As of last year, there weren’t going to be any refund anticipation loans or tax refund loans ever again, due to an extirpated IRS law. However, sometimes things do come back, as a new form of the loans are being offered by a number of tax preparation services.
Refund loans supposed to have died thanks to IRS
In recent years, there was a bit of controversy over refund anticipation loans, also called tax refund loans. Similar criticism to payday loans and other forms of short term credit was leveled, like predatory lending to poor people, high interest rates and so on.
As of last year, refund anticipation loans were kaput. The Internal Revenue Service, according to the New York Times, announced in 2010 that the agency would stop offering a particular service by 2012, where tax preparer could receive a code indicating whether a tax refund had any encumbrances like garnishments or child support.
Later it was discovered that a number of banks were funding the loans for preparation services, contradictory to a Federal Deposit Insurance Corporation law mandating banks know about borrowers’ debts before making a loan, according to Reuters. Ergo, banks stopped the funding and the loans were dead.
Sometimes they come back
However, refund loans are back – sort of. According to CNN, a number of tax preparation services are offering similar products, albeit under different guises. In an RAL, the borrower got the funds via cash, check or prepaid debit card. The lender, usually a preparer like H&R Block or Jackson Hewitt, would get the return transmitted to them.
The newer class of similar products are similar, though it depends on exactly who one gets it from.
Some recent examples
Popular forms of refund loans are refund anticipation checks, refund cash advances and lines of credit, according to Fox Business. Some lenders can offer non-bank RALs. Lines of credit are essentially that, a line of credit that can be drawn on. Fees are charged for withdrawals and the borrower has several weeks to repay it, ostensibly by handing over their refund.
An anticipation check is where lender sets up a bank account. A check or prepaid debit card tied to the account with an amount of the refund less fees is given to the borrower. Once the borrower gets their refund, they deposit it and thus pay the balance. Fees for an H&R Block refund anticipation check, according to USA Today, range from $24.95 to $54.95, depending on arrangements. Granted, anticipation checks aren’t new, having been around for years.
Another guise of refund loans is “refund buying,” where a lender will “purchase” a refund for a discount, essentially a cash advance on the refund. Others offer an overt advance; Liberty Tax Service, for instance, offers an Instant Cash Advance on refunds up to $1,500. Fees, according to CNN, vary by state, depending on lending laws.
The upside to a refund loan of some sort, either by refund anticipation check or refund advance, is that a person gets a portion of the refund money in as little as 48 hours. Usually the term is about two weeks.
However, a person who electronically files can get their refund direct deposited within three weeks or less. Patience can pay off if a person decides just to wait. That is, if they can wait.
USA Today: http://www.usatoday.com/story/money/columnist/tompor/2013/01/30/tompor-column-tax-refunds/1878241/
Fox Business: http://www.foxbusiness.com/personal-finance/2013/02/07/refund-anticipation-loans-live-on-in-new-disguises/