When taxes aren’t a windfall

As a child, I remember driving past billboards advertising to get your taxes done somewhere and “Get the cash you deserve now!”  I remember trying to make sense of it the rest of the way home. “How do those places get refunds faster than just doing it yourself? Are they directly connected with the government or something? Do they have forms with special powers? How are they faster?”

Yesterday, I wrote about what a windfall taxes can be for many households. Unfortunately there are also “legal” and “legitimate” enterprises that are in business to profit off that windfall.  H&R Block, Jackson Hewitt, I’m looking at you.

These are two examples of tax preparation services that offer what used to be called “refund anticipation loans (RALs),” though after last tax season (2012),  they were cut off by regulators, according to the New York Times. In their place, however, now exist “refund anticipation checks.”

The idea is simple: These businesses prepare one’s taxes, perhaps for free and perhaps not. If one chooses not to pay up front, these businesses are willing to wait and accept a portion of the refund. Furthermore, as it says explicitly on the H&R Block website, since the money is a deposit into their account, it’s not a loan. So they’re not offering RALs! Not at all!

Now, in order to do the taxes for “free,” the business is willing to wait and take their payment, but first, the consumer needs to open an account with their bank, for a fee.  There may also be a fee to withdraw money from the account, to use the card, to close the account… The fee possibilities are endless, and they diminish the windfall for families that need them.

They are doing exactly what the regulations are meant to prohibit.

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