NEW YORK – A consortium of four community development federal credit unions is reaching out and attempting to educate 50,000 low-income households – prior to the April 15 tax filing date – on the federal earned-income tax credit (EITC) benefit, while turning them away from fee-based tax preparers who offer high interest refund anticipation loans with APRs of 100% to 1,500%. The New York City Financial Network Action Consortium was made aware of the problem from a May 21, 2002 New York Times article that focused on the research findings by the Brookings Institution and Progressive Policy Institute. The joint report revealed that of the $30 billion in earned-income tax credits nationwide given to 19 million people, approximately $1.75 billion was being spent in fees by tax preparers and lenders – nearly seven cents of every dollar of aid. In New York City, a fifth of all eligible low-income wage earners take out these high interest loans. Approximately 230,000 eligible households do not even receive federal or state EITCs. Surprisingly, it is the largest tax preparation firms that are promoting the high interest, refund anticipation loans. H&R Block and Jackson Hewitt, a unit of Cendant Corporation, along with their lending partners Household International and Pacific Capital Bancorp., for example, were cited in the report. "I'm not surprised that it's the larger, well-known tax preparers that are making these high interest loans. If you look at the problem that surrounds predatory lending, you will find that some of the largest corporations in America are behind it," says Peter Bray, executive director of the Consortium, whose member credit unions include: Bethex, Homesteaders, Lower East Side Peoples and Union Settlement federal credit unions. On January 15, the Consortium embarked on a $40,000 campaign to inform low-income wage earners eligible for the EITC on where to obtain free tax preparation services while, at the same time, allowing them to have their refunds directly deposited in newly established credit union accounts. The most pro-active portion of the multi-faceted program is the hiring of four outreach representatives at each credit union, for a three-month period. The representatives will be aggressive in the respective credit union communities and promote the EITC to low-income populations, says Bray. "They will also be present at a number of free tax preparation sites with new account numbers, enrollment forms and signature cards to sign up new members and offer them direct deposit on the spot," he says. According to the IRS, there are some 580 organizations offering free tax preparation services this season in the metropolitan area. NYCfNAC's goal is to sign up 2,500 new credit union members, an aggregate increase of 12.5 percent of the consortium's combined 20,000 members. NYCfNAC is also counting on the cooperation of various community-based organizations in the respective areas that will disseminate literature and inform up to 20,000 households on EITC assistance. Many of these organizations own and manage affordable housing units and represent large tenant populations. NYCfNAC, for example, is in the process of getting 6,000 information packets ready that will be mailed with February rent notices at Mount Hope Housing and New Settlement Housing companies, both in the Bronx. Bray also hopes to send information out to residents at Hope Community and Lower East Side People's Mutual Housing, both in Harlem. Four kiosks have also been installed at each of the participating credit unions. They are equipped with brochures explaining the eligibility requirements of the EITC and "buck slips" informing people on what they need to do in order to access free tax preparation services. The kiosks are accompanied by 22″ x 28″ informational posters, both in English and Spanish. The money for the program has been provided by two grants. Approximately $10,000 has been donated by The New York Community Trust and $30,000 has been donated by a family fund, which wants to remain anonymous. A large percentage of NYCfNAC members would be eligible for the EITC, according to Bray. He adds that many of the 233,000 New York City/metropolitan area residents who do not take advantage of the EITC can be among the area's unbanked population of one to two million people. The average EITC refund is $2,000, but it can be as high as $5,257 (see sample chart). In many cases, the EITC refunds can place residents above the poverty level, but the high interest rates charged by the refund anticipation loans, however, may prevent this from happening. It's easy to see why low-income wage earners are enticed to take out a refund anticipation loan. They normally do not have the $100 tax-preparation fee, so the money is taken from the refund. This is on top of the 100% to 1,500% interest rate they have to pay, according to Bray. The APR is very high and the loans are made for a very short period of time, since tax preparers file the forms electronically and the refunds, which they keep, can be as fast as 10 to 17 days. "This takes advantage of the propensity of the poor, who live from paycheck to paycheck and who live in a cash economy, to incur higher costs in order to get cash faster," says Bray. If NYCfNAC's project is successful, it will run the program again next year. "One of the things I find interesting about the project is the context in which it is taking place," says Bray. "There's a whole debate going on about President Bush's economic stimulus package, which targets tax cuts to the wealthiest segment of society. Nothing has been said about the EITC or the fact that there is so much EITC money that is not being claimed. "From a stimulus standpoint, you can be sure that every dollar that goes into the hands of a low-income household will be spent on necessities, housing, food, utilities . money that goes out into the economy," he adds. What happens to unclaimed EITC monies? "I guess it goes to make welfare payments to the largest corporations in the U.S. Isn't that ironic?" says Bray. -

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