The Ladder

A Blog from New America's Asset Building Program

RALs Headed to the Dustbin

Published:  April 9, 2012
E-File
Who needs a RAL when you can E-File and Direct Deposit?

As the 2012 tax season comes to a close, the door will also close (slam shut is more appropriate) for the infamous tax loan known as the “RAL.” A refund-anticipation loan became the tax product that consumer advocates loved to hate for two decades. And, as this article points out, with good reason. The concept was to advance tax filers their refund to help pay for tax preparation and to get the much needed dollars to families quickly. As former HR Block executive and deputy IRS Commissioner Mark Ernst notes, it went way too far. The cost of the loan was egregious, often with triple digit interest rates. RALs were also highly targeted to filers claiming the Earned Income Tax Credit (EITC), the nation’s largest anti-poverty program. The RAL grew in cost and siphoned dollars from the very program that was created to help families secure and build assets. What’s more, RALs became obsolete in the market. With e-file and direct deposit, the IRS quickly turned around most refunds. Additionally, free tax preparation coalitions and clinics offered a low or no-cost option to expensive tax preparation chains.

I want to leave it at that for now, as I'm working on a research paper that gives a lot more history on this issue with my colleague Rachel Black. Keep an eye out.

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