This year marks the end of bank-provided tax refund anticipation loans. Refund anticipation loans (RALs) are short-term loans with high interest and fees that are based on a filer’s expected tax refund (minus tax preparation fees, loan fees, and interest). RALs provide access to tax refund money about 7-9 days earlier than if the filer received a direct deposit from the IRS.
Like other short-term, high-cost loans, RALs can pose serious threats to the economic well-being of individuals and families. Of concern to both policy makers and the broader public is that RALs undermine tax assistance for the working poor. In Virginia in 2008, 7 percent of Virginians receiving tax refunds (nearly 200,000 filers) requested RALs. Nearly two-thirds of RAL applicants received the Earned Income Tax Credit (EITC), a federal anti-poverty program targeted at low-income households that work. Chi Chi Wu and Jean Ann Fox of the National Consumer Law Center estimate that nationwide RALs drained $255 million from the federal EITC program in 2010.