Secrets of the Tax-Prep Business
April 14, 2011 7:40 PM Subscribe

"Customers wanting a RAL paid Jackson Hewitt a $24 application fee, a $25 processing fee, and a $2 electronic-filing fee, plus 4 percent of the loan amount. On a $2,000 refund, that meant $131 in charges—equivalent to an annual interest rate of about 170 percent—not to mention the few hundred bucks you might spend for tax preparation."
posted by vidur (71 comments total) 5 users marked this as a favorite

There's something completely evil about offering this service, but as long as the taxpayers go in knowing that:

a) they're going to pay all this money to get the money NOW!!!
b) they could save all this money by waiting 2-3 damn weeks...

it's hard to see these people as total victims.
posted by randomkeystrike at 7:46 PM on April 14, 2011 [4 favorites]

This is the kind of thing that absolutely drives me crazy. Nobody who has any kind of financial security would take a loan with "triple-digit interest rates to borrow their own money."

This is what people don't understand when you try to explain the high cost of being poor. You can't wait 2-3 damn weeks because you're already stretched so thin you're barely making it. Maybe you've waited all year for that lump sum for car repairs, medical bills, back rent. It's not a question of knowing that the interest rate is obscene, you suck it up and pay it because of the lack of available options. If that's not victimizing the poor I don't know what is.
posted by Space Kitty at 7:55 PM on April 14, 2011 [66 favorites]

If we want to complain about this, we will probably end up complaining about nearly EVERY friggin' business in a low income area of a decaying urban area...

The blame shouldn't be placed on this guy who helps someone get his money faster, but on the culture that promotes poverty while we give corporate tax breaks and bailouts.....

This isn't the disease folks, it's the symptom.
posted by tomswift at 7:55 PM on April 14, 2011 [9 favorites]

You left out the punchline: many (perhaps most) people using these kinds of tax preparers have very simple returns, can use free online software and in some areas even get free in-person tax preparation.
posted by R343L at 8:06 PM on April 14, 2011 [8 favorites]

At least with payday loan places, rent-a-centers, and the like, there's an ostensibly legitimate reason for charging exorbitant rates: it's what it takes for them to stay afloat in a business where people default a lot, checks bounce, etc.

Loaning a customer money from their own forthcoming tax return seems like the safest investment in the world. So I give you $2,000... and the United States government will pay me back in two weeks? Where's the risk?
posted by dixiecupdrinking at 8:06 PM on April 14, 2011 [7 favorites]

H&R Block has been doing this forever. And they keep getting sued over it, but keep doing it. Why? Because (a) people want (b) and it makes HRB money.

Side note: *BOTH* Jackson Hewitt and Liberty Tax was started by a former HRB employee, John Hewitt.
posted by Old'n'Busted at 8:07 PM on April 14, 2011

I live in a low income neighborhood of an urban area and I'm pretty sure I could find a bright line to draw between same-day tax refund / check cashing / pawn shop / casino businesses and basically every other business out there that doesn't provide predatory goods and services.
posted by ofthestrait at 8:07 PM on April 14, 2011

> You left out the punchline: many (perhaps most) people using these kinds of tax preparers have very simple returns, can use free online software and in some areas even get free in-person tax preparation.

But they have to wait to get their money. The RAL capitalizes on their immediate need.
posted by Burhanistan at 8:08 PM on April 14, 2011

I'm personally somewhat conflicted about payday loans.

On one hand, they're dirty, rotten, abusive businesses that prey on the poor.

On the other hand, they're still 10,000x better than going hungry or borrowing money from the mafia. Similar to the legalize-drugs-to-reduce-crime argument, the legalization and commoditization of payday loan services essentially made it impossible for the mafia to operate lending schemes for anyone other than the most unscrupulous customers. This, in turn, seems to have led to a precipitous drop in organized crime.

Remember -- illegalizing a good or service will inevitably creates black markets for that item. I can't think of any other item that can be traded on the black market more easily or transparently than cold hard cash.

Allow the payday loan guys to exist. They're far better than the alternative. (And, feel free to regulate the hell out of them -- unlike the mob, the loan shops do ostensibly have to play by the rules.)
posted by schmod at 8:09 PM on April 14, 2011 [8 favorites]

But the taxpayers don't really go into it knowing exactly what they are paying and that there are alternatives. The tax preparers don't present the offer as "for a $131 fee, equivalent to an annual interest rate of 170%, we can loan you that money now or you can probably have it outright in a couple weeks for free." If they said that, few people would take the loan. Instead, you say something like "I'm pleased to be able to tell you that you qualify for our diamond instant refund service, which means I can offer you your estimated refund of $2,000 right here on the spot. Are you interested in that?" If they say yes, you pull out the forms and bury them in the fine print.

Here's a RAL application form for Chase from last year that I dug up in a couple seconds of googling. This one is a lot clear than it could be, probably as a result of disclosure requirements in various laws that have tried to control these loans, but it's still a dense four page legal document that few people are going to take the time to look at. A tax preparer can easily flip to the signature page, say "ok just sign here and I'll get your your refund straight away," and get a lot of people to ignore the fees. It's certainly no accident that the signature page is as confusing looking as it is.

Plus, if you don't have a bank account, direct deposit is worthless to you, and a paper check takes even longer. The IRS is working on some programs to better handle this case, but it's still a big problem.
posted by zachlipton at 8:09 PM on April 14, 2011 [3 favorites]

It's been many years since I've done a RAL, but I have in the past. And space kitty has it exactly. I knew the terms were awful, But I needed the cash right then, I did it because, for example, I had already slightly overextended myself to give my kid some kind of Christmas, and then needed unexpected and extensive car repairs. I needed new brakes then, not in a month. I wouldn't do it now, because now I have available credit. But I never went into it blind, and never held the tax prep people to blame. They were very straightforward -- $X dollars now for $Y fee. It was never the sort of deceitful predatory thing that I see payday loans as being.
posted by tyllwin at 8:16 PM on April 14, 2011 [5 favorites]

Some may be desperate for immediate cash. But others are just eager to part with their money. "Ur gonna give me $2000 now?! Just sign here on this form I don't understand? SURE!"
posted by blargerz at 8:16 PM on April 14, 2011

Likely it's just confirmation bias from all the threads along these lines that we've had lately, but the impression I am getting, more and more, is that America is a supremely shitty place to live if you're not one of the very, very, very few who is earning over $300,000 a year. It's slightly pathetic to see what is objectively the most powerful government in the world have so very little in the way of balls. Stand up for yourselves, for Christ's sakes. Have a fucking revolution or something. You need it, and more importantly so does the world. The whole "Freedom of Speech" thing that many here so tightly embrace isn't doing you a god-damned lick of good.
posted by tumid dahlia at 8:18 PM on April 14, 2011 [13 favorites]

"Some may be desperate for immediate cash. But others are just eager to part with their money. "Ur gonna give me $2000 now?! Just sign here on this form I don't understand? SURE!""

I don't think I would be so quick to paint the borrower with the "idiot brush"....
posted by tomswift at 8:19 PM on April 14, 2011 [1 favorite]

Honestly, I feel that this meets a demand that would otherwise be met by organized crime. If charities want to offer loans with lower rates, that's great, but it probably wouldn't meet demand. This industry should be heavily regulated so that consumers know what they're getting into, but I don't see that it should be illegal.

And yes, the availability of free tax-preperation software and assistance, including at public libraries, is a vital thing that eligible poor people will hopefully become more aware of. Maybe these lenders should be forced to advertise it.
posted by East Manitoba Regional Junior Kabaddi Champion '94 at 8:24 PM on April 14, 2011

I don't think I would be so quick to paint the borrower with the "idiot brush"....

Why?
posted by blargerz at 8:27 PM on April 14, 2011 [1 favorite]

"Why?"

You'll figure it out someday, blargerz, but I suspect it's a ways down the road for you...
posted by tomswift at 8:36 PM on April 14, 2011 [3 favorites]

zachlipton : Plus, if you don't have a bank account, direct deposit is worthless to you

I just don't understand that oft-repeated excuse. Anyone with a SS# in the US can get a bank account. Perhaps not one with a lot of features, free checks, and a decent interest rate, but a place you can cash checks or have them direct deposited, certainly. How much does your credit have to suck before a bank says "umm, gee, yeah, we won't let you pay us to hold your money for you"?

and a paper check takes even longer. The IRS is working on some programs to better handle this case, but it's still a big problem.

Y'know, funny thing... I did my taxes last week (as in, Saturday). I've already gotten my refund checks. Physical, paper-and-ink live checks.

tomswift : I don't think I would be so quick to paint the borrower with the "idiot brush"

Say! Do you need someone to do your taxes for you next year (I promise to pretend to respect you... At least until your check clears)? ;)

Overall, methinks these high-fee scammers - Whether RALs or "payday" loans or check cashing services - Reflect a larger problem with our society than the duh-what-do-you-expect existence of companies willing to prey on the weak... If you can't wait a week or two for your return (or can't do the math to figure out how much getting it two weeks faster will cost you), you have deeper problems than who you let bleed you dry.
posted by pla at 8:40 PM on April 14, 2011

No really, why? Considering my original post was already hedged, I'm curious what you have in store.
posted by blargerz at 8:41 PM on April 14, 2011

IF you e-file and do direct deposit you can get your cash in less than a week. I know I did.
posted by djduckie at 8:53 PM on April 14, 2011

How much does your credit have to suck before a bank says "umm, gee, yeah, we won't let you pay us to hold your money for you"?

It is not (just?) about credit. Most banks or credit unions run your name through ChexSystems. If you bounced a check that the bank paid, let it age until they closed the account, you can't open an account elsewhere. Maybe if you pay it off (but where will you get the money for that?).
posted by Monday at 8:59 PM on April 14, 2011 [2 favorites]

Bank of America even went so far as to run transactions from largest to smallest, just so they could charge two separate overdraft fees on an account with a $50 balance and $10, $15, $45 in checks. It used to be surprisingly easy to ring up hundreds of dollars in fees at BofA all at once, even on small transactions...

US Bank got me with this trick. Only it was five small transactions and one biggish one, the night before payday. Guess how those transactions were handled...
posted by the christopher hundreds at 9:04 PM on April 14, 2011

Yeah, I bought a $60.99 bag of chips at a gas station once, in my previous life as someone with less than 99 cents in her checking account.

mmm, Lays Flamin' Hots!
posted by vorfeed at 9:14 PM on April 14, 2011 [2 favorites]

You have insufficient funds!
posted by flabdablet at 9:15 PM on April 14, 2011

There's H&R Block here in Canada, too.

Taxes can be difficult but for the people that these services advertise to, taxes are pretty straightforward.

I certainly didn't get a highschool education in filing taxes; but that's an extremely straightforward piece of "DUH." I had to muddle through with free online versions of paid online tax filing services until I was a student again, and still dealt with (the same [ufile]) online.

A bright shiney shooting fucking star in my neuroscience PhD program couldn't do his taxes; he had a falling out with his family accountant and ran to me to ask what to do. I had to spend a couple of fucking hours guiding him through his online tax return. Seriously; there really needs to be a secondary education level "filing taxes" class. The dude isn't stupid, but fuck, filing his stupid simple taxes by himself twisted his undies into klein-bottle aplopolexies. I did mine in about 15 minutes and we had essentially identical income &c.

WHY THE FUCK does secondary education not deal with filing taxes (based on students graduating and either getting a job or starting their own business or running their family farm or whatever is location appropriate)?!
posted by porpoise at 9:20 PM on April 14, 2011 [1 favorite]

Y'all need to stop using checks.
posted by tumid dahlia at 9:22 PM on April 14, 2011

I just don't understand that oft-repeated excuse. Anyone with a SS# in the US can get a bank account. Perhaps not one with a lot of features, free checks, and a decent interest rate, but a place you can cash checks or have them direct deposited, certainly. How much does your credit have to suck before a bank says "umm, gee, yeah, we won't let you pay us to hold your money for you"?

It's not an excuse, but a sad reality. Yes, bank accounts are easy. I have a bunch of them and can pick up another one in most cases just by filling out a form on a website. I bet virtually every mefite has a bank account (you had to get your $5 into PayPal somehow, and that usually means you have a credit or debit card). Despite this, millions of Americans don't have a bank account. Here are a whole bunch of FDIC stats on the unbanked, and you can see the data in various visual forms too. 21.7% of black households and 19.3% of Hispanic households are considered to be unbanked. Nearly 20% of households earning less than 30K/year don't have bank accounts. That's around 7 million households in that category alone.

So why don't all these people just get bank accounts if it's so easy? I'm no expert, but there are lots of reasons why we're in this situation. First, there's an education problem. You probably learned how to balance a checkbook when you were a kid. Perhaps your parents taught you how your college savings account worked or even bought you a few shares of stocks. If your parents never used a bank and/or never taught you how banks work, you're starting from scratch, and a lot of people don't want to learn, are too busy to learn, or are intimidated to do so.

Banks don't always make it that easy too. To open a bank account, you generally need at least a minimum deposit and valid identification. Many banks require two forms of ID. They might not even take expired ID. Even if we ignore illegal immigrants (a non-trivial population in some areas), lots of people don't have this kind of identification, and getting it means taking another day off work to take three buses down to some government office to pay a fee to wait six to eight weeks for the ID to arrive in the mail. Further, while banks do have expanded hours and more convenient locations nowadays, a lot of branches still work pretty close to standard bankers hours. A lot of the unbanked are at work during this time and don't have the opportunity to open an account. Some banks are starting to do better at this (e.g. working with the local Mexican consulate to sign people up for consular ID cards and bank accounts at the same time), but it can still be a huge hassle for many Americans.

Historically, many banks haven't been particularly kind to minority customers either. The practice of redlining meant that banks essentially declared entire neighborhoods off limits for loans and other services. While this has been curbed to some extent, there are still some definite patterns to where bank branches are located. If you're living paycheck to paycheck, you might not live near a bank at all, and chances are good you're not close to one.

From the moderate amount of reading I've done on the subject, one theme that comes up a lot is that many of those who don't have bank accounts aren't getting them simply because they feel the system isn't really for them. They feel they don't have enough money to need a bank, they don't write enough checks to get a checking account, they don't meet minimum deposit requirements, or they simply aren't welcome. None of these may be true (I usually see $100 or so as a minimum deposit requirement for new checking accounts and some banks will go lower), but it's the perception that matters.

And as others have mentioned above, if you've bounced some checks in the past (and you're a lot more likely to do that if you're living paycheck to paycheck), it's easy enough to wind up blacklisted at most banks, and who has the time or money to get that taken care of?
posted by zachlipton at 9:23 PM on April 14, 2011 [16 favorites]

Y'all need to stop using checks.

Americans have weird debit cards too that aren't the same as ours and (presumably) yours.
posted by ODiV at 9:38 PM on April 14, 2011

Y'all need to stop using checks.

That's the thing: I wasn't. The vast majority of overdraft fees are (or were, before the new legislation) charged on small debit transactions -- transactions the bank allowed to go through knowing the customer had insufficient funds. In fact, I believe BofA's reaction to the new consumer protection laws was simply to reject these transactions, as everyone who ever bought a $60 bag of chips always wished they would.
posted by vorfeed at 9:39 PM on April 14, 2011 [4 favorites]

Anyone with a SS# in the US can get a bank account. Perhaps not one with a lot of features, free checks, and a decent interest rate, but a place you can cash checks or have them direct deposited, certainly. How much does your credit have to suck before a bank says "umm, gee, yeah, we won't let you pay us to hold your money for you"?

As a single data point, it took just one bank account closed due to insufficient funds in the amount of $43. My name went into Chexsystems. Five years later, I was making a great wage at the height of the first dot com boom in 99. I still couldn't open an account. Not with checks for thousands of dollars, or a history of cashing several such checks, indicating steady employment. I would have had to wait seven years, had Washington Mutual not shortened the number of years they query Chexsystems for.

I was just a fresh, dumb high school graduate who failed to deal with a bounced check the summer before I headed off to College. I imagine it is a lot easier for a poor person to fall into this same trap.
posted by interstitial at 9:40 PM on April 14, 2011 [15 favorites]

Ohh okay, never mind, I was just picturing people here standing around in the supermarket at 2 in the morning using a paper check to buy a bag of chips like The Dude.
posted by tumid dahlia at 9:48 PM on April 14, 2011

Getting into desperate straits is maybe easier than you think, blargerz.

Poverty breeds poverty. The consequences of minor things are greatly magnified when you're poor. Look, if I'm an idiot and bounce a check by going $5 over my balance the day before my paycheck hits the bank, it costs me nothing. Zero. It just hits a line of credit, and my balance goes negative for an overnight. But if I'm too poor to have that cushion, as I was a few years back, it costs me $45 in fees. I go to negative $50. Now let us suppose that I'm living so hand to mouth that this paycheck was supposed to cover a car payment and leave me $20 to eat on for the week. And the car payment comes out automatically, because, being poor, my lender doesn't trust me to do it any other way. I'm short, so even without anything left for food, I go negative again (and have now racked up $90 in fees.) And if it sits there negative for a week, waiting for my next paycheck, while I'm going hungry, hey, it's another $45. So the identical mistake that costs middle-lass me not a penny costs poor me $135 and impacts my ability to put food on the table as well. For one overdraft. If things are more complicated, and the bank has the opportunity to arrange the order of transactions so as to maximize, rather than minimize the number of overdrafts, as vorfeed describes, maybe that $5 mistake initially costs 2 or 3 $45 fees instead of one. But only for the poor version of me. Worse, if I can't fix it somehow in a month, the bank may close my account, and now I'm really screwed. The car loan company wants to repo my car, and I dunno how I'm going to get a paper check from my job, or when.

For the poor guy, the consequences of everything are magnified that way. Say you aren't forced to have car payments automatically taken out. Late with one? If you're poor, you're going to get a lot more fees than the middle-class guy. Because he can leverage his good credit scores to choose lenders who offer reasonable deals. If you're poor, not so much. So you have to suck it up and accept the loan that comes with the godawful penalties. And the landlord who goes ballistic, and might dump your stuff o the street regardless of what the law says about it. And the $300 limit credit card with the 30% APR and all the fees. They're like wolves, coming at you because they can see you're weak. Weak in terms of buying power, at least, and that means weak in terms of choices.

Often a couple of grand now can shatter this ugly cycle, at least for a while. And the terms of an RAL aren't much worse than what poor you is stuck paying on all sorts of transactions. I honestly don't think most people getting an RAL are taking the cash and running out to buy a 55 inch TV.
posted by tyllwin at 9:50 PM on April 14, 2011 [35 favorites]

I did some I.T. work for HR Block awhile back. I was not proud of working there. Their business model is essentially "Hey, a lot of Hispanic people are poor! How can we deny them what little hard earned money they do have and make it our money instead?" They frequently are prevented from doing egregious and obvious ripoffs, so they just come out with a new product with slightly different rules that still ends up being hundreds of percent interest rate. They even charge you extra to defend you if your tax return is screwed up!

The "tax professionals" take "free" classes (you only have to buy $100s worth of books from them!) in order to work there (and they are independent contractors who only make commission), and they get enough knowledge to use a computer program that is nearly identical to the HR Block home software package. Then they proceed to deal with almost all customers who could file a 1040EZ.

I don't know what the solution is, but the poor are getting screwed by these companies and it's definitely not their fault. Our schools should be teaching by middle school how basic and simple most people's taxes really are.
posted by haveanicesummer at 10:02 PM on April 14, 2011 [1 favorite]

What from my post indicates that I might disagree with you?
posted by blargerz at 10:02 PM on April 14, 2011

You hedged it enough that perhaps you don't. I think we both agree that some people are making a rational decision when they pay these astronomical fees while others are ignorant or thoughtless. I gathered the impression that you though the "rational" percentage was relatively tiny. If you don't hold that opinion, then my bad.
posted by tyllwin at 10:10 PM on April 14, 2011

Audio supplement: Rivlin was on Behind the News a while back, and it was a great discussion of the economics of predatory lending.

And thanks to those in this thread, as well, who have been patient enough to explain yet again that "poor" does not mean "stupid." The defense of usury under the Barnum "one born every minute" rule is not a formula for a just society, and I am dismayed to see it in this thread.
posted by RogerB at 10:43 PM on April 14, 2011 [1 favorite]

You know what else sucks about being poor? Not only do people assume it’s your own damn fault, but they imagine you’re stupid too. “We never had this problem! Why don’t they just XYZ?” As blind to their own privilege as they are to anyone else's experience.

Do they really think people taking these loans haven’t thought of all these simplistic solutions? If something else were available and worked for them, they’d do something else. Pretending it’s as simple as "Don’t overpay, idiot!" is not only disingenuous, it’s insulting - and a great indicator of the contempt society has for people who are struggling financially.
posted by Space Kitty at 10:55 PM on April 14, 2011 [11 favorites]

The blame shouldn't be placed on this guy who helps someone get his money faster, but on the culture that promotes poverty while we give corporate tax breaks and bailouts.....

See...This reflects a very fine, but important, distinction people fail to understand about the US. Our culture doesn't promote poverty. It penalizes the non-wealthy.
posted by Thorzdad at 3:36 AM on April 15, 2011

How much does your credit have to suck before a bank says "umm, gee, yeah, we won't let you pay us to hold your money for you"?

Yeah, seconding others above: I lost my job, and the automatic car insurance payment of $65 that went through on the empty checking account. Without a paycheck, that $65 overdraft became over $300 in a matter of weeks, and the account was forceably closed. Thankfully, wifey (girlfirend at the time) had a checking account, so I could sign over paychecks to her.

Six years later, Wifey and I finally convince her bank to let me on her account. Not just open an account myself, but put me on an account with a decade-and-more existing customer they already knew was a responsible person. Even then, they still had limitations where I couldn't get a debit card for three months after being added.

And the "anyone with a SS# can open an account": No-frills accounts come with fun stuff like minimum-opening-balances and open-an-account fees, and then monthly maintenance fees and minimum monthly balances or you get a fee. If your financial situation is tenuous at best, depositing your entire paycheck to open an account and then have them take $50-$100 on top of that is a painful thing, and then have another $10-$20 disappear every month, more if you came in at only $80 of the $100 minimum balance.

I've used payday loans twice in the past three months -- February's smaller-than-usual paychecks were complicated by wifey needed a root canal -- and I went in knowing that the convenience costs money. Dental work is a cash-only business around here: we called our bank for a loan, we called two other banks, we called the dentist's recommended credit company who seemed very usuryish, and nobody would give us credit. We eventually borrowed part from parents, but the payday people are the only ones we knew we could count on for a good chunk of money without much waiting. Being hungry won't wait ten days until the next paycheck like the landlord did.

My point is: In each of these cases, coming up with a couple hundred in cash on the spot is a big problem for people who live paycheck to paycheck. Saving is difficult when money keeps going out, and even the act of saving is a costly proposition. I'm a fan of pawn shops and payday loan places, because my experience is that they're unbelievably clear with you about how it works-- there's not small type or underlying fees. "We give you $300, you pay us back $345 in two weeks, or just the $45 and we roll over the loan" is not tough to understand. The Jackson Hewett/HRBlock/TaxStripMallSpace people are abusing that sort of business by hiding what their customers are actually paying for and how much, and they're doing it because they have good marketing to convince people that doing Quicken Freedom Edition in a half-hour from a library computer is a bad idea.
posted by AzraelBrown at 5:02 AM on April 15, 2011 [10 favorites]

Ah, usury, our old friend. Making poor people poorer for all of recorded history... I remember when the Insurance Agency/Finance Company I was working for a decade ago got the RAL bug.
posted by mikelieman at 5:16 AM on April 15, 2011 [2 favorites]

IF you e-file and do direct deposit you can get your cash in less than a week. I know I did.

Even if you submit on paper and get a paper check, it's still pretty fast. I did that last year, and still had my check from the Treasury in only a few extra days beyond friends who filed the same day and did direct deposit.

I think that the entire process may be a lot faster than many people have the impression that it is, at least for simple returns. I assume this is due to automation on the IRS's part, so that maybe they have a reputation from the paper-processing days that makes people think it's going to be much slower than it is. And I further assume, without feeling like I'm stretching very far, that tax-prep places trying to sell loan products probably play up this reputation for slowness beyond what is accurate.

Knowing nothing about how the IRS operates internally -- so it could be a total sausage factory on the inside -- it gives the impression of being a surprisingly efficient and competent organization. Although nobody really enjoys paying taxes, I think that the importance of having a tax collection system that actually works, in that the money owed is typically paid and/or collected, and isn't corrupt, at least in the most basic sense of not having local tax collectors enriching themselves by diverting revenue, is frequently underappreciated. It has certainly not been the norm throughout most of history and is probably not the norm worldwide, in terms of people living under various systems, even today.

The commissioner of the IRS was getting interviewed on NPR this morning and the guy has a really unenviable job. He pretty much said flat-out that the tax code sucks and is unfair, but they're tasked with enforcing it as-written. Given those limitations they seem to do a reasonably good job.
posted by Kadin2048 at 5:56 AM on April 15, 2011 [1 favorite]

I think that the entire process may be a lot faster than many people have the impression that it is, at least for simple returns.

And you'd be right. Unfortunately, general knowledge of this improvement is largely drowned-out by the constant drumbeat of "Government can't do anything right" which permeates our culture. The RAL providers market to this, and work to perpetuate the idea that getting your refund will take forever.
posted by Thorzdad at 6:01 AM on April 15, 2011

Usury, folks. It used to be illegal. It's always been immoral.

We suck. Hard.
posted by Benny Andajetz at 6:44 AM on April 15, 2011

Capitalism sounds like a great system when you talk about it in terms of producers and consumers or other simple, abstract words. It sucks, however, when you talk about what happens to the actual people involved. Capitalism guarantees that someone gets screwed in any given transaction, the only variable is how much.
posted by tommasz at 6:48 AM on April 15, 2011 [2 favorites]

'Saving' money in a zero interest 'account' by way of over-paying taxes is kind of a ridiculous notion anyway. Granted some years you have unexpected credits, but I prefer to come as close to breaking even as I can, erring on the side of a slight return. That said, this is yet another shady financial 'product' that should be held in the same suspicious regard as anything from Wall Street.

I'll be the first to comment on this, I guess. Figuring out withholding is not the easiest thing in the world and I think most people would rather withhold too much and get a refund than end up owing tax. Withholding is figured on the assumption that you have the same income year round, which simply isn't true for many people. I have no idea how to get mine right. I thought about it, gave up and contented myself with getting a refund. I get paid different amounts during the academic year and during the summer and I don't get paid at all for much of August and September. This year, it mostly balanced out, last year it didn't and I got what was, in my eyes anyway, a big refund (not on the scale discussed in this article, though, so I guess not that big).
posted by hoyland at 6:58 AM on April 15, 2011 [2 favorites]

zachlipton writes "I bet virtually every mefite has a bank account (you had to get your $5 into PayPal somehow, and that usually means you have a credit or debit card)."

I agree with this statement but as an FYI jessamyn will take unused US stamps mailed to her as payment for an account.
posted by Mitheral at 7:09 AM on April 15, 2011

'Saving' money in a zero interest 'account' by way of over-paying taxes

As the article itself explains in quite a bit of detail, the Earned Income Tax Credit is the main driver of refund-anticipation loans. This has nothing to do with people failing to get their withholding right (and anyway hoyland is right that withholding basically only works right for people who work one job, at about the same pay, year-round, which is not the case for many poor people). I'm getting the sense that people who have never heard of, much less qualified for, the EITC could stand to RTFA a bit more carefully before they assume that their tax-refund situation is the same as RAL customers'.
posted by RogerB at 7:21 AM on April 15, 2011 [4 favorites]

Granted some years you have unexpected credits, but I prefer to come as close to breaking even as I can, erring on the side of a slight return.

I'll bet that nearly every poor person being screwed over by JacksonHewett has nothing to do with their deductions: they are people who get a whole bunch of money via refundable tax credits and earned income credit. They could put in zero all year long and still get a $2,000 "refund" -- it's not exactly a refund, it's a social "entitlement" (hate that word) program to help underpaid people make ends meet, which is being exploited.

So, essentially, if you want it framed in more of an outragefilter way: JacksonHewitt's large profits come from skimming government entitlement programs for unneeded fees. Money from Earned Income Credit that should be going to the end customer is getting taken by tax preparers without providing any significant service worth what they charge for it, and charging for services already subsidized under the government's FreeFile program. The EIC entitlement program puts hundreds of thousands of dollars into your local economy every spring, and tax preparers are taking a large portion of it as corporate profits because they've convinced their customers that there's convenience in their service unavailable in the existing tax filing process.
posted by AzraelBrown at 7:24 AM on April 15, 2011 [2 favorites]

For everyone who is saying that simple tax preparation should be taught in high school: I agree. But 32% of Americans don't graduate from high school. Now what?
posted by desjardins at 7:26 AM on April 15, 2011

hoyland : Figuring out withholding is not the easiest thing in the world and I think most people would rather withhold too much and get a refund than end up owing tax.

Let the IRS do it for you, then.
posted by pla at 7:32 AM on April 15, 2011

For everyone who is saying that simple tax preparation should be taught in high school: I agree. But 32% of Americans don't graduate from high school. Now what?

Teach it in elementary or middle school?
posted by saulgoodman at 7:36 AM on April 15, 2011

Also, many people have trouble reading, and this is correlated with poverty. From Wikipedia:

[...] 21% to 23% of adult Americans were not "able to locate information in text", could not "make low-level inferences using printed materials", and were unable to "integrate easily identifiable pieces of information." [...]

[...]40 million to 44 million of the 191 million U.S. adults (21% to 23% of them) in the least literate group earned a yearly average of $2,105 and about 50 million adults (25% to 28% of them) in the next-least literate of the five literacy groups earned a yearly average of $5,225 at a time when the U.S. Census Bureau considered the poverty level threshold for an individual to be $7,363 per year.

posted by desjardins at 7:37 AM on April 15, 2011

You can't really use the same metrics on short term loans as you do long term loans. An APR assumes a year, it's right there in the name. And you can't really legitimately convert fixed fees into an interest rate. Interest rates are by definition percentages.

Paying $51 + 4% to get my money now doesn't seem usurious, when it is completely and totally voluntary.

Not to mention, anyone using this service after say, Feb 15th, isn't paying to get their money sooner. They are paying for their own laziness. If they had filed when they got their W2 forms, they would already have their money.

That's the thing: I wasn't. The vast majority of overdraft fees are (or were, before the new legislation) charged on small debit transactions -- transactions the bank allowed to go through knowing the customer had insufficient funds. In fact, I believe BofA's reaction to the new consumer protection laws was simply to reject these transactions, as everyone who ever bought a $60 bag of chips always wished they would.

Most of the time, swiping the debit card does not mean some computer somewhere is contacting your bank. It just checks to make sure your number exists and isn't closed. Writing a check or using a debit card is a promise that you have the money- it is on you to not spend money you don't have. It is not on them to stop you when you don't.
posted by gjc at 8:25 AM on April 15, 2011

Right, but the bank plays games with processing debits and deposits, so it's not always possible to know your balance unless you check before each purchase.
posted by desjardins at 8:31 AM on April 15, 2011 [2 favorites]

I am old enough (38 and a half) to remember a time when getting a paper refund check took at least a month, sometimes two.

How exciting it was, when the IRS finally offered direct deposit as an option! The first time I selected that option, I was shocked and thrilled when it took ONLY three weeks for my refund to be deposited in my account.

A lot of people probably don't realize how quickly refunds are turned around these days. Certainly, if you had been going to these tax prep/loan places, you wouldn't know it.

And even if you have heard from other people that THEIR refunds came quickly, what guarantee would you have that YOURS will? And keep in mind, your car's brakes, your groceries for the week, your rent, or your gas bill may be hanging in the balance.

Some day I bet you'll be able to file your return at a sort of IRS ATM which will look over your info, then dispense a check on the spot. On that day, the predatory tax filers will all die a sudden death, and I will do a happy little jig on their 170% interest graves.
posted by ErikaB at 9:03 AM on April 15, 2011 [3 favorites]

Most of the time, swiping the debit card does not mean some computer somewhere is contacting your bank.

No, it's the other way around: there are rare times that a swipe gets an authorization without contacting your bank, but nowadays everything is so connected that your bank is actually verifying your balance before allowing a transaction to go through.

Up until last year's overhaul of overdraft protection laws, your bank would see that you only have $1 and still let you overdraft anyway. That might make you think that it proves the bank wasn't verifying your balance, but they were, they just didn't care. It was the bank's decision to decline, and since banks made out like thieves on overdraft fees, they made sure it was in the small print and let you overdraft anyway. After the overhaul, you have to opt-in to that banking behavior; declining a transaction which would overdraft the account is the default.
posted by AzraelBrown at 9:05 AM on April 15, 2011 [6 favorites]

And why wouldn't you opt in to this great service? It saves you from the occasional embarrassing moment at the grocery store!
posted by ODiV at 9:27 AM on April 15, 2011 [1 favorite]

In theory, a loan fee exists to account for the transactional costs of making the loan, and shouldn't annualized and included in APR. Think about it in larger number terms for a second. If I loaned you a million dollars for 1 day, at an interest rate of 10%, then the interest would be approximately $300. I think I'll just hold on to my million dollars, as that wouldn't compensate me for having my lawyers and bankers properly paper the loan to ensure I would get repaid. In smaller terms, this fee would mostly be for covering the wages of the loan processor and overhead costs for the business. Otherwise short term loans, on a large or small scale, would never be profitable, unless interest rates were insanely high on them (say 100% or more). Loan processing fees aren't inherently bad. What's happening with the RAL's is mostly due to financial illiteracy on the part of the borrower's and moral apathy disguised as meeting consumer demand on the part of the lenders. Unbridled capitalism is a beautiful thing, isn't it? Isn't it??? I guess if you the one getting rich it is. As to the debit card thing, it's another case of two wrongs making a wrong. If you don't want overdraft fees then carry around a register and write down each time you make a purchase with your debit card. Ensure each check deposed has cleared in your account before you add that to your balance. You'll never have another overdraft fee. Most people don't want to do that, though, I certainly don't! Banks-- stop charging people $40 for overdrafting their account, that's just greedy!
posted by gagglezoomer at 9:29 AM on April 15, 2011 [1 favorite]

FYI, I pay all my bills online, and they will definitely attempt to process the payment even if you don't have the funds. I have my car insurance on auto-pay. They moved up the due date when they renewed my policy and although I'm sure they emailed me a notice, I overlooked it. So when they tried to take out the payment, I didn't have enough. Got socked with a $25 fee. Since I wasn't expecting the transaction at all, I didn't think to check my account. Got socked with another $25 fee the next day. I realized this and called the insurance co., who had now charged me a $25 late fee. I paid it with a credit card over the phone and life moved on, but I had $75 in fees because I'd overlooked a stupid email. YES, my fault, but in an ideal world the bank would notify me saying "hey, this company is trying to debit your account and you don't have the funds, might want to call them and pay some other way." If that was my food money for the week I would have been fucked.
posted by desjardins at 10:36 AM on April 15, 2011

Most of the time, swiping the debit card does not mean some computer somewhere is contacting your bank.

Then how do daily spending limits on debit cards work? And how'd BofA do this when they were told they couldn't charge these exorbitant fees anymore?

No, it is all connected. And the banks were, until recently, deliberately using that connectivity to generate extra fees. If it's "on me" to keep track of how much money I have, which seems fair enough, then it's "on them" to behave reasonably and honorably when I do make a mistake, not jerry-rig my transactions so they can charge me $100 for a cup of coffee.
posted by vorfeed at 11:04 AM on April 15, 2011 [1 favorite]

...America is a supremely shitty place to live if you're not one of the very, very, very few who is earning over $300,000 a year.... Stand up for yourselves, for Christ's sakes. Have a fucking revolution or something. You need it, and more importantly so does the world. The whole "Freedom of Speech" thing... isn't doing you a god-damned lick of good.

Look, I'm not the world's most patriotic American, but this rubs me the wrong way. You really shouldn't be drawing conclusions like this from American metafilter commenters, who are generally well-intentioned but almost universally very liberal and tend to be pessimistic and a little overheated in their apocalyptic proclamations.

Americans seem to value "economic liberty" more highly than most other countries, and it sometimes results in situations like this that create profit opportunities at someone's detriment. You can certainly disagree with this as a wise policy decision, or even find it immoral, and many people do, Americans included. The effects of permitting this kind of activity are here being reported on by an American magazine, which is creating the basis for your belief that we ought to have a revolution "or something," despite free speech allegedly doing us no good.
posted by dixiecupdrinking at 12:33 PM on April 15, 2011 [1 favorite]

It's just killing me, all the concern for the poor here. As I said, it's evil. It's wrong. I wouldn't do it. I wouldn't lend money to poor people at outrageous interest rates. But all the criticism is about how they're such victims of circumstance that they just can't help it, they have to. Okay, well, if they need this service so badly, what is the maximum rate that is moral and proper to perform this badly needed public service? Got that figure in your head? Good.

Now - would YOU open up an office in a poor neighborhood and do it for that?

Perhaps the government should go in and do it directly. Government Personal Services (GPS) - assign a personal concierge for every poor person to make all their decisions for them so they don't get into these kinds of messes. Full employment and much of the sting of poverty gone in one fell swoop.

BTW, I make <$300,000 a year, and I'm doing well enough to be completely heartless about this.
posted by randomkeystrike at 1:50 PM on April 15, 2011

Perhaps the government should go in and do it directly. Government Personal Services (GPS) - assign a personal concierge for every poor person to make all their decisions for them so they don't get into these kinds of messes. Full employment and much of the sting of poverty gone in one fell swoop.

Wow. This is the douchiest thing I've read all day. Congratulations.
posted by honkeoki at 2:16 PM on April 15, 2011 [4 favorites]

And why wouldn't you opt in to this great service? It saves you from the occasional embarrassing moment at the grocery store!

Ha. I've noticed that I keep getting shrilly-worded solicitations from my bank about every month or so, imploring me to sign up for overdraft protection and warning me that I'm "unprotected."

Which I happily ignored, of course. But I do wonder how many people they're managing to fool back into enabling that particular "service."

In a somewhat-related note, I caught one bank that I have a checking account with sitting on a deposit far longer than EFAA would appear to allow them to hold it for, with the result that I bounced a check ... not for Insuffient Funds (NSF) but for Unavailable Funds (UAF). They had the cojones to try and nick me $35 for it, too. It'd never happened to me before, which makes me wonder if it's some new game the banks are playing in order to recoup some of the fees that they're no longer getting from overdrafts. Something to be aware of if you have an account with a for-profit bank. They claimed it was just some sort of random glitch/error but my experience with banking systems is that they don't normally just let things fall through the cracks for a week by accident.

It makes me much more receptive to "bank of last resort" schemes that are occasionally proposed as a sort of public-sector alternative to the entire banking industry. In short, most of the proposals come down to letting the IRS send out debit cards linked to accounts, into which tax refunds and other Federal payments could be delivered, and then letting individuals transfer money between accounts arbitrarily, take money out from ATMs, etc. It'll never happen, of course, but they're always interesting proposals.
posted by Kadin2048 at 6:20 PM on April 15, 2011

Knowing nothing about how the IRS operates internally -- so it could be a total sausage factory on the inside -- it gives the impression of being a surprisingly efficient and competent organization.

The forms and remittance processing is quite a bit outsourced, and aside from "it is *very* efficient", I shall refrain from further comment.
posted by mikelieman at 6:34 PM on April 15, 2011

Space Kitty: "Do they really think people taking these loans haven’t thought of all these simplistic solutions? If something else were available and worked for them, they’d do something else. Pretending it’s as simple as "Don’t overpay, idiot!" is not only disingenuous, it’s insulting - and a great indicator of the contempt society has for people who are struggling financially."

I don't think many, if any people were calling anybody stupid. Uneducated perhaps. For example, there are banks and credit unions that don't check Chexsystems. Pretty much anybody can get a bank, the problem is that for many people, they can't use a convenient bank. They need not pay more fees, just be able to set up direct deposit of a paycheck.

Even people who aren't poor often make stupid financial decisions when it comes to banking. They use a bank that charges ridiculous fees, for example, just because they have a better ATM network. Never mind that they use ATMs rarely enough that it's cheaper to buy the gas to drive to the less convenient ATM or just get cash at the grocery store. They use banks that charge fees for seeing a live person. Or charge daily fees for merely being overdrafted. Or charge $40 per paid or returned item. All kinds of things.

ODiV: "And why wouldn't you opt in to this great service? It saves you from the occasional embarrassing moment at the grocery store"

Why wouldn't I? I keep enough cash on hand that I can cover any overdraft before I'm charged. My bank floats me the money for the day. (sometimes for a few days if the merchant doesn't convert the authorization immediately)

I just have to make sure that I check my account balance each day and haul my butt to the bank by 7PM, which is the nominal deposit cutoff time, although it's not very strict. I think the cutoff is actually whenever the computer in the back office gets around to settling a given account's daily transactions. Very laid back even for a regional bank.
posted by wierdo at 10:13 PM on April 15, 2011

Hey, if you can do it without incurring some of their ridiculous fees, more power to you. If my debit card comes back "insufficient funds", I switch to my credit card. I've got a credit card and no important bills coming out of my bank account though, and not everyone is in that situation.
posted by ODiV at 8:06 AM on April 16, 2011

As for reasons why poor people sometimes don't have bank accounts: I thought I read this on mefi - that if they have a bank account it's subject to seizure by the court for a judgment of default on a credit card or other loan. At least if you have cash, you know the court's not going to come grab it out of your hand. Get burned by this once, and I can see a person not wanting to risk their money in a bank again.
posted by marble at 4:24 PM on April 17, 2011

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