Some facts behind tax preparer loans

February 19, 2009 6:28:15 PM PST
You've heard that you can get your tax refund early by going to your neighborhood tax preparer. But, there's something you need to know about doing that.

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Is it a refund or is it a loan? And do you really need to pay to get a refund? Those are some of the questions community groups are asking.

The United Way along with volunteers of "Youth in the Mission" canvassed the Tenderloin to get the word out.

They want to let everyone know free tax help is available to anyone with a household income of less than $45,000.

"The real reason we're out here is to discourage people from getting instant refund loans as well," said Maria Stokes from United Way.

Attorney general Jerry Brown recently entered into a $5 million settlement with H&R Block. The settlement prohibits the tax preparer from marketing the loans as early tax refunds.

"The way it came down, a lot of people felt they were just getting an early refund. That's not the way it is. It is a loan and a short term loan," said Brown.

They're loans the United Way says can be quite costly.

"There are fees to use them. People are paying up to $350 out of pocket to use these refund loans," said Stokes.

Under the settlement, H&R Block agreed to pay $2.4 million in restitution to customers who purchased a refund anticipation loan between 2001 and 2008.

"We think this was a good settlement. We fought this thing for years and we believe that H&R Block now has a program that alerts the taxpayer. Hey, you can get some money now, but you're paying for it," said Brown.

Ironically, people who can least afford it are the most likely to apply for a refund anticipation loan. It's estimated that one out of four households in the Tenderloin applied for one last year.

But United Way says those same people can get their refunds quickly and for free by taking advantage of their free tax service.

Tax returns will be electronically filed and the refund should come within seven to ten days.

"A majority of them file taxes electronically. So you'll get your refund in just about a week longer than if you got your instant refund right away. And you're saving hundreds of dollars," said Stokes.

H&R Block did not return 7 On Your Side's calls or e-mail for comment.

The United Way service is open to anyone with a household income under $45,000. Those same people could be eligible for an earned income tax credit of up to $4,700.

Related link:

  • Tax Prep Help

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