Philadelphia, Pennsylvania, New Jersey, Nationwide
In recent years, many tax preparation chains and individual tax preparation firms advertised varying forms of instant, same-day or 24-hour tax refunds. But there is no such thing as an instant refund from the Internal Revenue Service (IRS), and these advance payouts are actually deceptively marketed high interest loans.
Known as a refund anticipation loan (RAL), these payments have been marketed as instant or rapid refunds but are accompanied by hefty fees that often include triple-digit interest rates. The Philadelphia consumer class action attorneys at Golomb & Honik are litigating claims from Pennsylvania, New Jersey and across the United States that tax preparers used deceptive and predatory advertising practices to generate billions of dollars in revenue from ill-informed consumers.
What are Refund Anticipation Loans?
RALs are short-term loans made by banks and facilitated by tax preparers, including some of the nation’s leading tax preparation franchises. These loans are secured in part with your anticipated tax refund.
Not only have RALs been marketed to consumers as rapid or instant refunds, they are typically accompanied by various hidden application and administrative fees as well as annual interest rates as high as 500 percent. Consumers may believe they can pay back the loans when they receive their actual refunds from the IRS, but they also have to pay any difference between the refund and the loan amount in addition to the interest and any additional fees. This exposes consumers to the risks of unpaid debt if refunds are less than expected and/or arrive later than expected.
The devious marketing of RALs has largely targeted low- and middle-income consumers who qualified for the Earned Income Tax Credit (EITC) and who are cash-strapped in a stagnant economy. Needless to say RALs have generated substantial revenue for tax preparers and financial institutions.
More than 7 million consumers took advantage of RALs in 2009 alone, according to the National Consumer Law Center, paying more than $600 million in loan fees and another $58 million in associated charges. The cost for an average refund loan of $1,500 was $61.22 in 2009, and the average annual interest rate was nearly 149 percent.
Refund Anticipation Loans Today
Tax preparers and banks who offer RALs have become the focus of action by consumer groups and government agencies, and many tax preparation firms have halted the practice. Although RALs are fading, they have not yet disappeared.
Today, the IRS offers options for faster refunds, including electronic filing and refunds via direct deposit. Consumers are warned to avoid RALs and are advised to contact an attorney with experience in deceptive financial services if they were victims of RALs fraudulently sold as rapid refunds or instant refunds.
If you believe you were defrauded in the process of receiving a tax refund anticipation loan, please contact the Philadelphia consumer class action attorneys at Golomb & Honik for your free case evaluation. We represent clients from Pennsylvania, New Jersey and across the country.
