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“Instant Refund” or Instant Rip-Off? Beware the RAL

February 10, 2009

It just makes sense to use caution when selecting someone to help with your income tax preparation. However, some advise being especially wary of preparers who offer "Refund Anticipation Loans" (RALs) during income tax season. That's because, in some cases, these "instant" refunds are really loans with exorbitant interest rates.

While the upfront cash might sound good to recession-strapped consumers, Karen Boorshtein of the Family Service League (FSL) warns: just stay away.

"Anything that looks too good to be true, it probably is too good to be true. You need to be skeptical. No one should be giving you a refund, or anything back, that quickly. The consumer's the one getting caught in this type of deal. They don't have the resources to have paid for it, and now, are finding they're stuck with a high loan, having to pay someone back money they don't have."

Boorshtein, FSL's president and CEO, acknowledges that it can be tough to afford the prices of reputable tax preparation services. However, if they're really in need, she says, nonprofit organizations in most communities may be able to help.

"Look to see what the other resources are in the community. Many nonprofits do get involved in activities such as this, and can be of some assistance."

Preparers offering RALs say instant cash is better than waiting up to 15 days for a direct deposit refund from the Internal Revenue Service, or three to eight weeks for a mailed IRS check. But consumer groups are unanimous in advising people to say "no" to Refund Anticipation Loans.

Mark Scheerer, Public News Service - NY