Refund Anticipation Loans Removed from Free File
Wednesday December 6, 2006
The Internal Revenue Service announced major improvements to their popular FreeFile program. For the 2007 filing season, the IRS said,
RALs Removed on Free File; 93 Million Eligible for Program (IR-2006-187)
"Taxpayers who earn $52,000 or less will be able to find a Free File offer for which they are eligible. This means 70 percent of all taxpayers – 93 million people – will be eligible for Free File."The IRS also said that tax software companies will "remove ancillary offerings such as Refund Anticipation Loans (RALs) from the program." Ancillary offerings means extra services that are offered for a fee. Refund anticipation loans are short-term, high-interest loans so that taxpayers can get their refund money in a couple of days, instead of waiting for the IRS to issue a refund check. Many consumer advocates warn taxpayers against using refund anticipation loans (or RALs, as they are called in the industry). Financial Planning Guide Deborah Fowles warns that RAL lenders charge up to 2,000% in interest (computed on an annual basis). Lenders make about $690 million a year from the finance charges associated with refund loans. That's money better spent by taxpayers instead of banks, I say.
Starting in 2007, refund anticipation loans will not be offered on through Free File software, making this IRS announcement a huge win for taxpayers. Free File is an alliance between the IRS and tax software companies to make federal tax software and e-filing available free of charge. Free File software will not be available until January 12, 2007, which is the first day the IRS will accept electronically-filed tax returns.
More information:
Reviews of 2006 Free File software
About time the usury of refund loans becomes history. Why not for this tax year as well?
Now I only have to worry about finding all the papers needed for our Prius purchase that will enable credit for hybrid purchase. All the red tape is a list of about 22 lines of items needed.
How is disallowing RALs on free file a benefit to the taxpayer. The taxpayer who wants their refund now is still going to get the RAL. Only difference, is that now they have to pay the bank fee, AND the fee for filing it electronically, whereas before all they had to pay was the bank fee.
I am doing my wife’s taxes now, and she is getting the EITC (we weren’t married until January). I don’t really mind the bank fee. She is getting $4,400 more back than she paid in taxes, so why should it bother me to pay the bank fee? I think the RAL is a good thing.