Beware Of Tax Refund Loan Programs

Mar. 7 (KGO) -- Promises of an instant tax refund might be tempting, but before you go out and get yourself one, you might want to know what it'll cost you. The answer is simple - it'll cost you plenty.

You may have seen the commercials and billboards that read "You can walk in with your taxes and walk out with a loan check."

The advances on your tax refund - otherwise known as refund anticipation loans or RALs - are hot, but consumer groups say it's time for a cool down.

The Consumer Federation of America and National Consumer Law Center found that more than 12 million taxpayers received a refund advance in 2004, paying a total of $1.6 billion dollars in fees and interest.

Rhea Serna of the California Reinvestment Coalition says what you're really paying for is a high cost loan.

Rhea Serna, California Reinvestment Coalition: "The APR on the loans can range anywhere from 40 percent to over a thousand percent. We think they are risky for the consumer because people often times don't understand that they're a loan."

Many tax preparers and even payday lenders such as Money Mart offer these loans.

Tax advisers at this free clinic sponsored by United Way strongly discourage their clients from paying to get advances on their tax refunds.

Carole Watson, United Way: "That means, number one, the families have saved from $200 to $300 dollars of their hard earned money."

Many families who come here qualify for an earned income tax credit of up to $4,400 dollars. San Francisco residents can get even more money through a city program.

Jose Cisneros, San Francisco City Treasurer: "Those folks received over $20 million from the federal government and we added another two million dollars."

The working poor are also urged to open a checking account to avoid check cashing fees.

Veron David, San Francisco: "It's wonderful. No longer am I going out there having to spend $50 dollars or more just to cash a simple check and lose that food that I could be putting in my tummy."

The clinic also helps people file their taxes electronically, speeding up their refunds.

Taxpayers who can just wait a couple of weeks can avoid the high cost of refund anticipation loans.

We talked to several tax preparers, but they either declined our requests or were not available for an on-camera interview. To find out more about the United Way tax clinics and the earned income tax credit, call 1-800-358-8832.

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