“Money today may sound attractive but signing up for quick refund services can be very costly to consumers,” said Gallagher. “Carefully consider the fees and interest rate associated with a refund anticipation loan.”

Consumers may fall prey to refund anticipation loans with promises of “instant refunds” or “quick cash.” Loan fees range from $30 to $105, with administrative fees between $25 and $60 often tacked on to the loan. The effective Annual Percentage Rates (APR) for these loans may start at 60 percent and be as high as 700 percent.  

Refund anticipation loans are offered by tax preparers who are often located within the offices of check cashers, payday lenders, used car dealers, and title loan lenders.  The tax preparers serve as a conduit for state and national banks or federal thrifts that provide the loans.

The Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) are the regulatory agencies that govern the activities of national banks and federal savings associations. National banks and federal thrifts are able to assign interest rates and fees from any state they are authorized to do business in, including those states that do not have caps on the amount of interest and fees charged.

Refund anticipation loans are especially appealing to consumers who need money quickly and don't want to wait the six weeks it can take to get a mailed refund from the IRS.  A pitfall, however, is that if the IRS turns down any of their claimed deductions or credits, the consumer is still obligated to pay back the loan.

According to Gallagher, there are alternatives to high-cost refund anticipation loans.  The IRS E-File, found at www.irs.gov, is one alternative.  Taxpayers can use this free, online tax preparation service to file their income tax returns and can anticipate receiving their refunds more quickly than if they filed through the mail.  

Another way to save money at tax time is to go to a Volunteer Income Tax Assistance (VITA) site, which is sponsored by the IRS.  VITA sites provide free tax preparation to low- and moderate-income taxpayers.  They can be found in libraries, community centers and other convenient locations. To find a VITA site, call the IRS' helpline at 1-800-TAX-1040 or visit www.tax-coalition.org.

AARP also sponsors Tax Counseling for the Elderly sites in many communities.

“Most consumers don't need refund anticipation loans and can get their hard-earned money back, in its entirety, by waiting a few extra days,” said Gallagher.