Tax Day Means Big Bucks for Predatory Lenders

Let our journalists help you make sense of the noise: Subscribe to the Mother Jones Daily newsletter and get a recap of news that matters.


Poor people just can’t get a break. Even when the government actually offers them a benefit, the private sector manages to find a way to take a big cut. That’s what’s happened since Bill Clinton pushed through a major expansion of the Earned Income Tax Credit (EITC), a measure that boosts the income of working poor families with a refundable tax credit. It’s now one of the biggest anti-poverty programs in the nation. At the same time, however, the EITC has spawned a lucrative cottage industry of scummy tax preparers who prey on unsophisticated workers with promises of “immediate” refunds that are, in fact, very expensive predatory loans that in 2006 drained nearly a billion dollars out of the refunds owed to people who really needed the money.

Tax preparers like H&R Block and Jackson Hewitt offer what are known as Refund Anticipation Loans, in which they give clients their “refunds” on the spot. The “refunds” are actually loans based on the future refund, which is then directed to the tax preparer or lender. The interest rates on many RALs are exorbitant—anywhere from 36 to 1,200 percent once all the fees are factored in. What’s really evil about these loans is that many people eligible for the EITC don’t realize that they can get all of their tax refunds, for free, from the IRS within a week or two of filing their returns, a fact that the tax preparers are certainly not sharing.

Earlier this year, consumer groups sent out mystery shoppers to many of the commercial tax preparation firms offering RALs and found that most of them didn’t tell consumers that the money they were receiving was a loan, or that they’d get more money if they waited a week for the IRS. The groups also reviewed IRS records and discovered that RALs were such easy money that tax preparers can now be found in such dicey locales as payday lending shops, liquor stores, beauty salons, pawn shops and used car dealerships—one reason why RALs have been connected in many states to major criminal tax fraud scandals. Nearly two-thirds of RAL borrowers are EITC recipients, even though such folks only make of 17 percent of all tax payers. That’s one reason why the IRS is currently considering whether to limit RALs. Unfortunately, any move will come too late for people filing this year.

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. It's our first time asking for an outpouring of support since screams of FAKE NEWS and so much of what Trump stood for made everything we do so visceral. Like most newsrooms, we face incredibly hard budget realities, and it's unnerving needing to raise big money when traffic is down.

So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate