CHICAGO (Legal Newsline) - Illinois Attorney General Lisa Madigan has issued a warning to consumers about the high cost of tax-refund anticipation products as the deadline for filing annual tax returns approaches.
Madigan's office is monitoring businesses offering tax-refund anticipation checks and loans this tax season in light of a new state law initiated by her office. The law cracks down on excessively high fees associated with tax-refund anticipation products. The law became effective in January and prohibits tax preparers from adding junk fees for refund products.
"With tax season in full swing, tax preparers are once again flooding the airwaves with ads promising you a faster refund if you buy one of their loan offerings," Madigan said. "But don't be fooled. The only ones getting fast cash are the lenders that advertise these refund products thanks to the exorbitant fees they charge taxpayers."
Tax preparers frequently advertise refund anticipation loans as an option for consumers to receive an instant cash refund based on their anticipated tax return. The loans supposedly eliminate the wait for the official refund to arrive from the government. The products, however, are actually short-term loans with fees automatically deducted from a taxpayer's refund before they receive it.
While most banks stopped offering refund anticipation loans due to federal regulations, many non-bank lenders, such as payday lenders, have started offering the loans to consumers. The new law addresses the industry trend by limiting interest rates on loans from non-bank lenders.
Madigan said that consumers do not receive their refunds any faster with refund anticipation checks and must wait for the IRS to deposit their refund into the temporary account. The new law also applies to refund anticipation checks, which similarly hide costly fees.
While working to pass the legislation to ban high-cost fees, Madigan filed a lawsuit in March 2012 against national tax preparer Mo' Money for allegedly charging taxpayers at least $800,000 in hidden service costs. Madigan's Consumer Fraud Bureau continues to pursue litigation against the Memphis, Tenn.-based Mo' Money in court.