Understanding Bankruptcy 2/15/18

Filed under: Latest News |

 BY MICHAEL A. CIBIK
AMERICAN BANKRUPTCY

BOARD CERTIFIED

Question: Have reports of death of refund-anticipation loans been greatly exaggerated!?

Tax Refund Anticipation Loans are short-term loans that are made by lenders, through tax preparers, which are secured by a taxpayer’s tax refund. With interest and fees associated with RALs, the effective annual percentage rate for these loans are often in the triple digits.

Besides being costly, short-term loans are, for the most part, unnecessary.

According to a report of the National Consumer Law Center, Inc., RALs were usually made for a period of anywhere from 7 to 14 days on average. However, the Internal Revenue Service advises that many tax payers receive their refunds within 10 days, and that 90% of taxpayers receive their refund within 21 days.

In the later part of 2011, the Federal Deposit Insurance Corp. entered into consent judgments with several banks to end their lending money for RALs no later than April of 2012.

H&R Block did not offer RALs in 2012, but not because it had seen the error of its ways – rather, because it banking partner for these loans HSBC had been ordered by  the Office of the Comptroller of the Currency to stop funding these high interest loans.

But, as the saying goes, nature abhors a vacuum, so there have been many non-banking lenders that have jumped in to fill the void.

Liberty Tax Service now offers a tax-refund anticipation product known as an Instant Cash Advance to filers expecting a federal refund of $1,500 or more. USA Today recently reported that an individual getting a Liberty Tax Service Instant Cash Advance would pay about $101 to get $1,700.

H&R Block, while technically no longer offering Refund Anticipation Loans, does not offer what it refers to as a Refund Anticipation Check which allows the taxpayer to deduct tax-preparation fees from the refund. H&R Block charges a $24.95 to have the return deposited onto an H&R Block’s prepaid debit card, or $54.95 to have a paper check mailed to the taxpayer.

Jackson Hewitt offers a refund-anticipation check similar to H&R Block known as an “Assisted Refund,” which allows a taxpayer to avoid out-of-pocket costs at the time the tax return is filled out.

Whether it’s called a Refund Anticipation Loan, a Refund Anticipation Check, or something else altogether, the fact is that these products are geared toward:

Low-income taxpayers; taxpayers without a bank account; and are designed for the sole purpose of separating an already financially strapped individual from a portion of his much needed tax refund.

Remember that for the low income and elderly, there are a number of free tax services available such as the Volunteer Income Tax Assistance and the Tax Counseling for the Elderly programs.

Next Week’s Question: Can bonuses paid to debtor after Chapter 7 filing be taken by bankruptcy trustee?

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