Notes On Consumer Affairs
Unlike last year, when taxpayers were afforded two extra days to file their personal income tax returns, this year's deadline to file federal and state returns is April fifteenth. Now is a good time to dust off the calculator, open up the filing cabinet, clear the dining room table and dive into your 1040-EZ's and IT- 201's. Or, if you would rather leave the pencil pushing and number crunching to the professionals, it's time to gather up your receipts and W-2's and head to the office of your local paid tax preparer. Consumers who use paid tax preparers, however, need to be aware of the hidden costs associated with "refund anticipation loans," offered by tax preparation companies.
You have probably seen advertisements promising "instant tax refunds" or "rapid refunds." No tax preparer can issue an instant or expedited refund on behalf of the Internal Revenue Service or the New York State Department of Tax and Finance.
Tax preparers can, however, issue short-term loans against a customer's anticipated refunds. These "refund anticipation loans" (RAL) are highcost, short-term loans with exorbitant interest rates that can range from about 70 percent for a loan of $5,000 to over 700 percent for a loan of $200.
In addition, if one's anticipated refund is less than expected, the consumer still has to repay the total RAL amount.
Tax preparation companies that promote these loans often prey on unaware consumers to borrow unnecessarily against their own money. Over half of refund anticipation loans are taken out by an estimated seven million low-wage families who receive Earned Income Tax Credits. RAL fees siphon off millions from those tax credits. Add tax preparation fees and check cashing costs and the annual expense to consumers totals $1.75 billion, according to the Consumer Federation of America. The fees markedly reduce the refund amount that working families count on, transferring this money instead to multi-million dollar corporations.
In order to protect taxpayers, I have introduced legislation (A.6217- A) that would require RALs to be clearly advertised as loans, not refunds. Tax preparers would also be required to explain that a RAL is an option, not a requirement. In addition, preparers would be required to provide the amount of the refund without the RAL and when one can expect it. If the consumer signs for an RAL, tax preparers would be required to disclose the fee, the amount of the loan, the estimated annual percentage rate of the loan and the loan receipt date. The consumer would also be advised that the full amount of the RAL will have to be repaid if the refund is less than anticipated. However, until this bill becomes law, consumers should be sure to ask these questions.
Most taxpayers who file by traditional means receive their federal refunds within a month of filing. Be patient and you will get your full refund. In addition, wage earners who want their refund quickly should be aware that New York State has increased its pace of processing tax returns. What used to take two months now takes about five days. If you file electronically or e-file, you can receive your refund in half the time and avoid interest rates or other fees. For information on electronic filing, visit the Internal Revenue Service Web site at www.irs.gov or the State Department of Taxation and Finance at www.tax.state.ny.us.