Governor’s Office Urges Patience With Tax Refunds
Tuesday, April 03, 2012
Refund Anticipation Loans (RALs) and Refund Anticipation Checks (RACs) promise citizens immediate payments for their refunds, but the governor’s office is concerned that they come with fees and interest rates that significantly reduce the size of refunds. The fees and interest rates are so high that federal regulators are now moving to block all RALs by next year.
“Taxpayers need to know that their refund belongs to them and not to any tax preparer,” Barbara Anthony, Undersecretary of Consumer Affairs and Business Regulation said. “Tax services should receive an appropriate fee for their expertise, but these fees and rates are unconscionable.”
RALs are bank loans secured by the taxpayer’s expected refund that usually lasts a week or two, until the IRS refund repays the loan. Unfortunately, the interest rate can be more than 100 percent, according to several tax service companies.
The Federal Office of the Comptroller of the Currency (OCC) is now against RALs with interest rates over 100 percent, and the OCC says that RALs will no longer be available after this tax season.
As RALs are fazed out, taxpayers are turning to RACs. A RAC is a temporary bank account which the IRS directly deposits a refund check. Consumers access these funds with a check or prepaid card. When the money is gone, the account automatically closes.
Taxpayers usually pay around $30 to set up one of these accounts. If they want to receive a paper check, they could end up paying a check-cashing fee. Though they are cheaper than RALs, the administration is urging taxpayers to avoid RACs as well. They instead advise consumers to set up their own checking accounts and arrange to have tax returns deposited directly there, even if it takes a bit longer.
“During tax season, consumers need to remember that they earned all the money in their refund,” Undersecretary Anthony said. “It’s your hard-earned income, and it should be all yours and no one else’s. A little patience can be worth hundreds of dollars.”
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