Consumers Cautioned Against Getting Tax Refund Anticipation Loans or Refund Anticipation Checks
Should you get a loan to get your tax money faster?
The loans are paid off with your tax refund. And, consumer advocates worry that many people will be tempted with getting these loans after the Internal Revenue Service said it wouldn’t process many returns right away.
National Consumer Law Center attorney Chi Chi Wu said the delay in refunds will put a lot of people in a rough spot.
The delay is the result of tax authorities cracking down on fraud and identity theft.
The IRS said refunds would be held until Feb. 15 for people who claim the Earned Income Tax Credit and/or the Additional Child Tax Credit.
Refunds that are electronically filed could take up to four weeks for processing to occur. Paper returns could take 12 weeks at least.
The National Consumer Law Center said many preparers and lenders call it “an advance” but what they really are are loans. And, the number of advertisements offering the “interest-free loans” has grown significantly.
How Do No Interest Loans Work
Though there is no finance charge and the loan is interest-free, some lenders will charge the tax preparer a fee. Wu said the preparer absorbs this cost as a way to do business, but a dubious preparer could pass this fee onto a consumer by charging more.
There may also be additional fees
In a report from the National Consumer Law Center, during the previous tax season, many lenders would charge more for the refund anticipation checks if the loans were offered by the preparer. They could also defer payment of the tax preparation charges pending the return of the refund.
According to the group, these are add-on junk fees that cost consumers $25 to hundreds of dollars. The law center about 19 million taxpayers attained a refund anticipation check in 2015, and if each one cost $25, taxpayers paid around $475 million against their refunds for the tax preparation fees.
Consumer advocates said consumers would be better off not getting a refund anticipation loan.