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Refund Anticipation Loans and the Earned Income Tax Credit

Not so fast…..

H&R Block a usurious moneylender?  That’s not the standard image for H&R Block or other major tax preparation agencies.  However, part of their business does in fact involve making loans at what works out to be a rather high interest rate.

Tax preparation agencies frequently make “Refund Anticipation Loans” or “Refund Anticipation Checks” to clients who use their services to file their taxes.  Generally in connection with lower income clients.  In a sense, these loans are comparable to payday loans.  You expect to receive a check, in this case a refund check.  But you want to have the cash now.  So they write you a check today in exchange for the money you would receive down the road.  And they get to keep a piece of it.

The problem is, much like with payday loan companies, that the piece they keep works out to a rather high interest rate if you do the math.  This is often done in connection with lower income clients who don’t have bank accounts of their own.

And the irony in the situation is that the lower income tax clients are simply trying to receive their Earned Income Tax Credit, which is one of the ways the government actually provides income to people who need it because they don’t earn enough to live on.  In other words, even though the government is giving money to people in need, those people end up having to pay a fee to the tax preparation agencies in order to receive that money.

Also, people are often confused in thinking that the check they receive from H&R Block, Jackson Hewitt, et al. is in fact the refund check.  However, that is not at all the case.  They check received is actually a loan from the tax preparation agency.  The real refund check (which is a higher amount than what the tax client receives) then goes to the tax preparation agency.

If you have questions about taxes and debt or bankruptcy, please feel free to contact Bruce Weiner, an experienced bankruptcy trustee in Brooklyn, for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA
718-855-6840
http://nybankruptcy.net/

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