March 5, 2003
Consumers Warned to Stay Away from High Cost Tax Refund Anticipation Loans; Fast, Low-Cost Options Available
Division of Banks Puts Refund Anticipation Loan Providers on Notice
Consumers Warned to Stay Away from High Cost Tax Refund Anticipation Loans; Fast, Low-Cost Options Available Division of Banks Puts Refund Anticipation Loan Providers on Notice
Consumer Affairs Director Beth Lindstrom today warned consumers to steer clear of Refund Anticipation Loans (RAL) and directed the Division of Banks to curb any unlicensed RAL activities in the Commonwealth.
RALs are short-term loans based on a consumer's anticipated tax refund that are usually offered with extremely high interest rates.
“Taxpayers should not pay unreasonable rates and fees to obtain the refund they are legally entitled to receive,” said Lindstrom. “Further, many of the consumers who obtain a RAL are eligible for the federal and state Earned Income Tax Credit. The very purpose of the tax credit is to give a helping hand to those who need it most, not to benefit tax firms.”
In Massachusetts, it is illegal for a tax preparer to offer or broker a RAL without a license from the Division of Banks. Lindstrom is working closely with the Commissioner of Banks, Thomas J. Curry, to cease unlicensed RAL activity.
This week, the Division of Banks issued a directive to the RAL industry. The directive requires tax preparers to obtain a license, which would put them in compliance with the Small Loan Act.
The Small Loan Act allows non-banks to offer interest rates of no more than 23 percent APR. The Division of Banks has found that tax preparers are charging consumers 100 percent APR or more for RALs.
“There is questionable justification for the exorbitant RAL interest rates,” said Curry. “Taxpayers are often charged over 100 percent APR for these short term loans that have little risk of default.
Curry added, “These rates are illegal and tax preparers found in non-compliance can expect to hear from us.”
“We understand that some taxpayers need their money right away and often turn to a RAL provider because they think it is the fastest way to obtain a refund,” said Lindstrom. “What consumers need to know is that there are no-cost options for getting a quick tax refund and tax preparation assistance.”
The Commonwealth's electronic filing system administered by the Department of Revenue will issue refunds to consumers in as little as three days, without a fee or interest charges. The quickest way to receive a state refund is to file electronically by telephone or computer.
In order to receive a federal tax refund quickly, consumers should use E-File, a service offered by many tax preparation companies. Consumers who E-File their federal tax return can obtain their refund in as little as 10 days.
In addition, through the IRS' Free File Alliance, consumers who meet certain income eligibility will receive free online tax preparation and E-Filing.
Consumers interested in more information on filing both state and federal taxes or receiving free tax preparation assistance should contact the following agencies:
* To file your state tax returns electronically, go to www.mass.gov/dor or call Telefile at (617) 660-2002 or (413) 827-7100.
* To receive your federal tax refund in as little as ten days, eligible consumers should consider the IRS E-File program at www.irs.gov.
* For free tax preparation assistance:
o Action for Boston Community Development (ABCD) at (617) 357-6000
o Earned Income Tax Credit (EITC) Help Hotline at (617) 918-5275
o Call the IRS toll-free at (800) 829-1040 or visit the website at www.irs.gov
Comments (0)
You don't have permission to comment on this page.