Human Services News

Community Media Workshop: Newstips - Study: Cap Tax-Loan Fees

Efforts to regulate tax refund anticipation loans are being bolstered by a new report detailing the cost of such loans to working families in Illinois.

Refund anticipation loans are marketed aggressively to lower-income families eligible for federal and state earned income tax credits, particularly in minority communities, advocates say.

According to national studies by the Consumer Federation of America and the Children's Defense Fund, a large proportion of refund loan customers are EITC recipients.

In Chicago, 43 percent of EITC recipients used refund anticipation loans, paying $30 million for loan and tax preparation fees, according to a new study by the Woodstock Institute based on 2002 figures.

"Working families throughout the city are spending hundreds of dollars to access their own money a few days earlier," said Tom Feltner, the report's author.

Throughout the United States, low-income families paid over $900 million "unnecessarily" in refund loan fees and interest, according to a recent Children's Defense Fund analysis.

"In reducing the value of the refund taxpayers receive, refund anticipation loans undermine the very purpose of the EITC, which is to help lift low-income families out of poverty," according to the report.

In addition to state regulation, the Woodstock report recommends that partnerships between tax preparers and banks to provide refund loans be "noted as a negative" in banks' performance evaluations under the Community Reinvestment Act, since they "negatively impact low- and moderate-income families" -- and that funding for free tax services should be increased.

This month California Attorney General Bill Lockyer sued H&R Block, charging deceptive marketing, unfair debt collection, and privacy violations, and seeking an injunction blocking debt collection for refund loans.