Deceptive “Instant Tax Refunds”
Actually a Pitch for High-Cost, High-Interest Loans,
NJ Division of Consumer Affairs Reminds Taxpayers
NEWARK – A task force led by the Office of the Attorney General and State Division of Consumer Affairs, along with the Bergen, Camden, Gloucester, Mercer, Monmouth, Ocean and Somerset county offices of consumer affairs, last week inspected 574 tax preparation offices statewide in search of false and misleading advertising of so-called “instant,” “same day” and “24 hour” tax refunds.
Attorney General Paula T. Dow and Thomas R. Calcagni, Acting Director of the State Division of Consumer Affairs, today reminded taxpayers that there is no such thing as an “instant” tax refund, as the IRS cannot issue refunds that quickly.
So-called “instant” refunds offered by some tax preparers are usually Refund Anticipation Loans (RALs), which often come with high fees and interest rates that cut deeply into the amount a taxpayer would receive from the IRS.
“The promise of fast cash and an instant refund can be very attractive, especially in times of economic hardship. But tax preparers who offer so-called same-day refunds are selling something that does not exist, typically at a high cost to the buyer,” Attorney General Paula T. Dow said.
“Taxpayers should be wary of Refund Anticipation Loans, and resist the temptation of getting only some of their money today. Instead, they can receive their full refund in just three weeks or less, by filing their tax return electronically and opting for direct deposit to their bank account,” Thomas R. Calcagni, Acting Director of the State Division of Consumer Affairs, said.
The Division of Consumer Affairs investigators found five businesses falsely advertising RALs in storefront signs, posters or flyers as “instant” or “same day” refunds. Each inaccurate or misleading sign is considered a separate violation of the Consumer Fraud Act’s Advertising Regulations. The State is seeking a civil fine of $1,500 for each violation, for a total of $7,500 in fines; and reimbursements of $250 from each cited business for the state’s investigative costs, for a total of $1,250 in reimbursements. The businesses cited last week are: Demian and Co., LLC, in Cranford; MB Motor Sports, Inc., in Tinton Falls; City Tax in Jersey City; Girotel NJ, LLC in Union City; and Personal Touch Taxes, LLC in Newark.
Tax preparers who offer RALs are required to advertise them accurately. They are prohibited from requiring a client to enter into a refund anticipation loan and must be transparent about the costs involved. Tax preparers must also provide itemized statements of service charges, including charges for tax return preparation, electronic filing, and providing or facilitating the RAL.
Consumers who consider obtaining an RAL despite the costs should find out how long it will take to get their refund if they file their returns with the IRS without signing up for an RAL. Those who choose to obtain an RAL should carefully read any loan documents, especially the fine print, before signing. Any such documents should include:
• Annual percentage rate of the loan
• Schedule of all charges and fees
• Maturity date of the loan
• List of all charges for electronic filing
• Date or period within which the loan money will be received
• Who is responsible for paying the loan, if it exceeds the actual refund minus any interest and fees.
Consumers who signed up for an RAL without receiving full disclosure of the terms and conditions may file a complaint with the Division of Consumer Affairs at
800-242-5846 (within New Jersey) or 973-504-6200, or at http://www.njconsumeraffairs.gov
Consumers can download the Consumer Brief factsheet, “Refund Anticipation Loans: What Consumers Should Know About ‘Fast’ or ‘Instant’ Refunds,” available from the State Division of Consumer Affairs at http://www.state.nj.us/lps/ca/brief/ral.pdf .