Diverted Opportunity: Refund Anticipation Loans Drain Wealth from Low Wealth Tax Filers and Communities of Color

Geoff Smith, Sarah Duda, and Katie Buitrago

This report found that high-cost refund anticipation loans (RALs), which allow borrowers to receive their expected tax refund in one to three days, cost Illinoisans more than $114 million in 2006, with tax filers in African-American communities 3.5 times more likely to use RALs than the state average. The report is based on an analysis of 2006 tax data and recommends policy changes, such as a RAL fee cap and better funding of free tax preparation, to reduce the negative impact of RALs on low-wealth communities.

press release