What can be perceived as a lifesaver to some low income families in New York City costs them millions of dollars over the past few years instead, according to a study by the Manhattan based Neighborhood Economic Development Advocacy Project.
The resource center, which provides legal, technical and policy support to low income communities and neighborhoods of color, released a report last month that tax refund anticipation loans cost the city’s poorest communities $324 million in fees from 2002 to 2005. And, Jamaica and Far Rockaway ranked among the top 20 communities hardest hit by these fees, said Sarah Ludwig, project director.
Tax refund anticipation loans, also known as RALs, are loans that allow taxpayers to receive a chunk of their federal tax returns in one or two days. Interest is secured by their refund check and Earned Income Tax Credit. However, interest rates can range from 40 percent up to a whopping 700 percent, said Ludwig, taking a big bite out of money many families desperately need.
“The reason they’re so expensive is because they are very, very short term,” Ludwig said, adding that many families don’t pay attention to the interest percentage when signing for the loan, just the money they are going to receive early.
“It targets lower income people,” she added.
According to advocacy project records, fees to Jamaica families from 2002 to 2005 added up to more than $12 million from almost 47,000 tax refund anticipation loans filed. In Far Rockaway, almost $4 million in fees were issued, with more than 14,000 loans filed. Arverne, an area near Far Rockaway, had almost $1.5 million in fees after around 5,400 loans were filed.
Jamaica resident Jesse Murray said members of his United Neighbors Civic Association have heard about the alleged “scam” these loans portray. He and the association’s approximately 40 active members are planning to get the word out and warn families preparing for tax time.
“I’m going to gather all of the information I can concerning it,” he said.
The civic association focuses on an area of around 4,000 Jamaica homes, which include “a lot of low income families,” Murray said. The only advice he can give to those thinking about a tax refund anticipation loan is to be wary. “Read the fine print before you sign for fast money,” he said.
Murray, a retired first sergeant with the Marines, is currently keeping young and old veterans informed about the loans when they utilize the free tax preparation site at the St. Albans Primary and Extended Care Center.
The center is offering such services every Wednesday and Thursday until early April, Murray said. The sites are provided by the Veterans of Foreign Wars Post 5298, where he is past county commander.
Any warning veterans can receive about tax refund anticipation loans during these site visits is always useful, he noted, especially to those veterans struggling to make ends meet.
“We have veterans who are getting assistance,” he said. “We even have veterans on food stamps.”
The two hardest hit neighborhoods in the advocacy group’s report were located in Brooklyn and the Bronx. Brownsville, Brooklyn, first on the list, accumulated more than $8.5 million in fees; Morrisania/Melrose, the Bronx, followed at more than $8.1 million.
Experts say that a lot of families are confused by how the loans work. Some taxpayers think they are getting a portion of their tax refund early by simply paying a fee. However, the money in their hands is not from the IRS, but from a bank loan that is secured by their tax refund.
This leaves some families running the risk of not being able to pay back interest on the loan, experts added.
As far as the high interest rates go, many tax preparation agencies legally bypass the 25 percent cap on short term loan interest rates set by the state. They do this by partnering with national banks, which do not have to comply with state law, according to experts.
Shira Krance, a spokeswoman for the city Department of Consumer Affairs, said consumers should be careful this tax season and “steer clear of high interest loan products that promise fast returns.” She also urged taxpayers to read a copy of the department’s Taxpayer Bill of Rights, which is available by calling 311. For other tax information, call the department at (212) 487 2710.
According to the Web site of tax preparation giant H&R Block, consumers should take time to better understand tax refund anticipation loans. It wants consumers to know that this type of loan is not required to electronically file a return to the Internal Revenue Service, to understand the responsibility of repaying the loan, and to shop for the best prices and the best agency.
Bypassing tax refund anticipation loans and requesting a direct deposit of the entire refund would give taxpayers their money in eight to 15 days.
Tax experts encourage residents to visit free tax preparation sites, which offer electronic filing and direct deposit services, as well as more information about tax refunds.
The list of organizations that provide free tax preparation services include: American Association of Retired Persons at (888) 227 7669 or (888) 687 2277; Association of Community Organizations for Reform Now at (718) 307 7899; Community Tax Aid at (212) 613 3101, or the IRS at (800) 829 1040. People can also dial 311 for Queens locations.
For more information on free tax preparation at the St. Albans VA site, call VFW Post 5298 at (718) 525 7655.
Those who want to find locations online can visit the Department of Consumer Affairs Web site at www.nyc.gov/dca and click on “Get the EITC,” or visit FoodChange, a nonprofit organization, at www.foodchange.org.