Legislation sheds light on Refund Anticipation Loans

Assemblymember Audrey Pheffer would like to remind taxpayers to consider their options before taking a Refund Anticipation Loan (RAL).
“In the midst of the country’s worst recession since the Great Depression, many New Yorkers are having trouble making ends meet. Given this tough economic climate, it is especially tempting to want your tax refund instantly. But think twice before falling prey to refund anticipation loans, commonly called RALs, which provide you money up front, for a very steep fee,” said Pheffer.
RALs are short-term loans made by banks through tax preparers and secured against the taxpayer’s expected tax refund. The annual percentage rate tax preparers charge for RALs can range anywhere from 50-700 percent, according to Pheffer. Taxpayers can also face additional charges if their refunds don’t arrive when expected, she added.
According to the non-profit National Consumer Law Center, RALs drained the refunds of almost nine million Americans in 2007, costing them $833 million in loan fees and $68 million in related costs. That means about one in 15 tax returns involved a RAL.
Legislation Assemblymember Pheffer introduced addressing concerns relating to RALs became law as of January 1. The Consumer Bill of Rights Regarding Tax Preparers was modeled after the City of New York’s successful law regulating paid tax preparers.
“This new state law helps better educate the consumer on tax preparation practices, including Refund Anticipation Loans (RALs),”?said the Assemblymember. “RALs are often misrepresented as an ‘instant refund’ to consumers rather than the high-interest rate loans they actually are.”
The new statute requires paid tax preparers to provide their customers with a “Consumer Bill of Rights Regarding Tax Preparers” to be created and distributed by the Department of Tax and Finance. The new law also prohibits RALs from being advertised as a refund and require advertisements for RALs to conspicuously state that it is a loan, that fees and interest will be charged, and include the name of the lending institution.
In addition, the law requires tax preparers to provide a specified written disclosure to a consumer prior to entering into a RAL — including information on the nature of the loan, the estimated annual percentage rate of the loan, RAL costs and fees, and the estimated time the customer can expect to receive his or her refund under different circumstances, including if the tax payer elects to file for and receive his or her refund electronically.