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DISB Issues Policy Statement on High-Rate Refund Anticipation Loans

Monday, February 8, 2010
DISB releases policy statement opposing high-rate RALs, and alerts consumers to the risks involved in obtaining a RAL.

The DC Department of Insurance, Securities and Banking (DISB) today released a policy statement opposing high-rate Refund Anticipation Loans (RALs),  and a consumer advisory
  alerting consumers to the risks involved in obtaining a RAL. A RAL is a loan borrowed against the amount of a consumer’s anticipated income tax refund, and often includes fees to be paid to the tax preparer and extremely high interest rates for the financial institution. High-rate RALs have the potential to be very costly to consumers. This product tends to be targeted to low-income borrowers who may qualify for the Earned Income Tax Credit, which is a tax credit for low- to moderate-income individuals. DISB acknowledges most taxpayers don’t realize that they can have their tax refund in two weeks or less—even without receiving a costly RAL. “Advancements in technology such as electronic tax filing and direct deposit of income tax refunds have largely made RALs unnecessary,” said DISB Commissioner Gennet Purcell. Therefore, given the consumer protection concerns of RALs, DISB opposes the predatory interest rates associated with most RALs and supports the following positions: DISB urges consumers to avoid high-rate RALs.o Consumers should electronically file income tax returns.o Consumers should request direct deposit to their checking or savings account. DISB encourages banks to refrain from making high-rate RALs.