LANSING – A plan proposed by State Representative Rashida Tlaib (D-Detroit) that will protect consumers by regulating Refund Anticipation Loans (RALs) is heading to the Michigan House for a full vote after gaining approval from the House Banking and Financial Services Committee. RALs, which are offered to taxpayers as "instant refunds" or "quick cash," allow consumers to immediately receive their tax refunds from tax preparers, but often include excessive interest and fees.
"RALs are loaded with hidden fees and high interest rates that are designed to take advantage of low-income residents who are already struggling to make ends meet," Tlaib said. "By requiring RALs to include strong disclosure, residents will be able to make informed decisions when applying for them. I urge my colleagues on both sides of the aisle to support this common-sense plan to protect our working families."
Tlaib's plan will require all tax preparers who provide RALs to provide the following information:
All interest, fees and hidden costs associated with RALs;
That an RAL is a loan and not a refund;
That the taxpayer can file electronically without applying for the RAL to expedite processing time;
The estimated time a refund will take to be issued by the government;
That there is no guarantee that the refund will equal what is on the tax form; and
That the taxpayer is responsible for the difference if the tax form is not correct.
According to the National Consumer Law Center and the Consumer Federation of America,
5.9 million working families nationwide spent more than $600 million in RAL fees in 2005. Tlaib has been critical of the heavy use of RALs given that the average electronic tax filer receives their refund from the IRS in two weeks or less. The disclosure legislation is supported by the Michigan Credit Union League.
"For many working families, this year's tax return will be a lifeline as our residents struggle in this tough economy," said State Representative Bert Johnson (D-Detroit), who serves on the House Banking and Financial Services Committee. "We cannot allow this lifeline to be threatened by unscrupulous lenders who are out to make a quick buck at our hard-working residents' expense."