Refund Anticipation Loans Taxing Wallets

By: Karina Martinez-CarterThe news:

It’s tax season, and flashy advertisements are luring people into “refund anticipation loans,” which put money in people’s pockets months before many file their taxes—often at exorbitantly high interest rates.

Behind the news:

Many of the refund loan businesses in Chicago are located in poor or minority areas, a Chicago Reporter analysis shows.

Three of the most established companies offering refund loans—H&R Block, Liberty Tax and Jackson Hewitt Tax Service—have 196 locations in 58 of the Chicago’s 77 community areas. According to Census 2000, 37 of the 58 areas, or 64 percent, are communities where at least half of the population is minority or where more than one-third of the residents make less than $25,000 a year. H&R Block, Liberty Tax and Jackson Hewitt operate 141 storefronts—72 percent of all locations—in these poor or minority areas.

At these tax services, customers can receive a loan based on the amount of expected tax refunds. But in exchange for the early-bird service, they forgo hundreds of dollars—often unknowingly, critics say—that the companies charge in fees and interest rates, said Madeline Talbott, lead organizer with Action Now, an advocacy group for working families.

“H&R Block and others set up in low-income communities are siphoning off billions of dollars from those communities in money that really should be spent on providing the things people need for their families,” Talbott said.

The protest against providing refund loans is nothing new, said John Hewitt, CEO of Liberty Tax. And the loans are cheaper and more regulated than in the past, he added. “Sometimes it’s a good deal for people,” Hewitt said. “They need the money because they’re late on car payments, late on rent or their car got repossessed.”

H&R Block spokesman Dan Smith disagreed with the critics. H&R Block always charges a flat fee of $29.95 to prepare a refund anticipation loan, as well as a 1.07 percent finance charge on the loan. “If you look at the comparison to other shortterm lending products, … it's less than credit card cash advance and bank overdraft [fees] and in many cases less than cost of using an ATM,” he claimed.

Hewitt said his company charges a $30 bank fee, plus about 2.5 percent on the loan. “We discourage the loans, and they’re not usually right for the taxpayer,” he said.

Hewitt added that about 20 percent of Liberty Tax customers during tax season seek out the loans. “[Loans] are driven by consumer demand,” he said.