Consumer Law

The Death of Refund Anticipation Loans?

By Brian Wolfman

Refund Anticipation Loans (RALs) are very short-term, high-interest loans provided to people in anticipation of their tax refunds. The interest rates on these loans, if expressed as annual percentage rates, can be 500% or more. The RAL industry depends on borrowers who don't know that they can receive their tax refunds rapidly and/or get lower cost loans elsewhere.

We have blogged about RALs many times, including here, here, here, and here, and noted the pioneering work on RALs done by the National Consumer Law Center (NCLC) and the Consumer Federation of America (CFA). Now, over at Credit Slips, Nathalie Martin explains that

the RAL gravy train may be almost over. The FDIC just ordered one of the last underwriters of the products to stop backing the controversial loans. The FDIC told Kentucky-based Republic Bank & Trust Co. that the loans are unsafe and unsound now that the IRS no longer offers banks its debt indicator, a tool loan providers used to determine whether a taxpayer had outstanding tax liabilities that could be garnished from a tax refund.

NCLC, CFA, and the Community Reivestment Association of North Carolina have applauded the FDIC's move, which they view as the death knell of RALs.

Full post as published by CL&P Blog on February 23, 2011 (boomark / email).