STUDY: RAPID REFUNDS PREY ON MINORITIES
By Michael Clancy
AM NewYork 
City Editor 

Those “rapid refunds” offered by many tax preparation firms leading up to April 15 are draining millions of dollars from the poorest neighborhoods with loans that have interest rates as high as 700%, advocates warned yesterday.

City residents who take the usurious loans hoping to get a quicker refund have spent more than $324 million in fees and interest over a three-year period, according to the Neighborhood Economic Development Advocacy project.

Residents of Brownsville in Brooklyn shelled out more than $8.5 million in fees from 2002 to 2005 alone.

“These are not just individual transactions,” said Chris Keeley, an organizer with the advocacy group. “The loans undermine efforts to build up local wealth — $8.5 million. How could that money be better used in Brownsville?”

Billed as rapid refunds, among other names, the refund anticipation loans, or RALs, are issued by out-of-state banks that charge interest rates that exceed New York’s 25% interest ceiling on loans — with some going as high as 700%. Other hidden fees and charges further whittle away at taxpayers’ refund checks. The loans are marketed aggressively in low-income communities, advocates said.

When advocates mapped out the amount of money lost to these loans by zip code, they found that the highest amounts where being paid in communities made up largely of minorities and the working poor. Often the taxpayers were eligible for Earned Income Tax Credits, but saw that federal money go toward fees instead of their families, Keeley said.

Many New Yorkers with low incomes can qualify for free taxpreparation, and the electronic filing option has cut wait times to just about two weeks, said Councilman Leroy Comrie (D-Queens), who held hearings on the issue last week.

“They are preying on people that they know are uninformed, who have a limited income, who work long hours and might be not that financially savvy,” he said. A spokeswoman for the tax preparation firm Jackson Hewitt said the company explains all charges, fees and options with customers.

A spokesman for H&R Block said “our average loan costs about half the price of the competition and is 40% less expensive than a cash advance on a credit card.”

Taxpayers with questions about rapid refunds or related issues can call 311 or go to nedap.org for more information.