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Refund Anticipation Loans Are Ripoffs

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You would think that most people know that payday loans are ripoffs and the ones you use them are either in dire financial straits or think they’re in dire financial straits but as it turns out, a lot of folks don’t realize refund anticipation loans are ripoffs too because they usually are offered by reputable companies like Jackson Hewitt, H&R Block, and other big tax preparer names and not Fast Cash, Check Cashing R Us, or other seedily named joints. However, if you ever look at the fine print, you’ll see fees and interest rates that would make a check cashing shop blush. And an even scarier tactic nowadays is that a lot of these preparation houses don’t even need a W-2, they’re offering paystub loans and you only need to bring in your December paystub in order to apply for these loans.

When I tried to figure out what those fees and rates were like by searching H&R Block and Jackson Hewitt’s websites, I found nothing (I only expected to be able to find the fees since the rate would be dependent on the amount and your credit worthiness). All I found were offers of instant money loans and instant refund anticipation loans and to make matters even worse, they were even offering to put the whole amount onto a debit card (taking advantage of a little breakage?). But what I did see was that H&R Block was partnered with HSBC Bank USA and Jackson Hewitt was partnered with Pacific Capital Bank, N.A. or HSBC Bank USA (your loan could come from either). HSBC Bank USA is headquartered in Delaware and Pacific Capital Bank is an independent bank in California – Delaware has no cap on usury interest rates and California sports a fat 36% cap. By partnering with banks located in capless or high cap states instead of offering these loans themselves, they can take advantage of charging higher rates. (Incidentally, partnering with banks in capless/high-cap states isn’t something that I think is deceitful or under-handed, all the credit card companies are headquartered in capless or high-cap states)

And if you think folks are diligent enough to read through the fine print to fully understand fees and interest rates to realize it’s a ripoff, they’re not. If you’ve ever installed software, how many times have you actually read the Terms & Conditions? I’ve never read it, heck, I’ve never even scanned it. Unfortunately one scenario that does happen a lot is that of a language barrier, where the tax payer isn’t a native English speaker and when they go to a tax preparer (if I couldn’t read English well, I’d definitely go to a preparer – you don’t want a mistake costing you thousands of dollars), they don’t understand that what they’re getting is in fact a loan and not their refund! It’s like those scumbags who are offering predatory mortgage loans and getting retirees to refinance a fully paid off home into a 3/1 ARM are preying on the simply fact that most people don’t read through or don’t understand the fine print, even if they’re laid out “obviously” on a HUD-1 form!

The bottom line is that you should avoid these paystub or refund anticipation loans like the plague because that’s what they are, one little loan can follow you for years if you’re not careful about paying it off. It’s that way with payday loans too except you can see it coming because you actually have to walk into shady looking places instead of a nicely lit office with a nicely dressed tax preparer.

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3 Responses to “Refund Anticipation Loans Are Ripoffs”

  1. mapgirl says:

    Jim, did you know there are places that offer 200% interest auto title loans? BostonGal had an article link to it a few weeks ago. I found that completely shocking. 36% cap sounds crazy, but 200% is even crazier, AND PEOPLE STILL SIGN UP FOR THEM.

    Geesh…

  2. NatalieF. says:

    Oh and that isn’t even the half of it. On top of the fees and what not HSBC LOST my entire amount that was due to me. I recieved my IMAL fifteen minutes after i signed the paperwork in an H&R Block office…it has been over two weeks since my loan was paid off and the remaining ballance of nearly $5000.00 has been lost…. and no one from H&R Block Emerald Card or HSBC seems to know where it is and they are pointing the finger at eachother.

  3. joe banker says:

    Jym, RALs are “a lot” cheaper than check cashers. A RAL is a loan. The average cost is a “one time 2-5% of the amount requested. The average loan is $3300 this year… the cost for it is about $120 (3.6%). As a loan it carries a risk…. checking cashing carries little risk. Another comparision is wiring money through Western Union (an American icon). Wire $3,000 (W.U. max) from the right coast to the left coast and it is $140 for their fastest method. That’s a 4.6% fee on a non-risk transacation. You pay it all up front. Not to mention “their fastest” method? Either you wire money or you don’t – it doesn’t go any slower. Many people recieve wire transfers from friends and family from afar to cover unexpected expenses. RALs are even 6 to 7 times cheaper than payday loans. In fact, payday loan company receivables drop in February because many people use RALs to finally and quickly get out of their payday cycle. There are bad eggs in every industry Jym…even yours. We should always strive correct that. Equally, we should continue to educate people on financial matters. But that fact of the matter is many people are in positions where “waiting” for their money because its financially smart to do so, just can’t. And neither you, the advocates or the IRS can lend them money as quick as they need it. Lets continue to make improvements where necessary but lets also stop advocating to remove something people will still need if RALs are banned. They go right back to unregulated back alley methods. They need the money. By the way, you should go to one of those firms you mention above and see just how many times they advise and disclose that RALs are loans and that there are other methods available to them – even free. Many times and in “large” print Jym….. There is more to the RAL story than just what the advocates claim.


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