ELIZABETH—In a recent enforcement sweep conducted with state officials, the Union County Division of Consumer Affairs inspected 70 businesses in the county that advertised “same-day” tax refunds. Six were later cited for failing to disclose that the advertised service was actually a high-interest loan.
The deceptive advertisements appeared in storefront signs, posters, and flyers. They included the words “instant” or “same day,” or they specified a time frame such as “1-Day” or “2-Day.”
It’s not possible for the IRS to process a taxpayer’s return and issue a refund that quickly. The quickest refund takes at least eight days. That occurs when the taxpayer submits an electronic form to the IRS, and the refund is direct-deposited to the taxpayer’s bank account.
The fraudulently advertised “refunds” do not come from the IRS. They are loans that tax preparers make to their clients, called Refund Anticipation Loans [RALS]. Tax preparers who offer RALs must clearly disclose that the service is a private loan, not a government tax refund.
Even with proper disclosure, consumers are advised to stay far away from these loans. They are considered predatory because of excessive interest rates ranging up 500 percent, hidden fees and potential for abuse. Many are targeted to low-income workers who qualify for the Earned Income Tax Credit. RALs are often associated with fly-by-night storefront operations, but they are also offered by major banks and national tax preparation chains.