Attorney General Alerts

    Beware of Refund-Anticipation Products

    January 28, 2015

    Paying off bills, setting money aside for a future vacation or building up savings are just a few examples of what many consumers plan to do with a tax refund, if they expect to receive one. Few, if any, have carved out plans to give a large portion of the refund right back to a tax preparer or financial institution.

    Unfortunately, millions of American taxpayers do exactly that each year when they obtain “rapid” refund products such as Refund Anticipation Checks (RACs) or Bonus Deposit Checks. RACs are essentially high-interest loans which must be repaid by your actual tax return and in many instances are deducted directly from refund proceeds. Thus, consumers are essentially borrowing and paying interest on their own money, and sometimes the refund is less than the loan amount that needs to be repaid.

    Arkansas Attorney General Leslie Rutledge issued today’s consumer alert so Arkansans will beware of refund-anticipation products.

    “Nobody wants to wait on money that is owed to them and that they know is coming, but I encourage consumers to be wary of promises that are too good to be true,” said Attorney General Rutledge. “Arkansas consumers should exercise patience as they wait on their tax refund to arrive. While the offer of extra cash or an immediate tax refund can be tempting, it should not sway consumers from the risk.”

    RAC lending has increased to an estimated 21 million taxpayers in 2013 and 21.6 million in 2014 according to the National Consumer Law Center.

    RACs may be offered under other names, such as “instant refund” or “fast refund.” Some include an option for a taxpayers refund to be loaded on a prepaid debit card.

    Companies that do offer these or similar products are required to comply with the Arkansas Refund Anticipation Loan Act. The Act, enacted in 2009, requires tax preparers to make some specific disclosures if they offer refund-anticipation product services.

    Those tax preparers must prominently display a schedule of fees for the products. They must provide consumers with a printed notice that lists any and all conditions related to the RAC or other products. Also, the preparer is prohibited by law from charging any fees in addition to those assessed by a lender unless the fees are charged to all tax-preparation customers.

    Consumers should be cautious if a product offers instant refunds or has add-on fees.

    To avoid the high costs associated with refund-anticipation products, consumers should utilize the IRS Free File program. Everyone is eligible to file for free, but taxpayers who earned less than $57,000 in adjusted gross income can file for free using brand-name tax software. The Free File program was available starting Jan. 17, and the IRS begins accepting returns on Jan. 31.

    Consumers looking to expedite their refund should consider e-filing. Taxpayers who e-file usually receive their refund within 8 to 21 days and the refund is direct deposited into their bank account. For those without a bank account, the refund can be direct deposited to a prepaid card.

    For more information on “rapid” refund products or help with tax preparation, please visit or go to the Attorney General’s website and visit the Consumer Protection Division at

    The Attorney General’s Consumer Protection Division hotline is (800) 482-8982.

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