LANSING – As the April 15 tax-filing deadline approaches, House Democrats today called on the Senate to pass legislation which will protect Michigan families by regulating Refund Anticipation Loans (RALs). RALs allow consumers to immediately receive their tax refunds from tax preparers, but often include excessive interest and hidden fees by preparers.
“While these loans might look good to consumers who want their tax refunds quickly, safeguards must be put into place in order to educate families and protect their pocketbooks," said House Majority Floor Leader Steve Tobocman (D-Detroit), sponsor of the legislation. “A RAL is not your tax refund – it’s a loan, complete with interest rates and hidden fees. This legislation will not prohibit RALs, but it will ensure that consumers are educated and that tax preparers are upfront about how much these loans actually cost.”
Under the plan, which passed the House on Feb. 12, the following information would have to be provided by all tax preparers who provide RALs:
- All interest, fees and hidden costs associated with RALs;
- That a RAL is a loan and not a refund;
- That the taxpayer could file electronically to expedite processing time;
- The estimated time a refund would take to be issued by the government;
- That there is no guarantee that the refund will equal what is on the tax form; and
- That the taxpayer is responsible for the difference if the tax form is not correct.
According to the National Consumer Law Center and the Consumer Federation of America, 5.9 million working families nationwide spent over $600 million in RAL fees in 2005, which averages out to be about $100 per filer. Currently, 10 states regulate RALs. Tobocman was critical of the heavy use of RALs given the changes at the IRS that enable the average electronic tax filer to receive their refund in two weeks or less. The disclosure legislation is supported in concept by the lending community.
“Working families are the ones most likely to use these loans,” said State Representative Robert Dean (D-Grand Rapids). “They are also the ones who can least afford having their tax refunds eaten up by outrageous interest rates and hidden fees. I call on my colleagues in the Senate to pass this legislation now to ensure that Michigan families are protected.”