Five on Your Side examines the pitfalls of refund anticipation loans

7:05 PM, Feb 2, 2012   |    comments
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By Mike Rush

St. Louis (KSDK) - The Better Business Bureau and credit counselors want you to stay away from plans promising quick cash back when you file your taxes. They are called "refund anticipation loans", or RALs for short.

In some cases, you can get cash in hand a day after filing. It's an attractive idea that can carry some ugly catches.

[Reporter]: "So would you consider this to be a predatory practice against low-income people?"

"I think so," said Thomas Nitzsche with Clearpoint Credit Counseling.

Nitzsche warns against refund anticipation loans.

Here's how RALs work. You file your taxes with a tax preparer, but you don't want to wait for the refund, so the tax office helps you secure a bank loan to get the money sooner.

But Nitzsche and the BBB say there are many pitfalls including interest rates as high as 500 percent and administrative fees, all added to what you pay the tax preparer.

"If the amount that you are in fact getting back from the government doesn't cover that loan, you could end up owing money and if you don't have it, that could end up in a collection situation," said Nitzsche.

Greg Atkinson manages nine local Jackson Hewitt offices advertising RALs

The terms are $1,500 loans for people expecting at least $2,000 back with an interest rate at nearly 125 percent. The total fee advertised is at just over $62.

"Personally, I would never do a RAL," said Atkinson.

But, he says, he understands the need for them.

"I mean, I just can't tell you how many times I've heard, 'I need my rent payment' or 'my car broke, I have to get it fixed. I can't get it out of the shop and I gotta get to work,'" said Atkinson.

So some people think it's worth it, and Atkinson says he does have repeat customers.

With the government cracking down on RALs, only a few agencies offer them.

Clearpoint Credit instead recommends free filing offered by the IRS and the state for those who qualify.

And with e-filing your refund can come pretty fast, sometimes within a week.


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