History
RALs began in the 1980s when the IRS introduced electronic filing as a way to decrease its cost of operation.
A tax preparer would, within 24 hours of submission, receive from the IRS confirmation that the submission was free of mathematical errors, and that the filer had no liens or delinquent federal student loans. This meant that there was good chance that the IRS would pay the refund within weeks, barring fraudulent income reporting. At that point the preparer would issue the filer a check for the amount of the expected refund minus a commission. In 1995, the New York Times reported that Beneficial's $30 electronic filing fee and $59 loan fee amounted to a 250 percent APR on a refund of $1,000.
By the early 1990s, exploitation of the system began; filers misreported their income to inflate their refund. As a result of this, and also to discourage filers from this rather uneconomical offer, in 1994 the IRS stopped providing tax preparers a confirmation that a deposit would take place for a certain amount and that it would begin sending refunds directly to taxpayers instead of banks that made the loan, but not having the desired effects, the confirmations were re-instated the following year.
Read more about this topic: Refund Anticipation Loan
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