Refund Anticipation Loan - State Crackdown On Refund Loans

State Crackdown On Refund Loans

In 2003, the Illinois Attorney General issued a detailed warning to taxpayers about such loans.

On February 15, 2006, the California Attorney General, Bill Lockyer, sued H&R Block over its refund anticipation loan business, citing interest rates exceeded 500%, including fees (which included the tax preparation fee, which is unrelated to the RAL, but included per California law). Lockyer said the company falsely portrayed the nature of the loans, advertising "cash, cold, green, in your hand, out the door."

In May 2005, a federal judge in Chicago rejected a $360 million settlement as inadequate.

Under the National Bank Act, national banks and their agents who make RALs are broadly excluded from regulating RALs. The only actions that states bring against RAL providers involve allegations of falsely portraying the circumstances of the loan, or fraud. A RAL is a legal loan beyond the scope of the ability of any state agency or state legislature to regulate as a matter of federal law.

RALs are within the legislative scope of the United States Congress and to a considerably lesser extent the regulatory authority of the IRS; however, Congress has not demonstrated serious interest in this subject and while the IRS did issue a "Advance Notice of Proposed Rulemaking" in January 2008 that would prevent the tax preparer from sharing tax return data with the lending bank, the advance notice was very poorly received on Capital Hill because of implications that it would have had for other types of loans where tax returns, tax return data, and CPA statements are used as part of a loan decision package.