Consumer Group Cautions Against Income Tax Refund Loans


New York State Consumer Protection Board is cautioning people on the high cost of collecting tax refunds immediately using a refund anticipation loan (RAL) or refund anticipation check (RAC) to speed up the process.
However, the New York State Department of Taxation and Finance and the New York State Consumer Protection Board are urging taxpayers to consider lower-cost or free alternatives to receiving federal tax refunds.
They say a Refund Anticipation Loan is not a quick, fast or instant refund. Instead, it is a high-interest bank loan secured by the taxpayer’s anticipated federal refund.
While the promise of quick cash can be tempting, RALs are expensive, as some lenders charge substantial fees and very high interest rates that reduce the amount of a refund.
They recommend that Taxpayers who file electronically and use direct deposit will get their federal and State tax refunds the quickest.
Taxpayers without bank accounts can get fast refunds by filing electronically and having their refunds deposited to a prepaid debit or payroll card which can be used for everyday financial transactions.
The card can be an existing prepaid payroll or debit card that the taxpayer already has, or a new MyAccountCard issued by the U.S. Treasury’s financial agent.
MyAccountCard is part of a debit card pilot program being conducted by the IRS this filing season.
MyAccountCards are only available to those who received an offer letter from the U.S. Treasury Department.
What is a RAC?
RACs are marketed to taxpayers who don’t have bank accounts and/or who do not have the ability to pay tax preparation fees up front.
A temporary bank account is established by a tax preparer on behalf of the taxpayer so that a tax refund check can be direct-deposited.
After the refund check is deposited into the temporary account and the preparation fees are deducted by the preparer, the institution then issues a check to the taxpayer and the account is closed.
While a RAC is generally cheaper than a RAL, taxpayers would be wiser to open a bank account of their own and arrange to have tax refunds direct-deposited.

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