Consumer Groups Criticize High Tax Refund Anticipation Loan Fees

Consumer Federation of America and the National Consumer Law Center are protesting the high fees tax preparers charge to taxpayers seeking instant refunds on their expected tax returns.

The effective annual percentage rates on these loans can be as high as 700 percent, and often affect low-income taxpayers who live paycheck to paycheck, the groups said in a report issued last week. The report said that consumers paid $1.5 billion in fees in 2002, which the groups say undercuts the impact of the earned income tax credit.

One in 10 taxpayers chose not to wait for the Internal Revenue Service to issue their refund, but to instead apply for a loan on the expected amount. More than half of these taxpayers were low income, the group which benefits most from the earned income tax credit, the Associated Press reported.

"These fees transfer billions in wealth, paid out of the U.S. Treasury, from working poor families to multimillion-dollar corporations," Chi Chi Wu, an attorney with the National Consumer Law Center, told the AP.

Next week, the Senate will begin work on a bill to require companies that issue loans on anticipated tax refunds to register with the IRS. The bill would also give the Treasury Department the ability to set guidelines for disclosure of lender fees.

Estimates place the current loan fee amounts at $20 to $105 plus another $28 to $58 in administrative fees, with the effective annual percentage rate ranging from 70 percent to 700 percent, the groups said.

Household International, the company that services the most refund anticipation loans, told the AP that its loan rates run the gamut from 34 percent to 129 percent, which they say is about the same as a cash advance on a credit card.

"It is of utmost importance that all customers, especially those customers facing financial challenges or living on a limited budget, are provided with complete information on the products they are considering," Household spokesman Mark Friedlander told the AP. "With this information in hand, Household believes financial decisions should be left to the families."

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