Tax filers in African-American communities 3.5 times more likely to use high-cost loans to get refunds

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.

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.

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?

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.

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.

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.