It's Tax Season, Are Your Members Throwing Money Away on Refund Loans?
Credit unions that help their members prepare and file their tax returns and then deposit their refunds in credit union accounts, are helping the members avoid losing millions of dollars in so called refund anticipation loans.
According to the Consumer Federation of America and the National Consumer Law Center, low and moderate income tax payers lost roughly $800 million in different fees associated with the loans.
The loans work in a similar fashion to payday loans in that a third party tax preparer, often but not always a major firm, helps the member prepare and file a tax returns for a fee and then provides the member with cash immediately as a loan based on that return again for more fees.. The loans generally last for between a week and two weeks, the consumer advocates said.
"In tough economic times, quick money may be tempting. But American taxpayers need every dollar of their refunds, and waiting just a week or two will put more money in their pockets," says Jean Ann Fox, Director of Financial Services for CFA.
Using the most recent data available from the IRS, the two firms calculate that about 8.4 million taxpayers received a refund anticipation loan in the 2008 tax filing season (for tax year 2007). For that year alone, about 1 in 17 tax returns involved a loan.