Consumer Federation of America Asks Regulators to Address RALs
May 7, 2010 · Print This Article
The Consumer Federation of America (CFA) is a watchdog group that is pursuing those businesses offering refund anticipation loans. The consumer group has been “mystery shopping” and has uncovered many cases of deceptive practices on the part of a variety of businesses but especially among tax preparation groups.
The refund anticipation loan (RAL) is made when a company offers to give a consumer a loan equal to their anticipated tax refund. The idea is the consumer is able to access the funds much faster rather than waiting for a refund. In this particular request by the CFA, the U.S. Treasury Department’s Office of the Comptroller of the Currency (OCC) is asked to enforce banking rules that already prohibit deceptive advertising and false tax return preparation.
The mystery shopping uncovered the fact that some commercial tax preparers are falsifying tax refunds that overstated refunds. The consumer would take out a loan based on the refund amount and then owe penalties and interest on an exaggerated amount in addition to having to pay back more than was actually refunded.
There is a federal 2007 guidance that requires RALs made by banks through commercial tax preparers to meet certain disclosure, capital, and advertising standards. Instead a number of lawsuits already brought by federal regulators in addition to consumer advocate mystery shopping have revealed that banks are not meeting the standards.
The CFA want the OCC to begin stricter enforcement of the banks making the RAL loans. The CFA wants activities stopped that include inflated refunds, false tax return preparations, misleading advertising, false refund claims, and others. In fact the CFA wants RALs barred entirely after the current tax season ends.
Making Refund Anticipation Loans is big business. There are millions of dollars in loans made each tax season and mostly to low income consumers needing the cash. In the opinion of the CFA, the RAL is predatory lending which is the basis for the request they be stopped entirely. Over 8 million taxpayers took out RALs in 2008 and they amounted to $378 million. In addition, there was $68 million in fees paid on these loans.
The CFA wants the largest RAL provider, JP Morgan Chase, to take responsibility for all 13,000 tax preparers giving RAL loans to consumers through the bank. Chase would have to act as the regulator and insure predatory lending is not occurring. This means Chase would have to monitor advertising, tax preparation practices, and perform random testing. Other banks funding RAL loans would have to do the same.
The letter from CFA to OCC was signed by a number of consumer advocate organizations. The CFA is a nonprofit organization and is made up of 280 consumer advocate groups. It claims 50 million memberships which is why it is able to exert its influence while protecting consumer rights. In the opinion of the CFA, the entire business of Refund Anticipation Loans should end.
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For all the consumer protections that the sweeping and historic financial-regulations bill puts in place, there are two major loopholes that should serve as a warning to consumers that predatory lending will not disappear.
Sure he blames Russia and China he wants to promote them as the bad guys in our economic mess. What scum bag lying piece of dog crap he is part of. He wants to make it like our bankers wall street thieves are not to blame. He would also like to plant the seeds for war against these two nations so his investments could speculate on both sides of a new world war. In other words he would like to maneuver himself into a position to profit from both sides in a war America has with multiple nations.
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Interesting. It’s kind of a moot point for me anyway, as it just gives me one more excuse not to deal with these guys anymore than I absolutely have to. This is one of two Ford dealerships within about 30 miles of our house. This dealership is a nightmare to work with, while the other is an absolute joy most of the time. The only reason I even consider going to this one is because it’s where I regrettably purchased my car in the first place.
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In United States (US) in Corp. Double taxation" frequently occurs, because the corporation is taxed on its profits.
I can’t believe no one else is talking about this tax break.
You are so behind Ken Hodges in your ability to see past politics! Ken shut down these predatory lenders in Albany YEARS AGO!!!!! It didn’t take some bill written by a pen pushing politician standing on a curb as if he is the first to discover this injustice.
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One of the best things to do is to make penalties payments illegal. Most predatory lenders keep their victims in perpetual debt with penalties fees imposed on the borrower for any asons. These penalties, along with tripling or even quadrupling of interest rates manage to actually increase the debt of the borrower even if the borrower is paying the full amount of the loan.
bank regulatorsacondemn lending practices in the booming subprime credit market. … As the borrower misses a payments, home equity lenders can charge …
Filename : sr273.pdf
Fullpath : /research/staff_reports/sr273.pdf
Publisher : newyorkfed.org
Found at Sunday, 1 Aug 2010 GMT
Further searches : research staff reports sr273 pdf or defining detecting predatory lending or site:newyorkfed.org
The RAL is done during tax season so it wont be available until Jan. If you are talking about the advances they do before Christmas it will be in Dec but the opening dates are not set yet.
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Even H&R Block’s conviction of racketeering back in 2000 did nothing to stop these loans which clearly take advantage of the poor (who often don’t have too much on the ball) and people like drug addicts that are desperate for that money right now! Block secures these loans at a 36% interest rate from HSBC Bank (also up on racketeering charges) plus $60 in finance charges. These are clearly loan shark rates.
You’ve probably seen the signs in late March and early April. “Get Your Tax Refund Today!” Waving statues of liberty strewn along the side of the street, beckoning you to come in and get your taxes done. What you may not know is that those tax preparers use predatory lending practices to wheedle tax returns away from low-income families to line their own pockets. It’s called a “Refund Anticipation Loan,” or RAL. The customer gets her money today! No delay, no waiting! Well, for a fee. Plus interest. The customer often thinks that the tax preparer is doing her a favor, when in reality, the tax preparer is giving her a very high-interest loan, often through a bank. How high is the interest? Ridiculously high. Advocates at the Shriver Center on Poverty Law say the interest rates can be as high as, “50 percent for a $10,000 RAL to 500 percent for a $300 RAL.” And these RAL providers prey on low-income communities for two reasons: 1) people in low income communities often need money fast…
Chris says that all debt isn’t bad because as an investment, it encourages growth, but a lot of this crash course is based on how growth is unsustainable.
Still doing good, showing the silver lining. Keep it up Stacy
I am not a scholar or a Muslim.
To the best of my understanding and knowledge, in simple terms, it works like this:
Ijara – the bank takes the cost of the house, plus the interest you would pay if you got a mortgage from a traditional bank and loans you that amount of money in total. Then you pay them back. You're basically borrowing the interest up front.
Hopefully others will know…..
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That would be great, if this is true. I could use my money now, rather than later. Let's check that out on H&R Block's website. Sounds like a plan.
anticipation loan will be lowered to offset the additonal risk providing these types of refund anticipation loans.
Work at a different bank that doesn't require banking experience? Maybe working as a cashier in a department or grocery store will give you some needed experience? If not then you need some connections and have someone pull you in.
The Gates Foundation, last I heard, invested heavily in predatory lending firms as well. Been long known that they're evil.
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Is there anyone who loans money based on the situation, rather than on a credit score/computer without any explanation? Me: – Poor credit (but am currently on time with all payments) – Begin a lucrative job in late 2010 (over 150k / year in salary) – No current income until then – Will have an $8,000+ tax refund in early 2011 – Need to borrow $10,000 – $15,000 to get me from here to there Are there any non-traditional places to turn for a loan? My credit is bad, but if someone that wasn’t a computer looked at my situation, they would see that I am good for the money. I can back up the upcoming job, the tax refund situation, etc. The job is with an extremely stable company in a very good field. I don’t really have the ability to get help from family, and would prefer not to disclose this to all my friends searching for someone who could help personally. I’m looking for a short term loan of about $15k, paid back within 1 year, and know that I would have to pay a high interest rate to…
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Block and Hewitt are giving loans now. They aren't really RAL's, since it's too early for that. You'll pay very high fees and interest, so they are really not a good idea. And you have to have decent credit to be approved.