Mark Winston Griffith
Outing Tax Refund Predators
The word is out.
Now that tax season here, people all over the country are walking into tax preparation sites and are being promised that they can by-pass the usual wait and get their refunds now. The real deal is people are not getting their refunds at all, but are instead receiving ridiculously high-cost loans which use their refunds as collateral.
Today the Neighborhood Economic Development Advocacy Project released a report on the impact that tax anticipation loans (RALs) are having on low-income areas in New York. The report also reveals how mainstream financial institutions are bankrolling this nefarious enterprise.
The NEDAP report includes the following findings:
"New Yorkers lost more than $92 million of their tax refunds and credits through
RALs, in 2004. This figure includes an estimated $48.7 million in tax prep fees
and $43.4 million in RAL fees.
- Approximately 77% of all New Yorkers who received a RAL were low income.
- In many of the poorest New York City neighborhoods, an estimated 1 out of every 4 taxpayers received a RAL. Low-income New Yorkers are far and away the hardest hit by RALs.
- Low-income taxpayers in New York City paid approximately $70.6 million in tax preparation and RALs fees in 2004.
- Nearly 1 in 4 New Yorkers claiming the Earned Income Tax Credit (EITC) borrowed a RAL in 2004. Of all New York City taxpayers taking out a RAL, approximately 58% claimed the EITC.
- Low-income neighborhoods are hit disproportionately hard. The 20 zip codes with the highest proportion of RALs have a median household income of $20,500 - far below the city-wide median household income of $38,300.
- RALs are overwhelmingly concentrated in predominantly African-American and Latino neighborhoods. The highest percentages of RALs city-wide are in neighborhoods that are 95% Black or Latino.
- HSBC, through its subsidiary HSBC Taxpayer Financial Services, generated more than $13.3 billion in RALs in 2004.
- Pacific Capital Bancorp, the parent company of Santa Barbara Bank & Trust, estimates its operations cover 25%-30% of the RAL and Refund Anticipation Check (RAC) market nationally. Pacific Capital Bancorp reports that its RAL
and RAC business accounted for 30% of its pretax income in 2004.
- Some tax preparation firms, such as H&R Block, hold a financial stake in the RALs they broker."
NEDAP doesn't only cry "foul", but makes recommendations, the same issued by New Yorkers for Responsible Lending (NYRL), on how to stem RAL abuse:
"NYRL has called on the NYS legislature to pass a state law that would:
- Require tax preparers in New York State to register with the NYS Department of Banking;
- Require that RALs providers and facilitators comply with New York State's 25% usury cap, to the extent permitted by law;
- Require meaningful disclosure of RAL fees and terms to borrowers;
- Create a fiduciary duty on the part of tax preparers to taxpayer clients; and
- Prohibit abusive cross-collection practices by RAL lenders."