Tax Season Warning: Beware of Refund-Anticipation Loans

By now you have probably seen the billboards or heard the radio ads where certain tax-preparation agencies promise you a quick refund of your federal or state income taxes if you use them to file your taxes. The Wisconsin Department of Revenue reported in early January that nearly 114,000 Wisconsin taxpayers received what are known as “Refund Anticipation Loans” (RALs) in 2003. Governor Jim Doyle is now warning consumers, “Taxpayers who use RALs are paying a high price to borrow their own money. These loans have high, often hidden costs. A RAL is not the only resort—other options are available.”

How high is the cost mentioned by Governor Doyle? According to Wisconsin Consumer Protection Bureau Director Jim Rabbitt, an average tax refund of $2,000 can carry associated fees of $250 or more—which works out to an annual interest rate of 521 percent for a typical 10-day loan. Rabbitt noted that most electronic refunds are actually made in less than 10 days. He also pointed out that if the refund is delayed for any reason, the fees often increase dramatically after the initial 10-day loan period.

Fortunately, tax-preparation volunteers and Wisconsin credit unions are stepping forward to assist low-income taxpayers with the electronic tax-return filing. The free tax preparation and filing services are available at Volunteer Income Tax Assistance (VITA) sites and selected credit union sites around the state. You can determine the location of the closest VITA site by calling the IRS toll free at 1-800-829-1040 or by checking the Wisconsin Credit Union League’s website at: www.theleague.coop.

Many taxpayers do not have a savings or checking account into which their refunds can be electronically deposited, and, as a result, they believe high-cost tax anticipation refund loans are the only way they can receive fast refunds. To help low-income consumers avoid high fees, Wisconsin credit unions are offering no-cost deposit accounts into which fast refunds can be deposited.

If you need telephone assistance with your return, contact AARP at 1-888-227-7559 (staffed 24 hours a day) or the IRS at 1-800-829-1040. I hope that you have a relatively painless tax-preparation season.

Wal-Mart Penalized

The Department of Agriculture, Trade & Consumer Protection has announced that Wal-Mart has settled allegations that it overcharged consumers for a variety of grocery products in five Wisconsin stores. According to department spokesperson Glen Loyd, Department of Weights and Measures inspectors determined that Wal-Mart did not deduct the weight of packaging when weighing bulk commodities such as fruit and grind-it-yourself coffee. Wal-Mart has paid a $25,117 penalty to the state for the violations.

This case demonstrates the continuing importance of the state’s Weights and Measures Program. You may remember prior cases such as the gas pumps that were shorting consumers in a number of locations across the state. Even an average of only pennies lost per purchase can still add up very quickly.