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FOR IMMEDIATE RELEASE
Holiday Loans From Tax Preparers are No HELP At All:
Major Tax Preparers Offer Expensive New Holiday
Tax Loans
Consumer Groups Push Back
[Chicago]-Thousands
of taxpayers will load up on debt early this year—and that’s before they start
shopping for the holidays.
The Holiday Express Loan Program or HELP, offered by
Jackson Hewitt, are expensive loans available beginning in mid-November. HELP
loans are based on a taxpayers projected tax refund which is calculated using
tax information printed on their pay stub.
Previously, borrowers had to wait until they received
their tax forms in late January to use a refund anticipation loan, or RAL—which
offered borrowers a chance to borrow against their tax refund, but at a high
price. The HELP loan helps borrowers get into debt even earlier.
“From the looks of this product, tax preparers are moving
into the payday loan business,” says Marva Williams, senior vice president of
the Chicago-based Woodstock Institute, a fair finance research organization.
“We strongly urge consumers to stay away from these expensive loans this
holiday season, just as they would avoid a payday loan.”
HELP is No Help at All
The HELP loan works like this. A taxpayer presents their
pay stub, social security card, and the social security cards of any dependants
to a Jackson Hewitt tax preparer. The preparer then estimates the taxpayer’s
refund and makes them a loan payable when their tax forms arrive in mid or late
January. The loan is underwritten based on a tax preparer’s anticipated tax
refund, particularly the client’s EITC (earned income tax credit). A $600 loan
includes a loan fee of about $70 or 12 percent of the loan amount. If a
customer elects to get the loan proceeds on a cash card, the total fee is $100
or 20 percent of the loan. The loans are funded by banks, including HSBC and Santa
Barbara Bank and Trust.
HELP borrowers are also compelled to go back to Jackson
Hewitt to have their taxes prepared. Why?
The HELP loan fee includes a non-refundable $50 income tax return
preparation fee.
In statements to the Associated Press just last summer
both H&R Block and Liberty Tax Services, Jackson Hewitt’s competitor’s and
two of the largest providers of tax preparation and tax loan products, lashed
out at the product. "The economics of the product have more in common with
payday lending than refund lending," said Mark Ernst, chief executive of
H&R Block.
Despite this claim, H&R Block will offer the
product this fall.
Good News for Illinois
Consumers
There is also good news for Illinois
consumers---there are alternatives to high cost RALs and other related
loans. The Center for Economic Progress,
a Chicago nonprofit, offers free tax preparation at volunteer income tax
assistance sites in 35 Illinois
communities. In 2006, 1,100 Center volunteers helped to bring back $39.1
million in tax refunds to over 27,000 hard working families. David Marzahl,
executive director of the Center, states that RALs are not needed. “People who
use our sites can receive their tax refunds in as little as 10 days if they
have a bank account. And if they don’t
have an account, we may be able to open one for them when they have their taxes
prepared.”
In response to the Grinch marketing by Jackson Hewitt and
other tax preparers to lure customers to take out expensively holiday loans.
Woodstock Institute has also launched a consumer education campaign. In
addition to giving talks at community meetings, Woodstock Institute offers
consumer brochures with information on RAL products on its website in English,
Spanish, and Polish.
“Unfortunately, lower-income taxpayers, particularly
those in minority communities, use these products at astonishing rates,” notes
Williams. Recent Woodstock research
shows that 58 percent of low-income people in predominately minority
communities choose refund anticipation loans, compared to just 17 percent of
taxpayers region-wide.
Illinois Legal Aid Online will partner with Woodstock
Institute in educating at-risk taxpayers about the dangers of holiday tax loans
and RALs by placing information on their website www.IllinoisLegalAid.org and
in helping taxpayers make the most of their tax refund through e-filing and
claiming the Earned Income Tax Credit.
Woodstock Institute is also working to change federal
policy. “We have joined with organizations in Washington
D.C., California,
New York, and North
Carolina to work with bank regulators and the IRS to
take steps to protect consumers from predatory RALs, ” stated Tom Feltner,
Communications Associate at Woodstock Institute.
Woodstock Institute, founded in 1973, is a
nationally-recognized resource on credit and capital needs of low-income and
minority communities. The Institute engages in applied research, policy development,
and technical assistance to promote community economic development.
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