`NEWARK
-- With tax preparation season now underway,
Attorney General Anne Milgram and Acting
Consumer Affairs Director Larry DeMarzo
today reminded consumers that so-called
“fast” or “instant”
refunds offered by some tax preparers are
in fact loans carrying fees and high-interest
rates that actually reduce the amount of
the tax refund.
A
Refund Anticipation Loan (RAL) is a loan
that is secured by the taxpayer’s
anticipated tax refund and is offered by
tax preparation firms and other businesses.
RALs have been touted as providing fast
cash to taxpayers or a short cut to obtaining
a refund.
But the amount of the RAL is the amount
of the tax refund, minus interest and fees.
The fees may include a loan fee, electronic
filing fee, document preparation fee, tax
preparation fee and perhaps an additional
check cashing fee once the taxpayer receives
the loan check. The loan is repaid from
the taxpayer’s actual refund, which
is directly deposited with the lending institution
that provided the loan.
A
2007 study by the Consumer Federation of
America and National Consumer Law Center
found that U.S. consumers paid more than
$1 billion in loan charges and fees for
RALs in 2005. The study also found that
RALs are targeted at the working poor, especially
taxpayers eligible for the Earned Income
Tax Credit, the largest federal anti-poverty
program.
“Consumers need to be aware that there
are costs associated with the RALs which
will reduce the amount of their tax refunds,”
Attorney General Milgram said.
Earlier
this week, Governor Jon S. Corzine signed
legislation that permits free tax preparation
centers, or Volunteer Income Tax Assistance
(VITA) sites, to offer Alternative Refund
Anticipation Loans to low income New Jersey
filers without high fees or interest charges.
The Alternative Rapid Anticipation Loan
bill also cracks down on predatory practices
by companies that charge excessive costs
for tax preparation and high interest RALs
to low-income workers.
Tax
preparers now must follow certain guidelines
of professional conduct during transactions
with clients. As a result, tax preparers
are prohibited from requiring a client to
enter into a refund anticipation loan and
must be transparent about the costs involved.
Tax preparers must also provide itemized
statements of service charges, including
charges for tax return preparation, electronic
filing, and providing or facilitating a
refund anticipation loan.
Consumers
should find out how long it will take to
get their refunds if they file their returns
with the IRS without signing up for a RAL.
If
a taxpayer decides to obtain a RAL, they
should carefully read any loan documents
provided for his/her signature, especially
the fine print. Any such documents should
include the following information:
- Annual
percentage rate of the loan;
- Schedule
of all charges and fees;
- Maturity
date of the loan;
- List
of all charges for electronic filing;
-
Date or period within which the loan money
will be received; and
- Who
is responsible for paying the loan if
it exceeds the actual refund, minus any
interest and fees.
“If
you signed up for a RAL and all the terms
weren’t disclosed and explained to
you, the Division wants to know about it,”
Acting Consumer Affairs Director Larry DeMarzo
said.
Consumers who signed up for RALs without
receiving full disclosure of the terms and
conditions may file a complaint with the
Division of Consumer Affairs by calling
800-242-5846 (within New Jersey) or 973-504-6200
or online at www.njconsumeraffairs.gov
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