Loans That Rip Off Consumers at Tax Time Dumped From Nation’s Top Do-It-Yourself Tax Prep Program

Consumer Versions of Intuit’s TurboTax Won’t Offer “Refund Anticipation Loans” Starting in November; Consumer Groups Applaud Small-But-Noteworthy Victory

BOSTON – National Consumer Law Center and Consumer Federation of America advocates today applauded Intuit’s decision to drop offers for Refund Anticipation Loans (RALs) from the consumer versions of both its TurboTax software and TurboTax for the Web. The decision affects nearly 10 million consumers.

NCLC and CFA advocates have been harsh critics of RALs, a growing tool in the arsenal of consumer scams that are making it ever more difficult for some of the hardest-working Americans to get a foothold on the American Dream. NCLC and CFA reported earlier this year that RALs, which are usually very high-cost loans bridging the period between tax filing and arrival of a tax refund check, cost taxpayers an almost totally unnecessary $2 billion in interest and fees in the latest tax year.

“We’re pleased that Inuit has shown a sense of corporate responsibility by no longer offering RALs through its TurboTax software and website,” said NCLC staff attorney Chi Chi Wu. “These high cost, high risk loans skim off hundreds of millions of dollars from the tax refunds of hard working taxpayers, including the low-income workers who receive the Earned Income Tax Credit.”

“The business rationale cited by Intuit for this decision shows that consumers do not actively seek out or want RALs. Like other abusive loan products, they are pushed on consumers by high pressure sales tactics,” said Brad Scriber a researcher for Consumer Federation of America. “Tax preparers who want to responsibly serve their customers’ needs should follow Intuit’s lead.”

According to Intuit the consumer versions of TurboTax had nearly 10 million users nationwide in the last tax filing season. TurboTax software for accounting professionals will continue to include RAL functionality.

RALs, a profit center especially for major tax preparation chains and their bank partners, are among scams that severely undermine low-income workers’ ability to accumulate wealth and thus achieve social mobility for themselves and their children. A study by NCLC and CFA found that RALs for the average tax refund amount carried annualized interest rates averaging 222.5%, and that the poorest taxpayers and especially those qualifying for the government’s Earned Income Tax Credit were the biggest victims.

NCLC and CFA have also been critical of tax preparers who offer RALs when they are supposedly cooperating with the government and doing taxpayers a service, while participating in the Internal Revenue Service’s “Free File” program. Consumers who go to some companies’ Free File websites are pitched not only RALs but potentially sub-prime mortgages and other services. “We especially applaud the fact that RALs will no longer be offered to taxpayers who use the TurboTax website as part of the IRS Free File program,” said NCLC’s Wu. “We hope the tax preparation chains will join them.”

Most consumers don’t need instant refunds, and waiting a few more days for a direct deposited tax refund to arrive is clearly superior to taking a very high-cost short-term loan. Taxpayers can receive their refunds in an average of 10 days from the IRS if they file electronically and use direct deposit.

For more information on the dangers of RALs click on “Refund Anticipation Loan” on NCLC’s Internet home page.

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National Consumer Law Center is a non-profit organization specializing in consumer issues on behalf of low-income consumers. NCLC works with legal-service, government and private attorneys, as well as community groups and organizations that represent low-income and elderly individuals on consumer issues.

Consumer Federation of America is a non-profit association of 300 groups that was founded in 1968 to advance consumer interests through advocacy and education.