Refund Anticipation Loans (RALs)

A refund anticipation loan gives a tax filer his or her refund in 24 hours. It is a convenient service, as it would often take 5 to 7 days to get a refund for an e-filed return back through direct deposit. Unfortunately, the customer pays a very high price for that convenience. Frequently, consumers that apply for a RAL pay a series of additional "junk fees" that inflate the cost of their return. Those fees include fees for e-filing, for the use of "technology", and service bureau fees. Some tax prep chains supply settlement products to more than 90 percent of their customers.

Until this year, the IRS would alert a bank partner if a potential RAL customer had some kind of outstanding tax liability. It was a curious practice, because the debt indicator only served to make it easier for consumers to use this product. More often than not, the filer was a recipient of the Earned Income Tax Credit. Thus, the IRS was doing the work to help tax preparers undermine the impact of our nation's chief anti-poverty program. Put another way, the chief recipients of the EITC were JP Morgan Chase Bank, HSBC USA, and Republic Bank & Trust of Kentucky. 

Reinvestment Partners has issued several reports that show how refund anticipation loans drain money and sap the tax refunds of households in North Carolina. 

• Fast Cash, Less Refund II (2010)
• Fast Cash, Less Refund I (2009)
• Tax Preparers Take A Bite Out Of Refunds: Mystery Shopper Test Exposes Refund Anticipation Loan Abuses In Durham And Philadelphia (2008)
• The High Cost of Refund Anticipation Loans in North Carolina (2007)

In 2010, CRA-NC published the results of independent testing of tax preparers. We found numerous instances of business practices that did not follow relevant rules for disclosures on refund anticipation loans. 

"Mystery RAL Shopper 2010 Report"

Recent News

December 2010: The OCC Directs HSBC to Stop Making RALs and RACs

Fall 2010: HSBC Asks Out of its Contract with H&R Block

Fall 2010: Santa Barbara Tax Products Group Signs New RAC Contract with Minnesota CDFI Sunrise Community Bank

Summer 2010: IRS Suspends the Debt Indicator

Summer 2010: JP Morgan Chase Voluntarily Exits from RAL Partnerships

December 2009: The OCC Directs Pacific Capital to Stop Making RALs and RACs

Summer 2008: The FDIC Issues a Cease-and-Desist Order Against Republic Bank of Kentucky

For the latest updates, please read BankTalk