The National Consumer League (NCL) has a problem. Too many Americans use the Federal Government as their bank. In 2004 12.38 million Americans applied for Refund Anticipation Loans (RALs) from the Federal Government. The way it works: it is tax time and you need your refund – but you need it now. So you go to your tax preparer and ask them for basically an advance on your refund. They agree, but charge you between 70 and 400% for the loan. You are now paying to borrow your own money.
The NCL wants to put an end to what they perceive as an archaic practice. The annual interest rate alone is enough to dissuade customers, and yet they still apply for the loan. One out of every three taxpayers who claim the Earned Income Tax Credit (EITC) applied for a RAL. These taxpayers are already low-income working class individuals and families who can not afford the interest rates offered them. More than seven million EITC taxpayers paid more than $904 million, just to get their refunds two weeks early.
Not only are they costly, but they can end up being serious trouble for the taxpayer. If the taxpayer’s refund is not what was anticipated, or it is denied altogether, the tax preparer that issued the RAL can:
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