In this tax season's final two weeks, tens of thousands of Americans will apply for tax-refund loans carrying fees that would make a loan shark blush. And it's the people who can least afford the loans who are using them most.
Nourished by the Internal Revenue Service's electronic filing program, refund-anticipation loans are becoming increasingly popular among millions of consumers who don't want to wait up to eight weeks for a refund -- even though they sometimes pay annual interest rates of more than 200 percent.
"It's amazing," said David Lieberman, president of Triple Check Income Tax Service of Burbank, Calif. "Those people want that money today, and they really don't care what they pay to get it today."
Fees to process refund-anticipation loans translate into such high interest rates that some tax preparers say they advise customers not to use them. But demand for the loans appears to be rising, particularly among recession-pinched taxpayers who are strapped for cash, vendors say.
"When I started four years ago, [the client] was a person who wanted to put a down payment on a car or move into a house, but because of the economy it's now people who want to keep a roof over their head or food on the table," said Marilyn Raisor, district manager for 12 H&R; Block outlets.
James Kinsey, coordinator of electronic filing for the Internal Revenue Service's San Jose, Calif., district, concurred, noting that taxpayers who file returns electronically have an average income of $30,000.
Tax preparers such as H&R; Block, Jackson Hewitt Tax Service and others are cashing in, generally charging $60 to $100 to transmit returns and coordinate the $300 to $3,300 loans. The average refund for electronic filings in 1990 was about $1,100, but overall refunds averaged $900. Taxpayers need to wait only four days, compared with the current six- to eight-week wait for an IRS refund through the mail.
But critics of the loans note that the effective interest rates can soar higher than 200 percent for what is about a 52-day loan. And they note that impatient taxpayers who file electronically can have their refund deposited directly into their savings accounts in as little as 10 days.