Philadelphia Advocates Warn Taxpayers about Holiday Loans

PHILADELPHIA, PA January 8, 2007 —  Cash strapped consumers are being targeted this holiday season by commercial tax preparers that are out there earlier than ever, peddling new predatory loan products that are bad and risky deals.

Community Legal Services and The Campaign for Working Families issued a consumer alert today warning taxpayers to avoid new variations on Refund Anticipation Loans (RALs), which are high-interest loans secured by the borrower's anticipated tax refund.

These bad deals used to appear in January.  Now they are heavily promoted around Christmas, in the form of a “Holiday Express” or “Money Now” loans (Jackson Hewitt) or an “Instant Money Advance” loan (H&R Block).  

The loans are made by tax preparers and their partner banks before the tax filing season begins and before the arrival of W-2s.  “Holiday or Money Now loans are just another way to sap money from low-income workers, especially those who qualify for the federal Earned Income Tax Credit (EITC)," says Jean Hunt, executive director, The Campaign for Working Families.  The Campaign provides a less costly alternative:  free, high-quality tax services to Philadelphia residents who earn less than $40,000 per year.

All holiday and pay stub loans are risky because they are based on estimated, not actual earnings, and are made before the tax preparer knows if the IRS will seize the borrower's tax refund to pay for a prior tax debt, child support, or delinquent student loans.  In addition, these pre-tax season loans are due in one lump-sum payment a few weeks after they are taken out.

"Holiday and pay stub loans have to be paid back by mid-February, even if your tax refund doesn't cover the full amount of the loan," warns Kerry Smith, staff attorney, Community Legal Services. 

During the upcoming 2007 tax season, The Campaign for Working Families will operate 16 free tax sites located throughout Philadelphia neighborhoods.  These sites open to the public the week of January 17, 2007.  New at the tax sites will be the opportunity for a “split refund” – customers can deposit refunds in two or more accounts, allowing them to "Spend Some" and "Save Some."

The locations of the Campaign's free tax preparation sites and information on EITC eligibility are available online at www.phillyfreetaxes.org, or by calling the Campaign's 24-hour information line at 215-686-2599.  This phone line is in Spanish and English and goes live January 8, 2007.

Low-income consumers who have taken out a holiday, pay stub loan or other Refund Anticipation Loan (RAL) can contact Community Legal Services (CLS) for legal advice by calling 215-227-2400 or visiting 3638 N. Broad (Broad & Erie) Monday, Wednesday, or Friday from 9:00 am to 12 p.m.

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