Today, the City of Chicago Department of Business Affairs and Consumer Protection (BACP) offered advice to consumers who are considering Refund Anticipation Loans (RAL's), also known "instant tax refunds." The city is warning consumers that RAL's may sound like quicker refunds but what they are in fact are very expensive loans.

RAL's are loans that tax preparer’s offer to consumers through banks affiliated with those preparers. They are marketed as being a convenient and fast way to obtain income tax refunds. Consumers should not be fooled- RAL's are expensive loans that come along with fees, finance charges, and high interest rates that are often not worth the price.

"Many people are anxiously looking forward to a tax refund check this year. As we are in height of tax season, I want to warn consumers who are looking for quick returns: be aware of the costs involved in borrowing your own money," warned Commissioner of the Department of Business Affairs and Consumer Protection, Norma I. Reyes.

In addition to their high costs, RAL's are a risk. RAL's must be repaid even if the IRS denies or delays your refund, or if your refund is a smaller than expected. Some lenders will allow you to borrow more than the expected amount of your refund, putting consumers at risk of not being able to repay the loan. Credit can also be impacted by these loans.

While they may provide some quick relief- most consumers are better served by waiting the extra time for their full refund. If you file a tax return electronically, the typical turn around time is two to three weeks.

Consumers should know that free tax preparation assistance is available.
The City offers free tax preparation assistance for families who earned up to $50,000 last year and individuals who made up to $25,000.

Taxes are prepared for free by volunteers from the Center for Economic Progress and Ladder Up. Call 311 for locations.

The IRS also provides free taxpayer assistance. You can visit www.irs.gov for more information or call 312.566.4912.

You May Qualify for a Tax Credit
The Earned Income Tax Credit (EITC) provides tax refunds of up to $5,657 to low-income working families. Last year, the City’s preparation sites returned more than $35 million to more than 22,000 Chicagoans. The tax credit also includes free tax preparation services that are available at 29 locations throughout the City, many of which are open on weeknights and Saturdays. Call 311 for locations.

The cutoff income for the EITC is $48,279 for families with three or more children. This year, the benefits have been made higher for families with more children. The cutoff income for individuals is $18,440, and in some cases, taxpayers can receive the EITC even if they do not owe any income tax.

BACP offers the following tips for consumers:

Determine if you really need the money immediately.
Unless the extra time waiting for your refund will have a major impact such as loosing your home to foreclosure, it is best to wait for your refund.

Ask your tax preparer to outline all costs.
If you opt for a RAL there are often many additional costs. These may include loan fees, interest charges, and fees to cash the refund checks. Illinois law requires that tax preparers who are facilitating RAL's must disclose the cost of those RAL's.

Tax prepares must break down the following costs for consumers in writing:

Fees that the preparer charges for tax preparation Fees that the prepares charges for facilitating the RAL The RAL's annual percentage rate (APR) The RAL's total cost The estimated date the consumer can obtain their RAL money.

If the tax preparer does not break down these figures for you, do not accept the offer.

Consider paying tax preparation fees upfront
Many tax preparers offer to take their fees out of your refund; however, this is option is typically more expensive. In order to take your tax preparation fees out of your refund, the preparer directs your funds to a bank, which acts as a middle man and takes out additional fees. Ask your tax preparer whether you must pay additional fees for not paying your tax prep fees upfront.

Consumers should always report fraud by calling 311 or visit the www.chicago.gov to file an online complaint.

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