Consumer Federation of America Asks Regulators to Address RALs

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.

What the Credit CARD Law Does Not Do

There has been a lot of talk about the new Credit CARD Act that took effect on 22-February-2010. There were high hopes among consumers that the new law would rein in the excessive fees that make it difficult to pay off card balances when making minimum payments. Unfortunately the law only goes so far. For many the law is too lax because it does not limit the amount of interest rates and fees that can be added. It only limits when they can be changed.

The Consumers Union has expressed the opinion that the law is an important first step in establishing rules that limit the credit card company’s ability to use tricks to capture consumers in unmanageable debt. The new law addresses billing, disclosure, marketing to college students, and the infamous introductory offers that come in the mail.

There are things the new law does not address though. The credit card companies can still raise interest rates as high as they want and can add new fees too for opening, closing, or making account changes. They can still reduce account credit limits too without giving the card hold any warning.

A plethora of fees that will show up on consumer accounts are expected. In many cases the addition of new fees started months ago. The financial institutions have been crafty too. For example, Fifth Third Bank began charging $19 when a card is not used for 12 months. In other words, it is a fee for not charging. Banks are charging for printed statements, cash advances, minimum account charges, paying online and more.

The Credit CARD law clearly does not limit fees and that means the credit card companies are free to replace as much of the revenue lost through new regulations as desired with new fees. In the opinion of the Center for Responsible Lending the card issuers are able to do pretty much what they want still.

What else does the new law not do? It does not prevent credit card companies from raising interest rates on new purchases. Though interest rates cannot go up on purchases already mad, the new rates can be as high as the company wants to charge. For example, First Premier Bank offered a credit card with a 79.9 percent interest rate. You have to speculate as to the type of customer who would accept such an exorbitant rate.

The law also does not stop the credit card companies from lowering credit card balances which can lower a credit score. The Credit CARD Act does not apply to business credit cards. That means many small businesses will still face the same problems as before when working with the lenders. The law does instruct the Federal Reserve to study how businesses use credit cards.

The next step according to consumer advocates is to extend the law to include limits on fees and interest rates. Though that could happen, it probably will not happen anytime soon. The credit card companies are already expected to lose revenues during a time when the economy is struggling to recover. It is unlikely Congress will address in the near future what the Credit CARD Act does not do.

Consumers Prepare for Credit CARD Act

Consumers have been inundated with news about the passage and implementation of the Credit CARD Act. CARD stands for Credit Card Accountability, Responsibility and Disclosure. [Read more]

The Temptation to Use Credit

It’s no secret that the economy at the moment isn’t in the best of conditions. People are finding their bank accounts dwindling or, in the worst cases, totally drained of funds. Is it any wonder that when you slide your card at the store and hear those words, “Is that debit or credit?”, you’re tempted to answer with the latter? [Read more]

MBIA Files Suit Against Merrill Lynch

The Armonk, New York-based MBIA, the largest bond insurer in the country, has filed two lawsuits against two separate Merrill Lynch & Company businesses for selling protections against mortgage-debt defaults. The suit was filed with the New York State Supreme Court. [Read more]

Tips to Improve Your Credit

It almost goes without saying that if you have debt, you have a less than stellar credit rating, and with more Americans in debt now than ever before, chances are likely that you or anybody you know can benefit greatly from just a few simple tips and advice on the ways in which a credit score can be improved. Even if you have a great credit score, it is still good to improve of refresh your understanding of the ways in which you can maintain a good score and keep building it into something exceptional. [Read more]