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Article Archive >> Business

Be Refund Savvy: BBB Warns Consumers to Resist RALs

Be Refund Savvy: BBB Warns Consumers to Resist RALs

January 23, 2008-Baltimore, MD- 'Tis the season for taxes, and Better Business Bureau (BBB) | Greater Maryland urges taxpayers to resist the temptation of refund anticipation loans (RALs) which may just deplete their refunds through excessive fees and interest rates. Companies like Jackson Hewitt and H&R Block advertise their RALs by alluring consumers with a quick loan guaranteed within one to two days of applying for the refund. In actuality, it only takes six to 14 days longer to receive a refund directly from the government.
RALs are bank issued loans that are secured by the taxpayer's expected refund. The problems arise for the taxpayer when interest rates and bank fees associated with the RAL diminish the value of the actual refund, sometimes leaving the taxpayer in debt.
BBB | Greater MD reminds taxpayers to weigh the costs that accompany RALs. Interest rates for RALs have been reported to skyrocket from 148% to 700%. Moreover, bank fees on the short-term loans can range from $57 up to $136. To maximize their refund return, individuals who do not already have a free checking account might consider opening one with a local financial institution where the refund can be deposited directly by the government at no cost. It may take up to two weeks longer to receive the refund, but the savings can really add up.
Expenses including fees and interest rates, when factored into the total amount of a refund can take a significant bite out of the original estimate of the refund. And, in the worse case scenario, a taxpayer can find himself in the red if the refund amount is overestimated by the tax preparer. Subsequently, the taxpayer is still responsible for the full amount of the loan, even if it exceeds the amount of the actual refund.
On January 3, 2008 the IRS released a statement announcing that it is considering new rules restricting the sharing of tax return information to those that market RALs. This is presumably an attempt to derail lenders from the unethical practice of overestimating refunds.
BBB | Greater MD encourages taxpayers to beware of lending practices when applying for Tax Refund's this season. BBB offers the following advice to aid taxpayers in getting the biggest bang for their buck out of tax refunds:
* Think logically. Simply waiting two weeks for your money to come directly from the government can save hundreds of dollars.
* Take appropriate measures. Having a free checking account enables you to receive your money faster by direct deposit rather than obtaining a check through the mail.
* File electronically. For the faster return, taxpayers seeking refunds can visit www.irs.gov and file for their tax refunds in an easy and timely manner.
* Don't bite off more than you can chew. Because refund amounts are sometimes overestimated, it would be wise not to spend the amount of the upfront loan in its entirety - this diminishes the chances of placing yourself in debt.

To file a complaint visit: www.baltimore.bbb.org or write: BBB, 1414 Key Highway, #100, Baltimore MD 21230. Their office serves Baltimore and all of Greater Maryland.

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