It wasn’t too long ago that the two major tax chains came up with the idea to promote what they called, “Super Fast Tax Refunds” or “24 Hour Tax Refunds”.
Three years ago there was a series of commercials promoting the speed at which the client would receive their tax refund. Two guys in the lobby grasping the green cube in front of them as their hair whips around while race car sound effects emphasize the swiftness of their refund coming to them. But there is no special relationship between the IRS and these chains.
The client does not get their tax refund quicker. They are actually signing away their refund to a bank!
The Way It Works
Remember that these tax franchise offices only get revenue for four months out of a twelve month year, so any plan they can come up with to generate higher revenue for those four months, they can and will do! And don’t get me wrong, this is America. If there is a market for these services and others, these companies should have the freedom to promote and sell these products.
I am not a big fan of the check cashing places, nor am I a fan of the rent to own furniture and appliance dealerships. They are extremely high interest and high payments oriented products. I honestly believe that these institutions take advantage of I.Q. deficient people.
But this is America and they have the freedom and right to offer this type of service, even if it is taking extreme advantage of people who have no clue how to budget their income.
Nevertheless, the way the RAL works is that the client who is getting a refund purchases a bank loan so they can get their check the next day. There are several fees attached to this ‘quick’ tax refund.
- First, there is the ‘bank fee’. The ‘bank fee’ is the fee charged to the tax preparer by the bank providing this loan. Usually the preparer company pays $12-15 for this and passes the fee to its clients by increasing it as much as $40. That is pure profit to the tax prep franchise chain.
- Second, there is the ‘application fee’. This is a completely arbitrary fee attached to the bank fee that can be as much as $50. The ‘cover-story’ on this fee is that it is being used to check the credit of the client to make sure that they don’t owe the IRS any money and as such would not be eligible for the rapid tax refund bank loan.
This is another pure profit for the tax prep chain as the banks are going to automatically check your credit with your social security number when your return is filed through the system. And finally, there is the extremely high interest rate attached to what amounts to a ten day loan. This interest rate calculated annually amounts to in excess of 300%. No one with half a brain wants a loan at 300% interest. And yet, people continue to ask for this loan.
The tyranny of the urgent will keep these loans available as many of the IQ deficient who fill their homes with pay per week furniture and appliances and use pay check advances to ‘better’ their lives will continue to use these services. However, with a checking account, the turn around time for a direct deposit refund is only about ten days.
And many of these people cannot handle a checking account what of thier tax refund?