New York State League General Counsel Testifies in Support of RALs Regulatory Legislation

LATHAM, N.Y. – The New York State Credit Union League added its voice to others who testified earlier this month in support of pending legislation in the New York State Assembly that would provide consumers' with greater protections against what the League considers to be abusive practices by tax preparers facilitating refund anticipation loans. Speaking on behalf of New York credit unions at the May 2nd public hearing on the RALs legislation, New York State Credit Union League SVP/General Counsel Michael Lanotte voiced credit unions' support of three RAL-related bills, including: * A-1366 would define RALS and require tax preparers to disclose all fees, the total amount of the loan and the APR. The bill would also make it mandatory for tax preparers to advertise RALs as a loan with fees and interest paid by the consumer, instead of as "refunds"; * A-1971-A would protect consumers by eliminating excessive loan fees and rates, grant consumers the right to recover damages, and compel RAL lenders to register with the New York State Banking Department; * A-68880 would create a consumer "bill of rights" regarding tax preparers and establish penalties and civil causes of actions against tax preparers who violate the law. RALs are short-term loans of about two weeks that are secured by a taxpayer's expected tax refund. Fees for these loans typically translate into triple digit annualized interest rates. In addition to the RAL fee, major tax preparation firms charge additional fees that quickly add up and which the consumer often is unaware. A report published in January by the Consumer Federation of America and National Consumer Law Center Inc. described RALs as "usurious short-term loans secured by the taxpayer's expected tax refund." Among the findings of the report, which was based on a nationwide survey of consumers commissioned by NCLC, it found that 18% of consumers had taken out a RAL at some point. Of these consumers, two-thirds did not realize a RAL is a loan – a lack of awareness that "persists despite consumer advocacy and some improved disclosures by tax preparers," the report stated. Lanotte told the Committee members that credit unions in New York are working to provide consumers with alternatives to high-cost tax preparation and RALs. For example, credit union VITA sites such as those run by Union Settlement FCU, Lower East Side People's FCU and Homesteaders FCU trained 100 volunteers last year through the VITA program to ensure low-income workers received their Earned Income Tax Credit. The CUs estimated they saved taxpayers $600,000 in fees by preparing 2,600 returns at no charge, plus an undetermined amount in RAL fees. In the 2005 tax filing year, Lancaster Center FCU, Buffalo, partnered with New York State Sen. Byron Brown's office and Cornell Cooperative Extension to operate their VITA site in a community center from the end of January through April 9. Representatives from Buffalo Metropolitan FCU and St. John United FCU were on-hand to open savings accounts for consumers' tax funds. SEFCU, Albany, and Alternatives FCU, Ithaca, have also participated in the VITA program. "Given the examples I have shared, it's easy to see why the New York State Credit Union League and its member credit unions support legislation that would provide consumers more information about RALs and would prohibit excessive loan rates and fees," Lanotte stated to the Committee. -