Sacramento - ‘Rapid Refund’ loans offered by a tax preparer may sound like a quick way to get your hands on your income tax refund, but Assembly Speaker Fabian Núñez (D-Los Angeles) says they’re ‘predatory’ loans and can come with a hefty price for those who are too often least able to afford it.

The Assembly Committee on Banking and Finance has approved AB 2868 - authored by Speaker Núñez - that would require tax preparers and banks to disclose to their customers all of the fees, interest rates, and other costs associated with RALs – Refund Anticipation Loans.

"We want full disclosure," said Speaker Núñez. "When consumers go to prepare their taxes and act upon a RAL, we want them to know, first-hand and up front, what those fees are and what percent of that loan those fees constitute."

AB 2868 would also require those financial institutions or tax preparers that offer the loans to register with the California Department of Corporations and, beginning in 2006, to annually report various data about their RAL activity from the previous year.

A Refund Anticipation Loan is just that – a loan, NOT a direct tax refund. RALs are offered thru a tax preparer but generally financed by bank, and the banks calculate the interest on an annual rate than can be has low as 70 percent or as high as 700 percent. The fees and interest rates combined can cost a person expecting a $1000 dollar refund, up to $200 or more.

Speaker Núñez says the promise of instant money from a refund anticipation loan is one that millions of consumers are tempted with by tax preparation firms during tax season.

"Many of the tax preparers get into an agreement with the person that is filing their taxes and often folks are charged over 300 percent interest on an annual basis", said Speaker Núñez. "It’s totally unfair."

According to the National Consumer Law Center and the Consumer Federation of America, during the 2002 tax filing season nearly 13 million consumers nationwide paid an estimated $1.6 billion in rapid loan fees in order to receive their quick refund. More than seven million of these consumers were from working poor families who are recipients of the Earned Income Tax Credit.

"If someone needs this kind of loan, needs their tax money sooner, it’s probably because they have financial problems. So people ought not get robbed by their tax preparer or their bank," said Speaker Núñez.

AB 2868 is modeled after a successful North Carolina law enacted in 1999. Two other states have similar laws and two RAL-related measures are pending in Congress.

Speaker Núñez advises consumers who want to receive their income tax refund quickly to avoid predatory refund anticipation loans and consider filing their tax return electronically.

"If you do electronic filing, you can get your refund in a couple of weeks. But if you do a RAL, they promise you the money within a couple of days. So, if the consumer just waits a couple of weeks more, they don’t have to pay the fees these companies are charging."