- Joined
- Apr 8, 2005
- Messages
- 8,011
- Reaction score
- 58
With tax season here I wanted to post this. Please read:
Everyone loves a tax refund. Somehow it feels like a windfall that comes just in time to pay off holiday credit card bills or to finance a nice vacation.
A refund certainly beats having to write a big check to the IRS, but it frustrates me that so many people rely on their tax refunds as a form of forced savings because they lack the discipline to regularly set aside funds for emergencies, major purchases or their retirement.
Tax preparation services developed various rapid refund programs to meet the needs of people who can't even afford to wait the two to six weeks it takes to receive their refunds directly from the IRS. Refund anticipation loans are advances made to taxpayers in the form of an interest-bearing loan that is secured by the tax refund. Pre-file loans are unsecured loans that are often made before a taxpayer receives W2s and 1099s.
These loans have received a lot of publicity in the past few years, most of it critical of their high interest rates and fees and inadequate disclosures. I read a number of complaints, including accusations of deceptive sales practices, misunderstandings about how these products actually work and problems receiving loan proceeds in a timely manner. In response to overwhelming concerns, the IRS free file system has discontinued offering refund anticipation loans.
I spoke with Bob Weinberger, vice president of government relations at H&R Block's Washington, D.C., office to get the perspective from one of the country's largest tax preparation services on this subject in light of the controversy.
Weinberger's position is that people should attempt to "manage their finances in such a way that they don't need to take a loan for two to six weeks," but sometimes they have no choice.
According to company records, about 20 percent of their customers have availed themselves of rapid refund loans in past years. Weinberger acknowledged that the loans carry higher costs than bank financing, but he made the point that the people who tend to use them typically don't have good enough credit to qualify for traditional loans.
Also, according to Weinberger, nearly half of those who use the loans don't even have checking accounts. This fact is significant because taxpayers without bank accounts have to wait for their refunds to be mailed by the IRS, a process that could take up to six weeks.
Weinberger pointed to H&R Block's announcement last fall of dramatic reforms of their products -- and he is particularly proud of the fact that its program encourages financial responsibility through incentives to open bank accounts, with its financial institution, of course, to both speed up the refund process and reduce check-cashing costs. He stressed that Block employees have no financial incentive to encourage their customers to use any of these services.
Have I changed my mind about these products? Absolutely not.
Story
Everyone loves a tax refund. Somehow it feels like a windfall that comes just in time to pay off holiday credit card bills or to finance a nice vacation.
A refund certainly beats having to write a big check to the IRS, but it frustrates me that so many people rely on their tax refunds as a form of forced savings because they lack the discipline to regularly set aside funds for emergencies, major purchases or their retirement.
Tax preparation services developed various rapid refund programs to meet the needs of people who can't even afford to wait the two to six weeks it takes to receive their refunds directly from the IRS. Refund anticipation loans are advances made to taxpayers in the form of an interest-bearing loan that is secured by the tax refund. Pre-file loans are unsecured loans that are often made before a taxpayer receives W2s and 1099s.
These loans have received a lot of publicity in the past few years, most of it critical of their high interest rates and fees and inadequate disclosures. I read a number of complaints, including accusations of deceptive sales practices, misunderstandings about how these products actually work and problems receiving loan proceeds in a timely manner. In response to overwhelming concerns, the IRS free file system has discontinued offering refund anticipation loans.
I spoke with Bob Weinberger, vice president of government relations at H&R Block's Washington, D.C., office to get the perspective from one of the country's largest tax preparation services on this subject in light of the controversy.
Weinberger's position is that people should attempt to "manage their finances in such a way that they don't need to take a loan for two to six weeks," but sometimes they have no choice.
According to company records, about 20 percent of their customers have availed themselves of rapid refund loans in past years. Weinberger acknowledged that the loans carry higher costs than bank financing, but he made the point that the people who tend to use them typically don't have good enough credit to qualify for traditional loans.
Also, according to Weinberger, nearly half of those who use the loans don't even have checking accounts. This fact is significant because taxpayers without bank accounts have to wait for their refunds to be mailed by the IRS, a process that could take up to six weeks.
Weinberger pointed to H&R Block's announcement last fall of dramatic reforms of their products -- and he is particularly proud of the fact that its program encourages financial responsibility through incentives to open bank accounts, with its financial institution, of course, to both speed up the refund process and reduce check-cashing costs. He stressed that Block employees have no financial incentive to encourage their customers to use any of these services.
Have I changed my mind about these products? Absolutely not.
Story
