Many anti-poverty advocates advise low-income families not to resort to Refund Anticipation Loans (RALs) when filing their taxes. RALs allow filers to get their tax refund quickly by borrowing against that refund. According to the Center for Responsible Lending (CRL) these cash advances come at a steep price, with interest rates ranging from about 40% to over 700%. CRL says that in 2003 over 12 million people took advantage of an RAL, which translates to over a billion dollars in fees for tax preparation companies.
Of course, many teetering on the edge of poverty may genuinely need extra cash as soon as possible to pay bills or to deal with some emergency. Acknowledging this, New Jersey Citizen Action has followed the lead of the city of San Antonio and offers alternative refund anticipation loans with lower fees. Governor Corzine recently signed legislation that allowed nonprofit organizations like New Jersey Citizen Action to offer free tax preparation services and loans. The legislation also "prohibits tax preparers from requiring clients to take refund-anticipation loans and requires preparers to provide itemized statements of charges related to the loans and other services."