Attorney General Salazar Warns Consumers Against Obtaining High Cost Tax Refund Anticipation Loans

Attorney General Ken Salazar today advised consumers about the high cost of income tax refund anticipation loans (RALs). RALs, offered under names such as “Fast Cash Refunds”, “Rapid Refunds”, or “Instant Refunds”, are high-cost, short-term loans against the consumer’s own expected tax refund, with interest rates that can exceed 100%.

“Consumers should think twice about paying a lender triple-digit interest rates to borrow against their own money,”Attorney General Salazar said. “According to the IRS, consumers can file their tax returns electronically and obtain their tax refunds in about ten days. They should seriously consider waiting the few extra days for their refunds rather than paying expensive fees to get a RAL,” he said.

In addition to the high cost of the loans, consumers may have to repay the RAL if the actual refund is smaller than expected, and may face negative credit reports if the RAL is not paid back or is sent to a debt collector for collection. Consumer advocates note that RALs are used disproportionately by low- to moderate-income consumers, many of whom receive the Earned Income Tax Credit.

Salazar also warned consumers to be wary of fraudulent RAL schemes. Recently, in a landmark usury case believed to be the largest in state history affecting over 20,000 consumers, his office obtained a nearly $50 million judgment against an unlawful RAL lender, The Cash Now Store, Inc., and its principals, Leroy Belcher and Jeannie Hawn (Colorado ex rel. Salazar v. Cash Now Store, Inc., Case No. 98CV6898, Denver District Court). Cash Now, which operated out of store on East Colfax Avenue in Denver, “bought” consumers’ anticipated income tax refunds at steep discounts of 50-60 cents on the dollar. However, after a successful ruling by the Colorado Supreme Court holding that these transactions were disguised loans, the district court determined that Cash Now violated state lending laws by making usurious loans with interest rates exceeding 2,000%. The court earlier ordered Cash Now to cease its unlawful loan making, effectively putting it out of business. Despite this important consumer victory, collection of any part of the $50 million is unlikely because Cash Now no longer exists and its principals left Colorado long before the judgment.

Free resources exist for consumers who need help in preparing their tax returns. These include Volunteer Income Tax Assistance (VITA) sites, which provide free tax preparation to low- and moderate-income taxpayers. To locate a VITA site or other free tax preparation help, consumers should contact the IRS at 1-800-TAX-1040 or its website, www.irs.gov, or go to, www.tax-coalition.org.