With Tax Forms Set To Arrive In Syr Mailboxes This Week, Schumer Warns Of Tax Refund Scams That Cheat Hundreds Of Thousands Of Upstate New Yorkers Out

With Tax Forms Set To Arrive In Syr Mailboxes This Week, Schumer Warns Of Tax Refund Scams That Cheat Hundreds Of Thousands Of Upstate New Yorkers Out Of Millions Of Dollars

As tax day approaches, thousands of New Yorkers could be getting cheated out of millions of dollars in tax refund loan scams that have popped up all over New York. In an effort to combat this scenario and a new scam where taxpayers can get refund loans without a W2 form or even a credit check, U.S. Senator Charles E. Schumer will outlined a new plan to stop these predatory lenders from continuing this unregulated usurious practice. These "instant refunds" or "pay day loans" are actually, short-term, high-interest loans secured by the recipient's tax refund and advertised as instant tax refunds by lenders. Customers are charged interest rates that can go as high as 700 percent annually to get their own tax dollars back from the government just a few weeks faster than they otherwise would.

"New Yorkers work hard for every dollar they make and shouldn't be duped by these wolves in sheep's clothing," Schumer. "This is a scam, plain and simple, and the emergence of these new pay-stub loans shows the scam is on the march. The bottom line is, New Yorkers, and people all over the country, are getting ripped off by these so-called refund loans, and it's time to stop them dead in their tracks."

Refund Anticipation Loans are high cost loans secured by and repaid directly from the proceeds of a taxpayer's refund from the IRS. RALs usually run for 7-14 days - the difference between when the RAL is made and when it is repaid by deposit of the taxpayer's refund. As is often the case with terrible financial deals, RALs are targeted at low-income consumers, who are often in need of funds quickly.

According to the Neighborhood Economic Development Advocacy Project, 538,923 New Yorkers took out RALs in 2004, the last year data is available. The NCLC reports that 18% of consumers have taken out a RAL at some point. Of these consumers, two-thirds did not realize a RAL is a loan. Consumers paid an estimated $1.24 billion in RAL fees to get quick cash for their refunds- essentially borrowing their own money at extremely high interest rates. Schumer said that, according to an analysis conducted by his office, upstate New Yorkers were bilked out of $30 million in 2003 by these scams.

These loans are advertised all over the country as "instant tax refunds" with catchy slogans and colorful advertisements. Generally, a taxpayer goes into a tax preparer and is told that their refund can be made available immediately rather then waiting 10-14 days to get the IRS to process the refund. Loan Fees can range from anywhere from $30 to $150 depending on the combination of costs, which is steep, especially when consumers don't realize that they are getting a loan. This charge does not include tax preparation fees which average almost $150. Though the charges may not seem extraordinarily high, depending in the size of the loan it means paying an effective annual interest rate of 40 percent to more than 700 percent according to the NCLC.

Once a taxpayer decides on receiving their "instant tax refund," the tax preparer then sends a request to the IRS to see whether that person is entitled to a full refund, partial refund, or nothing at all. The IRS tells the preparer what they're entitled to; the preparer calculates the expected refund, minus the fees. The refund is then processed within 7-14 days and deposited into a dummy bank account set up by the preparer in the name of the recipient. The preparer then keeps the difference.

Schumer today also warned of a new scam that makes it even easier to get these high cost RALs. Tax preparers are now offering loans based on a person's projected tax refund using his or her pay stub. The loans are intended to hook taxpayers in to coming back to get their taxes done during tax season. At that time, tax preparers try to get borrowers to repay their so-called "pay-stub" loans by taking out a second high-cost RAL. Most pay-stub loans carry the same triple-digit annual percentage rates and mark another sign that usurious refund anticipation loans are spreading rapidly.

Last year, pay-stub RALs were only offered by a few tax preparers. Now, they have become widespread and are being pushed by the major tax preparers. Tax preparers have already started heavily advertising these loans as "Instant Money Now" and "HELP-Holiday Express Loan Programs." What the consumer doesn't know is that pay stub loans often may have to use a specific debit card (with additional fees) to access their money.

To combat the pervasiveness of these scams, Schumer today announced he was going to reintroduce an updated version of the Taxpayer Protection and Assistance Act (S. 832) that specifically targets RALs. His legislation, which passed the Senate Finance Committee last year, would:

• Prohibit refund anticipation loans that utilize EITC benefits. Most refund anticipation loans are targeted at low-income taxpayers. Nationwide, there were a total of 12.17 million sold in 2004. 79% of these were made to low-income households and over 50% were made to EITC recipients.

• Require that the Treasury Department provide the opportunity for low and moderate income taxpayers to open a low-cost direct deposit account at a federally insured bank or credit union through the use of appropriate tax forms. Filing electronically and having the refund direct deposited into a bank or credit union account permits taxpayers to receive their refunds in approximately seven to ten days, without paying the high fees associated with RALs.

• End the Debt Indicator (DI) program which shares taxpayers' personal information - beyond what is necessary - with tax preparers. In the RAL application process, the Internal Revenue Service (IRS) reduces the risk that lenders take on RALs by providing them with a Debt Indicator (DI) on all IRS e-file acknowledgments.

Schumer today also said that he would send letters this week to government agencies that regulate taxes and personal loans, including IRS Commissioner Mark Everson and Federal Reserve Chairman Ben Bernenke, asking them to conduct an immediate investigation in to the rise of the new pay-stub loans and make specific recommendations about ways to crack down on them.

http://schumer.senate.gov/SchumerWebsite/pressroom/record.cfm?id=267604&&year=2007&