St. Louis, Mo., Jan. 26, 2010 - Some Americans run to the nearest tax preparer as soon as their W-2 forms arrive in the mail, hoping to snap up a quick tax refund. The BBB advises taxpayers to resist the temptation to take out a tax refund anticipation loan if a tax preparer offers it.
Refund anticipation loans are similar to payday loans: They are short-term loans that carry a high interest rate. Their annual percentage rates range from 50 to 500 percent. They often have hidden administrative fees, and borrowers may be required to pay additional fines and fees if a mistake in the anticipated refund is made.
“It’s important to remember that these loans are based on a consumer’s anticipated tax refund,” said Michelle L. Corey, president and CEO of the BBB in St. Louis. “If consumers end up getting less money back than predicted, they still have to repay the loan and may incur hefty fees and fines if they don’t pay it off on time.”
The Internal Revenue Service usually delivers refunds within two weeks of the date a consumer files a tax return, especially if the consumer files the return electronically and takes the refund by direct deposit to a bank account. This speed makes most refund loans unnecessary.
According to the IRS, 90 million people used e-file in 2008. E-file provides such benefits as: faster refunds, greater accuracy, secure and confidential submission and quick confirmation. Use of e-file and direct deposit are just as timely as a refund anticipation loan, and they don’t cost the consumer money that is actually theirs in the first place.
According to a survey conducted by the National Consumer Law Center, tax refund loans “drained the refunds of about 8.7 million American taxpayers in 2007, the last year on which the Internal Revenue Service provided data. This represents about $833 million in loan fees, plus over $68 million in other fees.”
While the BBB discourages use of refund anticipation loans, the nonprofit advises consumers who think they need one to research a tax preparation business’s performance and BBB Reliability Report before doing business with them. They also may obtain a list of accountants with BBB Accreditation in their local area by going to
www.bbb.org.
Knowing a business’ history is important because some firms take advantage of uninformed consumers by charging obscure fees.
Consumers should also be aware of unethical, costly practices such as the “convenient” debit card. These cards can include hidden fees, such as charging $20 for every transaction made.
The BBB advises consumers to check a company’s Reliability Report by calling 314-645-3300 or by going online to
www.bbb.org.
Contacts: Michelle Corey, President & CEO, 314-645-3300,
mcorey@stlouisbbb.org or Chris Thetford, Director of Communications, 314-645-3300,
communications@stlouisbbb.org
The BBB is a non-profit organization that sets and upholds high standards for fair and honest business behavior. The BBB provides objective advice, free business Reliability Reports, charity wise-giving reports, and educational information on topics affecting marketplace trust. Please visit www.bbb.org for more information.