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It’s Tax Time: Protect Your Refund from Predatory Lenders

On the heels of its Fighting Hunger Together campaign, Walmart has teamed up with the nation’s number two tax preparer, Jackson Hewitt, one of the few remaining companies to offer refund anticipation loans (known as RALs). RALs are marketed as a customer convenience, but their excessive fees and high interest rates can carve a hefty chunk out of your tax refund and funnel it into corporate coffers rather than your pocket.

“It doesn’t surprise me that Walmart is there,” said Matthew Henderson, executive director of the OLE Education Fund in Albuquerque, N.M. “They have a history of putting profits before people, and this deal with Jackson Hewitt is something that might be profitable to them – even though it will hurt their customers. You’re talking about people who are otherwise pretty poor, and Jackson Hewitt has figured out a way to insert itself this one time every year when they have a big infusion of cash.”

A Jackson Hewitt spokesman declined to comment. So did a media strategist for Walmart.

Photo credit: New America Media

The nation’s number one tax preparer, H&R Block, left the RAL business late last year when federal regulators prohibited its bank, HSBC, from offering the tax-refund loans. Several other banks, some of them backers of Jackson Hewitt RALs, followed suit, which chopped profits in half for the firm. Antipoverty advocates at the national level believe this season could be the last for RALs.

For years, Jackson Hewitt has earned the bulk of its profits by providing poor families with refund anticipation loans – in essence, lending families cash that’s then paid back when the families’ tax refunds come in. It sounds great – big bucks handed over almost on the spot. However, it can also mean paying hundreds of dollars in interest rates and fees to Jackson Hewitt. In 2009, RALs offered by that firm and H&R Block skimmed more than $600 million from the refunds of 7.2 million American taxpayers – almost all of them poor people of color. Now Walmart has joined this lucrative field, opening 2,000 Jackson Hewitt kiosks inside its superstores.

So far, the arrangement has not been a major boon to either company. Profits for both declined last year, which was the first of their partnership. Still, business from the Walmart kiosks made up a quarter of Jackson Hewitt’s revenue in 2010.

Those who support RALs point out that they provide families quick access to cash that can help with debt or emergency needs.

But, most RAL users are single parents entitled to significant refunds through the federal government’s Earned Income Tax Credit program. In other words, a major chunk of Jackson Hewitt’s business is built on siphoning dollars intended for low-income families, and Walmart stands to cash in, too. Last year, Jackson Hewitt began offering customers the ability to put their tax refunds directly onto a Walmart gift or debit card.

Typically, Jackson Hewitt customers – most of whom earn less than $30,000 a year – get a $1,500 RAL, with super-high interest rates on top of other charges that can add up to hundreds of dollars.

“By and large, RALs keep poor people in poverty – very simple,” said Ron Rogers, president of the START Center in San Benito, Texas, where there are five Walmart stores within 50 miles. He and others in the Equal Voice Rio Grande Valley Network are urging state legislators to outlaw such predatory lending.

“These businesses are bad for low-income consumers, and it seems like they’re everywhere,” he said. In his community of about 40,000, there are 15 payday loan stores, pawn shops and fast-tax storefronts offering RALs — but only two banks.

“So you can see here how these places are set up to prey on poor people,” Rogers continued. “Usually, it’s low-literacy families that get sucked in, not understanding much about personal finance, and what happens is people get more in debt. They get poorer, not richer.”

For years, advocates like Rogers and Henderson have been pushing for federal action that would quash such predatory practices. Finally, momentum is on their side.

“It’s terrifically good news, a huge, huge victory for working families,” said Kelly Griffith, deputy director at the Southwest Center for Economic Integrity in Tucson, Ariz. “It’s kind of the Wild West out here with predatory lending in general. But word of mouth about RALs is really getting around, and we’ll see it play out next season.”

She and other advocates urge families to get their taxes done – free – at Volunteer Income Tax Assistance (VITA) or AARP Tax-Aide sites. True, your refund may come a bit slower, in 14 days as opposed to one. But when it does, the money will be all yours.

A major nail in the coffin for RALs came last August, when the IRS said it would stop providing its debt indicator service, which had aided tax preparers making tax refund anticipation loans by acting as a form of credit check.

“Things are changing,” said Jean Ann Fox, director of financial services at the Consumer Federation of America, who considers the debt indicator switch “the last straw” for RALs.

Republic Bank, which still funds RALs for Jackson Hewitt, is the last major player in the field. But government officials have served notice there, too, telling Republic that these loans are “unsafe and unsound.” The bank has vowed to continue anyway – at least for this season.

That means there are fewer RALs around this year, and those offered will be more expensive, Fox said. Republic currently charges $61.22 for a loan of $1,500, which translates into an APR of 149 percent. That doesn’t include Jackson Hewitt’s fees, which can range from $25 to several hundred dollars.

Fox cautioned that the shrinking landscape for RALs leaves “fringe” groups – fly-by-night storefront operations, pawn shops and others – still looking for ways to squeeze a few bucks from the unsuspecting.

“They’re peddling their usual stuff,” she said. “Would you trust a clerk at a car title loan store to file your tax information? It happens. A few years ago, we heard about a palm reader that was selling RALs.”

2011 © Equal Voice Newspaper 

One Response to "It’s Tax Time: Protect Your Refund from Predatory Lenders"

  1. one good guyy  August 21, 2011 at 11:02 pm

    Really great article with very interesting information. You might want to follow up to this topic!?! 2011


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