RALs Offer Raw Deal

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February 15, 2008 LITTLE ROCK While the warmer weather may be a sign that spring is right around the corner, another season is already in full swing: tax season. Today, Attorney General Dustin McDaniel issued this consumer alert to warn Arkansans about the pitfalls of refund anticipation loans (RALs). In 2006 approximately nine million American taxpayers received RALs, which promise a short term loan backed by and repaid from a pending federal tax refund. While RALs provide cash fast, the interest rates attached to these short term loans can reach 100% or even higher. In 2006, consumers paid an estimated $900 million in RAL fees, essentially paying to borrow their own money at extremely high interest rates. RALs prey on cash-strapped working families, especially those who qualify for the Earned Income Tax Credit (EITC). The EITC is a refundable federal income tax credit for low-income working individuals and families who qualify. Last year, thousands of Arkansans received millions in EITC payments. In addition to the dollars lost because families don't know about the EITC or can't get the help they need to file a tax return, these families lose even more when they buy RALs. With a little preparation and a little patience