November 14, 2006 — Report

Refund anticipation loans (RALs) are usurious short-term loans secured by the taxpayer’s expected tax refund. About 12 million taxpayers took out RALs in 2004, costing them over $1 billion dollars in loan fees. This report documents a new form of RALs called “pay stub” and “holiday RALs.”

Pay stub RALs are RALs made by tax preparers and their partner banks in January prior to the tax filing season, before taxpayers receive their IRS Form W2s and can file their returns. Holiday RALs are made by tax preparers during November and December. Both types of loans are made based upon an estimated
return calculated from a taxpayer’s pay stub, and are expected to be repaid from the consumer’s anticipated tax refund.