By Deborah Nayrocker
Dear Deborah: I’ve heard that a well-known national tax preparer is pushing the idea of a “rapid refund” with taxpayers who file their taxes with them. Is the rapid refund a good idea? — A Reader
Answer: It’s true that several tax preparers are trying to sell taxpayers on the idea of getting their money in minutes instead of within a few weeks. What is sold as a way to get your refund quickly is actually a way for you to lose some of the money that is owed to you. Consumer advocates are becoming more aware of what has become a lucrative way for tax preparers to take extra money from the bank accounts of taxpayers.
This is what happens: Tax preparers determine it’s likely the taxpayer will get money back when their federal tax return is filed and processed. They tell customers that they can have cash in minutes in return for a portion of the money they are to receive from the federal government. These refund anticipation loans are originated by major banks and have high fees, similar to fees of payday lenders.
According to Forbes magazine, what is sold as repaid refunds are in reality high-interest short-term loans. Forbes reports that these loans originate from big banks such as JP Morgan Chase and HSBC.
Advocates for customers are calling the practice of rapid refund loans unnecessary, rip-offs, and even outright scams. The interest on this type of refund “is nearly four times the average rate charged on credit cards,” Forbes states.
There is no need to have a portion of refund money taken from taxpayers. The IRS sends federal refunds to most taxpayers usually within ten days.
Deborah Nayrocker is an author and columnist. She is the award-winning author of The Art of Debt-Free Living and Living a Balanced Financial Life.
Copyright by Deborah J. Nayrocker. All rights reserved.