets from low-wealth tax filers. First, the Office of the Comptroller of the Currency (OCC), the federal regulator of national banks, issued a policy statement regulating the provision of RALs that strengthened its hand compared to previously unenforced policies. On the heels of that announcement, Chase announced it was leaving the RAL business. Chase was the second of the three major banks who provided RALs to withdraw, following Santa Barbara Bank & Trust’s forced exit in 2009. In August, the IRS announced it would stop facilitating the preparation of RALs by providing information on a borrower’s debts to tax preparers. Finally, the year ended with more happy news: the OCC ordered the third main RAL provider, HSBC, to stop providing RALs, leaving H&R Block without a bank partner for the upcoming tax season. Republic Bank and Trust, an FDIC-regulated bank that is currently the last bank around to provide RAL financing, is even limiting the amount of funding available to its RALs, including those arranged by Jackson Hewitt. With few financing options left for tax preparers who want to make wealth-stripping loans to working families, this could be the beginning of the end for RALs as a meaningful market.

August 12, 2010

Tax preparers who arrange refund anticipation loans (RALs)—high-cost loans secured by a taxpayer’s expected income tax refund—have long relied on the IRS to provide information on any outstanding debts, such as back taxes or child support, that will be withheld from the borrower’s tax refund. This information, called the “debt indicator,” allows tax preparers to underwrite RALs and facilitates an industry that strips $114 million from Illinois taxpayers. In a huge victory for consumers, the IRS announced that it would stop providing the debt indicator to tax preparers.

May 20, 2010

Chase CEO Jamie Dimon has refused requests of Woodstock Institute and colleagues for a meeting to discuss the deleterious effects of its consumer lending and mortgage loan modification practices on our communities, but I finally got a chance to speak to him directly at the Chase shareholder meeting in New York on May 18.

May 4, 2010

Woodstock Institute and consumer advocate allies cheered when they learned on April 27 that JP Morgan Chase is exiting the business of providing about 1.5 million high-cost consumer loans annually based on expected income tax refunds (refund anticipation loans, or RALs). Chase stated its reasons for exiting are that these products are not “a strategic fit” with its business and that it faced “increased regulatory scrutiny.” On behalf of Woodstock, I commend Chase for (finally) doing the right thing.

Tags: RALs
April 15, 2010

As some of us scramble to file our income tax returns, others have long since filed. Unfortunately, many lower-wealth tax filers who need the assistance of tax preparers got ripped off with high-cost preparation fees and refund anticipation loans, or RALs – to the tune of $114 million in Illinois in 2006 alone. Faster delivery of refunds by the Internal Revenue Service and a little patience by tax filers can eliminate the demand for RALs, but many will still need the assistance of tax preparers to file their returns. How can tax filers pay for tax preparation services without getting caught up in RALs?

March 9, 2010

Would you take a loan with interest rates of 100 percent or more? Unlikely. Then why did 8.7 million American taxpayers do that in 2006?  The answer is that they were promised fast cash, but in many cases, were unaware that they were taking out a loan at all. US taxpayers in 2006 spent over $900 million to get their tax refunds a few days early.

Tags: Guest post, RALs
March 9, 2010

Would you take a loan with interest rates of 100 percent or more? Unlikely. Then why did 8.7 million American taxpayers do that in 2006?  The answer is that they were promised fast cash, but in many cases, were unaware that they were taking out a loan at all. US taxpayers in 2006 spent over $900 million to get their tax refunds a few days early.

Tags: Guest post, RALs
March 9, 2010

Would you take a loan with interest rates of 100 percent or more? Unlikely. Then why did 8.7 million American taxpayers do that in 2006?  The answer is that they were promised fast cash, but in many cases, were unaware that they were taking out a loan at all. US taxpayers in 2006 spent over $900 million to get their tax refunds a few days early.

Tags: Guest post, RALs
February 23, 2010

The Office of the Comptroller of the Currency (OCC) released a Policy Statement on Tax-Related Products and a Consumer Advisory on February 18, one month into the current tax season. The OCC is the U.S. Treasury Department agency that regulates national banks. Several national banks offer tax refund anticipation loans or RALs through partnerships with tax preparation services.

Tags: RALs, policy
February 8, 2010

A coalition of community reinvestment and consumer organizations asked the U.S. Treasury Department’s Office of the Comptroller of the Currency (OCC), charged with overseeing consumer protections for national banks, to immediately implement its longstanding, but unenforced, disclosure requirements, advertising standards, and capital requirements for refund anticipation loans.  The consumer organizations sent a joint letter on February 4, 2010.

February 5, 2010

A new searchable database of free tax preparation sites launched by the University of Missouri could help tax filers avoid the high costs of paid preparers and tax refund anticipation loans. Refund anticipation loans, or RALs, are an expensive way to get your projected tax refund—in Illinois, they cost taxpayers $114 million in 2006 alone. Despite that, some borrowers choose RALs to avoid paying up front for tax preparation—preparers just deduct their fees from the loan proceeds.

Tags: RALs
January 27, 2010

The scramble to secure tax refund loan partnerships before the opening day of the 2010 tax season is the direct result of a regulatory crackdown that many consumer advocates believe was long overdue. With one major lender undercapitalized and another under increased scrutiny, it is clear regulators are beginning to take notice of the issue. However, both of these actions were taken to protect the safety and soundness of the banks themselves, not to protect the Illinois consumers who paid $114 million dollars in 2006 just to receive their tax refund loan a few days earlier than if they had waited for the IRS refund.

September 3, 2008

As a major tax refund lender seeks to change charters, the Office of Thrift Supervision needs to hold a hearing to give the public a chance to tell its side of the story about high cost refund anticipation lending.

Tags: RALs