The Star-Ledger

Tax Refund Loans Are Losing Favor

The Star-Ledger — Sunday, February 24, 2008

Star-Ledger Staff

Just like she's done for years, Vern Williams went to an H&R Block office in Newark and had them prepare her taxes. The 66-year-old city resident paid $204 for the service, plus another $96.95 in fees and interest to get her anticipated $3,804 refund almost immediately.

Kenneth Hayward took his taxes to New Jersey Citizen Action and had specialists at the community organization prepare them for free. He paid $63 in refundable bank fees and interest, and was able to pick up a loan check for his $736 anticipated return two days later.

Williams, who had to leave her job in May because of an illness, obtained what the tax industry calls a refund-anticipation loan, but many consumer advocates call a rip-off.

Newark resident Hayward, on the other hand, was one of the first New Jersey residents to get what Citizen Action calls an alternative refund-anticipation loan. The group is the only organization in the state – and one of a just a handful in the country – offering lower-income taxpayers an alternative to high-interest loans obtained through commercial tax preparers such as H&R Block and Parsip pany-based Jackson Hewitt.

"We're not pushing it, but we don't want to lose a client to tax-preparing agencies because they need the money the next day to pay a bill," said Phyllis Salowe- Kaye, executive director of Citizen Action in Newark.

Nearly 9 million taxpayers forked over almost $1 billion in fees in 2006 to get a short-term loan roughly equal to their tax refund, the Consumer Federation of America said last month. While the group noted the fees and interest rates connected with these loans have declined significantly, it still urged taxpayers to stay away.

"If you get a RAL from a commercial tax preparer and partner bank, you're paying 50 to 500 percent interest," Jean Ann Fox, direc tor of financial services for the federation, said recently. "How many tanks of gas is that? How many trips to the grocery store is that?"

Groups such as the federation and Citizen Action have railed against refund-anticipation loans for years. In January, the Internal Revenue Service proposed new rules that could put restrictions on tax preparers marketing the loans.

In a statement, H&R Block said it looked forward to working with the IRS on refund-anticipation loans.

"H&R Block's tax professionals are not compensated on the sale of ancillary products, so there is no in centive for them other than serving taxpayers' best interests," the company said.

A spokeswoman for Jackson Hewitt did not return a call for comment. Tax-preparation compa nies with hundreds of locations aren't the only ones offering such loans. Many independent tax preparers provide the option, too.

"I hate them, but I offer them," said Sherry Diamond, a tax preparer in Cherry Hill and former president of the state chapter of the National Association of Tax Professionals. "In reality, I do very, very few because I try to talk everybody out of them."

Until recently, there was no alternative for taxpayers who wanted the cash from their anticipated refund quicker than the typical eight to 15 days it takes for the IRS to issue a check.

Then last year, the city of San Antonio offered another option. Officials reached an agreement with a local credit union, which provided no-interest loans, requiring just a $5 application fee and for taxpayers to open an account and deposit $5 in it.

It took between two and four days to get the loans. Some commercial tax preparers provide customers preloaded debit cards the same day instead of a loan check, but there are fees.

Last year, San Antonio processed 1,130 loans worth about $2.8 million through the credit union, said Michael Goeken, a special projects manager for the city. Taxpayers who took a refund-anticipa tion loan through a commercial preparer paid an average of about $135 in fees and interest, he said.

There appears to be just two other community agencies offering lower-cost alternatives to refund- anticipation loans, according to the Center for Economic Progress, a nonprofit group in Chicago that monitors tax-preparation groups.

A bill signed by Gov. Jon Cor zine earlier this month allowed Citizen Action and other groups in New Jersey that offer free tax preparation for low-income taxpayers to also provide alternative loans. In addition, the law prohibits tax preparers from requiring clients to take refund-anticipation loans and requires preparers to provide itemized statements of charges related to the loans and other services.

To contact Citizen Action, call (888) 829-3711, go to the office at 23 W. Park St., Newark, or its website at


To get your taxes prepared for free from Citizen Action:

Top Top | NJCA Homepage | NJCA in the News