Early tax refund loans are a true rip-off on clarkhoward.com

RIP-OFF ALERT: H&R Block has reached a nearly $5 million settlement with the state of California over its deceptive tax refund loans.

Early refund loans are one of the biggest rip-offs that can strike your wallet, according to Clark. Essentially, you pay H&R Block (or any other tax prep chain pushing this) a gigantic interest rate to expedite the return of your own money that you overpaid to the government in the first place. Interest rates on the early refund loans can be several hundred percent -- even up to 700%!

The pitch you get from the tax preparer is that you can get your refund anywhere from immediately to within 3 days. But why would you pay an interest rate of several hundred percent just to get the money a few days sooner -- especially considering you typically only have to wait slightly more than a week whenever you e-file?

Of course, there's a larger issue here. If you're being over-withheld, you're making an interest-free loan to the government.

Why not instead reduce your withholding to something more realistic? For example, if you get paid bi-weekly and typically get a refund of $1,000, that means you're being over-withheld by about $40 per pay period. Talk to human resources or a payroll specialist at work to make the change.

What others are saying

H&R BLOCK
I DONT GO THERE ANYMORE ALL THEY WANT IS MONEY MONEY AND MORE MONEY
By DAVE @ 02/15/09 12:34:12 PMreport abuse
RALS
All who receive EIC must have earned income. Earned income means wages not interest. You can relate the EIC tables to a 'bell curve'. Except for some variables the most money received in EIC is in the 12 to 15k range(thats the top of the bell) then it starts going down as income increases. Of course if you only make a couple of thousand dollars then your EIC is reflected by that amount.
Another point, only people with social security numbers can receive EIC. Not to be confused with Child Tax credit which is open to all who have children under the age of 14.
By Ronald Cichocki @ 02/09/09 06:29:59 PMreport abuse
VITA
I am a site coordinator for a VITA site, Volunteer Income Tax Assistance. It's a great feeling know that folks with incomes under $40,000 come to us to have their taxes prepared for FREE. We're very busy.
By Pam @ 02/09/09 06:07:21 PMreport abuse
tax refund loans
Many people taking out tax refund loans are not stupid, they are poor. They are willing to give up half their EIC money in fees to get the money soonest. They live in a world of payday lenders where they don't have the luxery of waiting a few days to get more money. They don't have bank accounts and can't use direct deposit. They have to use check cashing firms and pay yet another fee to get cash in hand.
I wrote a couple of these loans myself during a brief stint at HRB. The fees were irrelevant to them, they wanted whatever cash they could get now.
It is expensive to be poor.
By bob @ 02/09/09 01:47:01 PMreport abuse
rals
These chains don't educate people on reducing their refunds by less withholding or advanced earned income credit payments. Plus, I have seen some very poorly prepared returns. I can't tell the difference between many of these firms and payday loan companies.
By cindy @ 02/09/09 01:42:01 PMreport abuse
Tax Loans
The people getting a refund are given the option of how soon to receive their refund, and are shown all the fees associated with it. But as Jackie mentioned below, many who take the loan option are getting the earned income credit and don't want to wait anyway.
By Robin @ 02/09/09 01:06:00 PMreport abuse
Tax loans
All of the paid preparer companies constantly "RIP OFF" the ones who can least afford the cost. They do it by carefully NOT telling the taxpayer the exact truth about when they will get their return from the IRS. There are many free places to get taxes done for free even if the taxpayer cannot use a computer. The IRS has a community partnership know as VITA; this organization prepares and efiles federal and state returns for free.
By Bud @ 02/09/09 12:46:31 PMreport abuse
Early Tax Refunds
The taxpayers who are getting these loans did not pay the taxes in the first place. They are receiving EIC (Earned Income Credit) up to $5,000 that they did not pay anyway. That's why they could care less if the interest rate is high. They did not have to work for the money.
By Jackie @ 02/09/09 12:23:07 PMreport abuse
Refunds
What happens when everyone stops giving the government interest free loans? Do you think they are just going to stop using the money? They are going to get it somehow - probably through - oh right - raising our taxes....
By Anna @ 02/08/09 02:35:52 PMreport abuse
responsibility
You are so right Brian. It is very SCARY these people play a part in important decisions when they can't make the easy ones!
I would on the other hand like to think that people are responsible enough to make a decision that is right for them even if it is not "smart". Is H&R block con-ing these people or are they lying to them? They are not required to get the early refund early... they just want it NOW!
This, in my opinion, is what is wrong with the ecconomy now. People do not want to take responsibility for their decisions... Nor do they have any patience.
I agree with Clark 99.999% of the time but I think it is time for people to be accountable for their action. Everyone needs to think about their decisions and live with the effects.

BAILOUTS are for the weak!
By danny @ 02/04/09 06:15:59 PMreport abuse
no shortage of stupidity
the mere fact that these "loans" are so popular tells you alot about the collective wisdom of a wide swath of america.

and to think these same people are qualified to elect someone to the most powerful job in the world.

truely frightening.
By brian @ 02/04/09 01:08:38 PMreport abuse
THANK YOU!!
Thank you so much for telling people about this! I have so many friends that 1) Pay up to $80 to file when they could file for free. 2) Pay an extra $80 +/- to get it back in a 2-3 days compared to 7-10 (or even less for a state refund).

Unfortunately, most of the people that would fall for this aren't the type of people that would listen to Clark.

-=The Prynce
By The Prynce @ 02/04/09 10:59:06 AMreport abuse
billboard
there's a billboard in my city for one of these loans that calls it "money like magic"
By joe @ 02/04/09 12:03:28 AMreport abuse

H&R BLOCK

I DONT GO THERE ANYMORE ALL THEY WANT IS MONEY MONEY AND MORE MONEY

By DAVE @ 02/15/09 12:34:12 PMreport abuse

RALS

All who receive EIC must have earned income. Earned income means wages not interest. You can relate the EIC tables to a 'bell curve'. Except for some variables the most money received in EIC is in the 12 to 15k range(thats the top of the bell) then it starts going down as income increases. Of course if you only make a couple of thousand dollars then your EIC is reflected by that amount.
Another point, only people with social security numbers can receive EIC. Not to be confused with Child Tax credit which is open to all who have children under the age of 14.

By Ronald Cichocki @ 02/09/09 06:29:59 PMreport abuse

VITA

I am a site coordinator for a VITA site, Volunteer Income Tax Assistance. It's a great feeling know that folks with incomes under $40,000 come to us to have their taxes prepared for FREE. We're very busy.

By Pam @ 02/09/09 06:07:21 PMreport abuse

tax refund loans

Many people taking out tax refund loans are not stupid, they are poor. They are willing to give up half their EIC money in fees to get the money soonest. They live in a world of payday lenders where they don't have the luxery of waiting a few days to get more money. They don't have bank accounts and can't use direct deposit. They have to use check cashing firms and pay yet another fee to get cash in hand.
I wrote a couple of these loans myself during a brief stint at HRB. The fees were irrelevant to them, they wanted whatever cash they could get now.
It is expensive to be poor.

By bob @ 02/09/09 01:47:01 PMreport abuse

rals

These chains don't educate people on reducing their refunds by less withholding or advanced earned income credit payments. Plus, I have seen some very poorly prepared returns. I can't tell the difference between many of these firms and payday loan companies.

By cindy @ 02/09/09 01:42:01 PMreport abuse

Tax Loans

The people getting a refund are given the option of how soon to receive their refund, and are shown all the fees associated with it. But as Jackie mentioned below, many who take the loan option are getting the earned income credit and don't want to wait anyway.

By Robin @ 02/09/09 01:06:00 PMreport abuse

Tax loans

All of the paid preparer companies constantly "RIP OFF" the ones who can least afford the cost. They do it by carefully NOT telling the taxpayer the exact truth about when they will get their return from the IRS. There are many free places to get taxes done for free even if the taxpayer cannot use a computer. The IRS has a community partnership know as VITA; this organization prepares and efiles federal and state returns for free.

By Bud @ 02/09/09 12:46:31 PMreport abuse

Early Tax Refunds

The taxpayers who are getting these loans did not pay the taxes in the first place. They are receiving EIC (Earned Income Credit) up to $5,000 that they did not pay anyway. That's why they could care less if the interest rate is high. They did not have to work for the money.

By Jackie @ 02/09/09 12:23:07 PMreport abuse

Refunds

What happens when everyone stops giving the government interest free loans? Do you think they are just going to stop using the money? They are going to get it somehow - probably through - oh right - raising our taxes....

By Anna @ 02/08/09 02:35:52 PMreport abuse

responsibility

You are so right Brian. It is very SCARY these people play a part in important decisions when they can't make the easy ones!
I would on the other hand like to think that people are responsible enough to make a decision that is right for them even if it is not "smart". Is H&R block con-ing these people or are they lying to them? They are not required to get the early refund early... they just want it NOW!
This, in my opinion, is what is wrong with the ecconomy now. People do not want to take responsibility for their decisions... Nor do they have any patience.
I agree with Clark 99.999% of the time but I think it is time for people to be accountable for their action. Everyone needs to think about their decisions and live with the effects.

BAILOUTS are for the weak!

By danny @ 02/04/09 06:15:59 PMreport abuse

no shortage of stupidity

the mere fact that these "loans" are so popular tells you alot about the collective wisdom of a wide swath of america.

and to think these same people are qualified to elect someone to the most powerful job in the world.

truely frightening.

By brian @ 02/04/09 01:08:38 PMreport abuse

THANK YOU!!

Thank you so much for telling people about this! I have so many friends that 1) Pay up to $80 to file when they could file for free. 2) Pay an extra $80 +/- to get it back in a 2-3 days compared to 7-10 (or even less for a state refund).

Unfortunately, most of the people that would fall for this aren't the type of people that would listen to Clark.

-=The Prynce

By The Prynce @ 02/04/09 10:59:06 AMreport abuse

billboard

there's a billboard in my city for one of these loans that calls it "money like magic"

By joe @ 02/04/09 12:03:28 AMreport abuse

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Feb 03, 2009 -- Early tax refund loans are a true rip-off

What others are saying