REFUND ANTICIPATION LOANS (RALs)
The busy tax season often brings a wide variety of scams aimed at defrauding consumers of their hard-earned tax refunds. Attorney General's Office is warning consumers to be wary of refund anticipation products that promise a faster refund. Tax preparers pitch a variety of these products – tax refund anticipation loans, checks or debit cards – as a way to receive a tax refund instantly. In reality, they are short-term loans that often saddle consumers with high interest rates and fees that are deducted from their tax refund.
It’s Your Refund—Here’s How to Keep More of It!
What Is a Tax Refund Loan?
When you take out a tax refund loan, your tax preparer (working in partnership with a bank) lends you the amount of the tax refund that you expect to get back, but may charge you a significant amount in interest and fees. Then, when the government sends your actual refund check, it is direct-deposited into the bank that made the loan. Because the loan is paid back when you receive your tax refund, the term of a tax refund loan is short—usually seven to 14 days.
Unlike rates on a traditional loan, the interest rate (the annual percentage rate or APR) for tax refund loans can be more than 100%. Moreover, many tax preparers misleadingly describe tax refund loans as “interest free” or low cost when, in fact, tax preparers pack these loans with numerous fees to drain as much revenue as possible from consumers. To obtain a tax refund loan, consumers may be charged the following fees in addition to a tax preparation fee: a bank fee, software or technology fee, service bureau fee and transmitter fee. In addition, tax preparers often charge consumers who obtain tax refund loans a much higher fee for tax preparation.
Who Takes the Hit?
Protections for Illinois Consumers and Active Duty Service Members
The Military Lending Act caps the interest rate at 36% for tax refund loans sold to active duty service members. If you are an active duty service member and feel that you’ve been sold a tax refund loan with an interest rate that exceeds this cap, please contact the Attorney General’s Military and Veterans Hotline at 1-800-382-3000 (TTY: 1-800-964-3013).
Attorney General's Office is aggressively pursuing fraudulent tax preparers and returning money to taxpayers and the state. Attorney General's Office has shut down a Chicago tax preparer for allegedly defrauding consumers out of an estimated $200,000 in outlawed fees and announced the indictment of two tax preparers for allegedly filing fraudulent tax returns and defrauding the state out of more than $400,000.
For more information about tax refund loans or to report a complaint, contact
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