Experts Advise Against Taking Quick Refund Loans

By G. Patrick Kelley

October 19, 2007 3 min read


Experts advise against taking quick refund loans

G. Patrick Kelley

Copley News Service

Consumer advocates say those refund anticipation loans are likely to cost a taxpayer way too much.

The Better Business Bureau, the National Consumer Law Center and Consumer Federation of America say stay away from refund anticipation loans. The groups say those loans took about $960 million in loan fees, plus more than $100 million in other fees, from nearly 9.6 million taxpayers in 2006.

"Taxpayers can save themselves over a billion dollars by just saying 'no' to quick tax refund loans," said law center staff attorney Chi Chi Wu. "These loans take a chunk out of your hard-earned tax refund, and they expose you to the risk of unmanageable debt if your refund doesn't arrive as expected."

The loans are heavily promoted beginning in early February when consumers receive their W-2 forms. The tax preparer advances money to the taxpayer, which is paid back when the refund check is received.

Many consumers have complained to the bureau that they did not understand the offer was a loan and felt deceived.

"You may get your money a bit quicker than waiting for your IRS refund check, but you incur a steep cost for that service," said Michael Paris, president and CEO of the Canton (Ohio) Better Business Bureau. "In effect, you are paying fees and interest to borrow from yourself."

While fees vary, an average tax refund of $2,000 can carry associated fees for the tax preparation, filing and loan of $250 or more. That works out to an annual interest rate of 521 percent for a 10-day loan.

"Taxpayers who want quick refunds can get them in two weeks or less by using electronic filing and having refunds directly deposited into their own bank accounts," said Jean Ann Fox, director of consumer protection for the consumer federation, "That's a quick refund, and it's also free."


About refund anticipation loans:

- If your refund is denied or less than you expected, you are still responsible for payment of the loan in full, as well as all fees.

- You may be able to speed receipt of your refund yourself by filing your tax return online and requesting direct deposit into your bank account.

- State or local government offices can provide the names of community organizations, like AARP, or other groups that offer free or low-cost tax preparation assistance.

- If you do decide to sign for a refund anticipation loan, carefully review the paperwork and all disclosures to gain a full understanding of the terms of the loan and related costs.

- For more advice, go to, or the Internal Revenue Service site:

SOURCE: Canton Better Business Bureau

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