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Washington, DC --Today, the National Consumers League (NCL)
issued a warning to American taxpayers to avoid borrowing their
own money at exorbitant interest rates by applying for a Refund
Anticipation Loan or RAL. “These predatory lending practices of
‘loaning’ a taxpayer their own tax refund for between a 40
percent and 700 percent interest rate should be outlawed,” said
Linda Golodner, President of the National Consumers League.
According to IRS data, more than 12.38 million Americans applied
for RALs in 2004 and spent $1.6 billion in fees just to access
their own tax refunds two weeks earlier. The effective annual
interest rate for a RAL varies based on the size of the refund –
from 40 percent on a refund up to $9,999 to over 700 percent for
a $200 refund. One out of every three taxpayers who claim the
Earned Income Tax Credit (EITC), which is specifically for
low-income working individuals and families, applied for a RAL.
“When
tax preparers target EITC recipients for RALs, it robs
hard-working taxpayers and their
families of precious financial resources and erodes
anti-poverty benefits,” said Golodner. More than seven million
EITC taxpayers paid $904 million in RAL fees just to get their
refunds up to two weeks sooner.
“RALs
are not only costly - they also can be dangerous,” continued
Golodner. If a taxpayer’s refund is denied or recalculated at a
smaller sum, the tax preparer that issued the RAL can:
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send the unpaid RAL to a debt collector;
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report the unpaid RAL to a credit reporting company; or
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seize a tax refund in future years to pay off the RAL.
“Filing
your taxes can be difficult and confusing. When taxpayers seek
assistance in filing, they should be able maximize their tax
refunds. Avoiding costly RALs is critical, but they also need
to be aware of all the free services available to lower- and
middle-income taxpayers during this time of year,” Golodner
concluded.
Low and
middle-income taxpayers should access free tax preparation
services and e-file with direct deposit to ensure a speedy
refund. Approximately 70 percent of American taxpayers are
eligible for free federal tax return preparation through the
Free File Alliance, a partnership between the Internal Revenue
Service and private tax software companies. Taxpayers should
visit
www.irs.gov to determine eligibility. Taxpayers should also
access their state tax agency’s Web site to find out whether
their state has a Free File Alliance that offers free tax
services to eligible taxpayers.
In addition,
taxpayers can obtain free tax preparation services in person at
local Volunteer Income Tax Assistance (VITA) sites across the
country. VITAs are sponsored by the Internal Revenue Service
and are located in local community centers. In addition, AARP’s
Tax-Aide program offers free one-on-one counseling, as well as
assistance on the telephone and Internet to help members prepare
basic tax forms. The organization has nearly 32,000 IRS
certified volunteers staffing 8,000 sites across the United
States. Members can locate the nearest site by searching with
their zip code at http://www.aarp.org/money/taxaide/. |
