One in three income tax preparers in New York violated consumer protection laws, according to an investigation released Wednesday by the Department of Consumer Affairs.
With just a little more than two weeks until Tax Day, the department issued more than 1,600 violations for misrepresenting qualifications and advertising Refund Anticipation Loans as “instant” or “rapid” refunds.
Refund Anticipation loans are designed to give taxpayers their income tax refund more quickly, for a fee.
Customers often have to pay as much as 500 percent in annualized interest rates, and they must pay back the entire loan even if their tax refund is not as high as anticipated.
“Refund anticipation loans are some of the most shameless, predatory and deceptive products out there,” said Councilman Dan Garodnick, chair of the Consumer Affairs Committee. “To offer them under the guise of 'rapid returns' is even worse.”
The city found that about half of the businesses offering Refund Anticipation Loans were illegally advertising them.
John Hewitt, CEO and founder of Liberty Tax Service, says that Refund Anticipation Loans are necessary for some clients.
“Is it a bad deal? Of course it’s a bad deal,” said Hewitt. “But for some people it’s a desperate situation.”
According to Hewitt, the fees for RALs are typically about $65 to get a tax refund nine or 10 days earlier than would be provided by the IRS. For some people, RALs are the only option available.
“If someone comes in, we try to talk them out of it. But for 90 percent of my clients, RALs are like a savings account,” said Liberty Tax employee Nicole Bellenfant. “We see case after case of people who will be out on the streets by Friday without a loan.”
According to a US Treasury Department report, taxpayers living in extremely low-income communities were 560 percent more likely to use RALs.
Most New Yorkers don’t realize that they may be eligible for free or deeply discounted tax preparation services.
New Yorkers who earn less than $50,000 with children or $18,000 for those who do not have children can visit a Volunteer Income Tax Assistance site where a certified volunteer will prepare their taxes for free, or use the free tax preparation site online at nyc.gov.
For $29, New Yorkers earning less than $31,000 with no children can have their tax returns prepared at a participating H&R Block office.
New Yorkers who use Volunteer Income Tax Assistance sites could be selected at random to open SaveUSA accounts, which provide a 50 percent match for all deposits saved for a full year.
