Tax refund loans could take a big bite out of your check

MICHAEL LIEDTKE, THE ASSOCIATED PRESS

Originally published Saturday, March 30, 2002

As tax preparation giant H&R Block Inc. branches into financial planning, it's boosting profits with a loan program that gets customers refunds faster but takes a big bite of the proceeds.

Block last year arranged "refund anticipation loans" for 4.5 million of its customers -- about one of every four individuals who turned to the company for tax help.

The loans include fees and other charges that can be hefty. Critics of the program liken Block to a loan shark that doesn't do enough to make it clear that the refund advance is really a loan that must be repaid even if the Internal Revenue Service disputes the tax return or part of the money is siphoned away to pay for outstanding child support, student loans or other liens.

Block denies any wrongdoing and says the refund program responds to customer demand.

The loans "are extremely popular," said Block spokeswoman Denise Sposato. "We are just trying to offer our clients something they want."

Similar refund loan programs are offered by other tax preparers and banks. An estimated 10.8 million taxpayers take out loans against their refunds annually, based on an analysis of Internal Revenue Service data by the National Consumer Law Center.

The difference between getting an advance and waiting for the government to issue an electronic refund is about 10 days. Based on that gap, the average $76.19 fee translates into an annualized interest rate of nearly 140 percent on a $2,000 loan, which is close to the average refund returned to taxpayers through March 8, according to the Internal Revenue Service.

At that interest rate, cash-strapped taxpayers are better off drawing a cash advance from a credit card and repaying the money when the refund arrives from the IRS, said Chi Chi Wu, a staff attorney for the National Consumer Law Center, which studies issues affecting low-income households.

Block believes it's unfair to state its loan processing fee as an annualized interest rate. "It's a one-time fee, sort of like paying $3 in ATM fees to withdraw $20," Sposato said.

More information

Read a report from the National Consumer Law Center. Go online to www.consumerlaw.org; near the bottom of the page, click on "Refund Anticipation Loan Report."

The Olympian Copyright 2002

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