FSI Tax Corp executives are strongly cautioning taxpayers against using unnecessary and risky Refund Anticipation Loans, or RALs, which tempt many low- to middle-income taxpayers this time of year.
RALs are expensive, short-term loans lenders give based on an anticipated tax refund amount. Typically, after the bank deducts its charges and the tax preparer’s fees, the remaining balance is issued to the taxpayer. Approximately two weeks later, the bank will receive the taxpayer’s refund check directly from the IRS. Borrowers, however, could get stuck with a heavy debt if the refund does not arrive on time or is less than the refund amount they expected to receive.
“These loans are usually unnecessary and if something goes wrong with the expected refund, borrowers will suddenly find themselves in debt,” explained Michael Smith, Managing Authorized Taxpayer Representative for FSI Tax Corp. “Borrowers are required to repay the loans regardless of whether they actually receive their refunds or if their refund checks end up being smaller than what the tax preparer at the tax refund loan operation calculated.”
Recent figures indicate that nearly 9.6 million taxpayers paid over $1.05 billion in loan-related fees in 2005 to borrow money they expected to receive from the IRS two weeks later. In 2004, approximately 12 million people paid over $1 billion in loan fees.
Refund loans can carry an APR of up to 500 percent on top of loan fees ranging from $30 to $125. Some tax preparers also charge a separate application fee.
Smith and FSI Tax President John Gourdin say that because refund loans are risky, taxpayers should be sure to read all of the fine print before considering the loan.
“Taxpayers who are eager to receive their refunds should file early, file online and should request direct deposit,” said Gourdin. “There is no reason to subject yourself to the needless and inevitable expense of a refund loan when you don’t have to.”
FSI Tax executives referred to a November 2006 report from the National Consumer Law Center (NCLC) and the Consumer Federation of America (CFA) detailing the dangers of RAFs.
About FSI Tax Corp
FSI Tax (fsitax.com) was established in January of 2004 with a mission to provide top-quality federal tax resolution services to taxpayers seeking compliance with the IRS. For more information about FSI Tax and the services they provide, please call 877-437-4669 or visit the FSI Tax Corporate website.