RALs Offer Raw Deal

Friday, Feb 15, 2008

LITTLE ROCK – While the warmer weather may be a sign that spring is right around the corner, another season is already in full swing: tax season. Today, Attorney General Dustin McDaniel issued this consumer alert to warn Arkansans about the pitfalls of refund anticipation loans (RALs).

In 2006 approximately nine million American taxpayers received RALs, which promise a short term loan backed by and repaid from a pending federal tax refund. While RALs provide cash fast, the interest rates attached to these short term loans can reach 100% or even higher. In 2006, consumers paid an estimated $900 million in RAL fees, essentially paying to borrow their own money at extremely high interest rates.

RALs prey on cash-strapped working families, especially those who qualify for the Earned Income Tax Credit (EITC). The EITC is a refundable federal income tax credit for low-income working individuals and families who qualify. Last year, thousands of Arkansans received millions in EITC payments. In addition to the dollars lost because families don't know about the EITC or can't get the help they need to file a tax return, these families lose even more when they buy RALs.

"With a little preparation and a little patience, taxpayers can get back all the money they worked so hard to earn in the first place," said McDaniel. "Most Arkansans can even file their federal taxes for free, saving them from paying extra fees and extraordinarily high interest rates."

Many Arkansans can utilize the Internal Revenue Service's Free File program. This Web-based program is a free federal tax preparation and electronic filing program for taxpayers who earn less than $54,000 in annual adjusted gross income. Eligible consumers can go to www.irs.gov , click on the "Free File," and choose from more than 20 private companies that will file federal returns at no charge. However, consumers wishing to file their Arkansas state tax returns through the same service may have to pay a fee to do so.

Arkansans who cannot afford to pay for tax preparation assistance can receive free help through the Volunteer Income Tax Assistance Program (VITA). Consumers can call 1-800-829-1040 for information about VITA volunteer locations near them. Additionally, seniors can contact the American Association of Retired Persons (AARP) at 1-888-227-7669 to find the nearest TCE/Tax-Aide site.