Each year, some anxious tax filers expecting refunds, choose to take out a Refund Anticipation Loan to speed the return of their money.
According to a report released by the National Consumer Law Center and the Chartered Financial Analyst Institute, the most recent IRS data states that 7.2 million taxpayers received RALs in 2009. RALs are short-term loans that are paid back once the refund has been received from the IRS. Some tax preparers also offer a Refund Anticipation Check. The RAC is facilitated through a bank in partnership with the tax preparer. In the case of a RAC, a temporary bank account is established into which your IRS income tax refund will automatically be deposited.
However, if consumers borrow more than their refund actually may be, they will have to pay back the bank, and there could be fines and fees attached.
"The taxpayer may assume that the loan will be paid off quickly when the refund arrives, but problems can arise if the refund is less than the loan,” said Randall Hoth, president/CEO of Wisconsin BBB. “In the event of a shortage, you must repay the difference and get stung with fees and fines."
As the appeal of electronic filing and lighting fast refunds grow, scammers are increasingly creative in deceiving individuals into handing over personal information and money. Phishing e-mails have warned individuals of an issue delaying the processing of their taxes. The often convincing, yet fraudulent e-mails provide phony links and look-alike websites to gain social security, bank and credit card account numbers. Taxpayers should be aware that the IRS will not e-mail you about your taxes.