Local Politics

More Control of Tax Refund Loans Urged

Posted May 4, 2007
Updated May 7, 2007

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— Advance loans many tax preparers offer on federal tax refunds cost state taxpayers $44 million annually, according to an investigation by State Treasurer Richard Moore's office.

Outlets that offer refund-anticipation loans, or RALs, charge exorbitant interest rates so people can get cash fast -- sometimes topping 800 percent -- and Moore on Friday called for more oversight of the practice.

"This is one of the more despicable financial products out there," he said.

More than 400,000 North Carolina taxpayers obtain RALs each year, at an average charge of $100 per loan, Moore said. The number of outlets offering the service has increased by more than 50 percent in the past six years, he said.

"That was $44 million, $44 million of money that North Carolinians, in my view, wasted to get their refunds back anywhere from two days to two weeks faster," he said.

Consumer groups have found that 86 percent of the people who get RALs are low-income workers. Many simply don't understand how the loans work and wind up losing money on interest charges they can't afford, according to consumer advocates.

Because most of the loans are made by banks chartered outside of North Carolina, the state has limited oversight of the practice. But he said lawmakers have options to tighten up regulation.

The state’s RAL Act could be amended to require that a borrower obtain counseling before signing up for a tax refund loan or to prohibit tax refund preparers from offering refund loans.

"My preference would be an outright bar of it," Moore said, noting state law already prohibits loans against state tax refunds.

18 Comments

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  • MrD May 9, 2007

    800 percent interest is usury plain and simple. if they are not willing to bring their rates in line with legal loan rates, then they need to be shut down.

  • LADY1 May 8, 2007

    It is the taxpayer right to chose. We pay taxes at lease some people do.

  • chocolate2628 May 8, 2007

    I think they should be banned. If you have went without the money that long 11 extra days will not hurt.

  • rdanville May 8, 2007

    Why don't the nannies let people make their own decisions? The lottery is one of the biggest cons put upon the NC people in years. And lets not forget the 'temporary' sales tax increase.

  • Bob3425 May 8, 2007

    The State wants to do something look at these companies like Sears, JCPenny, Visa and MasterCard charging up to 21 to 25 percent interest. I would not use a payday loan, tax loan or one of those credit card. But in the end we know what the lawmaker will do NOTHING.

  • rayzer May 7, 2007

    Pass more laws to protect me please.... I might hurt myself. I'm not so smart like you benevolent & wise politicians.

  • kcfoxie May 7, 2007

    I used a RAL to buy my washing machine and dryer. I had been without them for two weeks already waiting for the W4 form to arrive. If I had to wait another 11 days, that's another $55+ and time wasted at the laundromat. Losing another $50 to buy my own washer and dryer and have them installed next-day was certainly worth it, it saved me time which saved me money in the long run -- driving to/from the laundromat in and of itself would have added up as well. RALs are great of used responsibly, the state should regulate but not outlaw it.

  • hotnblonde75 May 5, 2007

    Most of the people hwo get these loans have no idea that they can pay nothing and get their money in 11 days. It's so much easier to pay money up front and get a check the same day. "If my refund is 4300 and I get 3840, I"m still happy" that's they way some people think. I do taxes and charge $50.00 and they get it back in 8-11 days straight from IRS into their bank account. I hope they do ban RAL's

  • refiman May 5, 2007

    you would have to be brain dead to take 1 of those 165% apr loans.

  • postitnote May 5, 2007

    I am one of those that like the option of the RAL. To me it is worth it to spend and extra $100 and be able to recieve my refund early. The establishment that I go to always walks me through my options and explains to me, the fees that go with the choices that I make. I personally think that when it comes to "low-income" families, the state does whatever it can to make it impossible for us to "get a break". If we choose to pay the fees then that is up to us.

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