LANSING – State Representative Rashida Tlaib (D-Detroit) today introduced legislation that will protect consumers by regulating Refund Anticipation Loans (RALs). 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. Senator Buzz Thomas (D-Detroit) joined Tlaib by offering a concurrent measure in the Senate.
"An RAL is not a tax refund – it's a loan riddled with interest rates and hidden fees," Tlaib said. "By regulating RALs to include strong disclosure, taxpayers in Michigan will be able to make informed decisions when applying for RALs."
Under Tlaib's bill, the following information would have to be provided by all tax preparers who provide RALs:
- All interest, fees and hidden costs associated with RALs;
- That an RAL is a loan and not a refund;
- That the taxpayer could file electronically without applying for the RAL to expedite processing time;
- The estimated time a refund would 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 over $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 in concept by the lending community.
"RALs target low-income families," Thomas said. "Our low-income families rely on their tax returns and can't afford to lose them to hidden fees and interest rates. I'm hopeful that my colleagues in the Legislature can come together and pass these important protections for our consumers."