Have you ever gotten one of those Refund Anticipation Loans (also known as RALs) with your tax return? Those are the “fast money” refunds where you pay a fee and get your refund immediately, or perhaps in one or two days instead of waiting for two weeks. What the IRS has just announced could pretty much put and end to those types of loans.
In the past, the IRS has provided tax preparer firms and financial institutions with a “debt indicator” tool. Basically, when a tax return was prepared, if a person applied for the RAL, there would be a response about any government debt owed by the individual. Basically, if debt was owed, the RAL would be denied because the loan is secured by the anticipated refund.
According to the IRS, they no longer see a need for these Rapid Refund Loans since a person can receive his or her refund in 10 days. There’s been a great deal of public pressure against RALs. Consumer groups such as the National Consumer Law Center and the Consumer Federation of America have opposed RALs for years. One reason is that RALS are usually targeted at low income households and the fees are often very high in relation to the loan provided. The profit motive in RALS can sometimes lead to predatory and even fraudulent activity. In 2008, the latest year that I could get figures for, 8.4 million RAL loans were made. $738 million was spent on loan fees. $68 million was spent on other related fees.
Individuals will still have access to their own personal information concerning debt via the “Where’s My Refund?” application on the IRS website.
For a look at the IRS press release dated August 5, 2010, click here: http://www.irs.gov/newsroom/article/0,,id=226310,00.html