As the 2007 filing season approached, the talk between tax preparers will head into a discussion of Refund Anticipation Loans. Which bank is better, how do you market, is it worth the trouble? One of the most heated discussions is whether they should be allowed at all?
The problem is that refund loan programs (RALs) have been abused. Not just by the people offering them but by the consumers using them. The main issue is that most people have no idea what they are getting them self into when they do a RAL. They see the money and ignore the details until it it to late. This has allowed RAL interest to soar and given rise to high pressure tactics and disregard for disclosure. The consumer so eager to get their money then gets mad when they realize how much is taken in fees. The backlash has risen to the point that talk of banning RALs is taken very seriously by everyone on both sides of the issue.
My concern is that by banning RALS we aren't really solving the problem. Just doing a face lift.
There are times that the RAL and the RT (Refund Transfer) are a viable option. I have had a client use the RAL to get the money for a down payment on a house. Or to cover the cost of attending a parent's funeral. The RT allow the taxpayer to e-file their tax return and the preparation charge comes out of the refund and is a good program.
The rational is that banning RALs is needed to protect lower income taxpayers so that they can better use all their refund to provide for their families. And a RAL can cost the taxpayer several hundred dollars in fees. But does that solve the real problem or just hide the issue? The reason most taxpayers use RALs is that they need the money and don't really understand what they are getting into. Banning RALS won't solve that problem. But it easier to ban these programs than to educate kids in school on practical financial matters. Or to regulate the preparers who are offering the programs to make sure they are following the disclosure rules.
It seems to me that we are getting to be a nation of "Big Brothers" hiding behind the mantra of helping others in order further our agenda. A local community is proposing a ban on portable signs. There is an issue with placement blocking traffic sight lines but from what I have heard is at the heart is "do gooders" who don't like the look of the signs. They are willing to cost some small business money or income instead of fixing only the problem. They hide behind the mask of "helping" to push their agenda no matter the cost to anyone else.
I will offer RALs because I know that clients who want RALS will get them some where. I will bore them while I go over all that paperwork and disclosure statements. But they will know what they are getting into and they will not have to take a RAL to get their refund. I will also push to get more practical financial training into schools. A harder but more practical solution.