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Denver -- January 31, the deadline for W-2 tax forms to be mailed to taxpayers, consumer groups warned that tax refund loans would cost consumers over $800 million dollars this year, and would especially hurt the working poor eligible for the Earned Income Tax Credit, according to a new national report.

"These so-called "Superfast Refunds," "Quick Cash," and "Instant Money," are really triple-digit interest rate loans that get you cash only a few days faster than you can do it yourself," said CoPIRG Consumer Advocate, Emily Hoopes. "Consumers are charged from $29 to $89 to get instant cash of $200 to $5,000 instead of waiting a few days for the IRS to send their refunds. These loans cost from 67% to 774% annual interest rates, a steep price to pay for ten-day loans," she continued.

CoPIRG is joining two national consumer organizations to release a national tax refund loan report in Colorado to alert consumers to the high cost and risk of refund anticipation loans (RALs). The Consumer Federation of America (CFA) and the National Consumer Law Center (NCLC) report, "Tax Preparers Peddle High Priced Tax Refund Loans: Millions Skimmed from the Working Poor and the U. S. Treasury," describes the booming business in refund anticipation loans (RALs) made by commercial tax preparers and their partner banks.

RALs are short term loans secured by the taxpayers' expected tax refund. The loans are repaid when the consumer's refund is received in a temporary bank account set up by the lender. If the refund is disallowed or less than expected, the consumer is liable for the full amount of the loan.

"Interest rates for refund anticipation loans are not subject to state usury or small loan rate caps," said Ms. Hoopes. "Loans are made by banks located in states without usury limits. Although IRS rules require that RALs be clearly labeled as loans, many consumers do not realize that they are borrowing from a bank instead of getting a quick refund of their own money," continued Hoopes.

One program that is heavily impacted by RALs is the Earned Income Tax Credit. The Earned Income Tax Credit, the largest federal anti-poverty program, provides lump-sum benefits to working poor families through the tax system. The Earned Income Tax Credit averages $1600 per eligible family. Last year over $30 billion in EITC benefits went to 18.4 million low-income taxpayers across the U. S. The EITC program helps very low-income workers and is responsible for lifting 4.7 million people, half of them children, out of poverty.

Consumers seek commercial tax preparation help to complete the multiple EITC and other tax forms for many reasons, including barriers of education, literacy and language. Fear of IRS audits of EITC filings also leads low-income consumers to use commercial tax preparers. Consumers then take out RALs to cover the up front fees for tax preparation and to get cash in hand immediately.

In the 2002 tax season, the CFA/NCLC report estimates that working poor consumers will pay $324 million in loan fees and an extra $670 million in tax preparation, electronic filing fees, and check cashing charges to borrow against their Earned Income Tax Credits. The total bill for the typical taxpayer is $267, while a total of $994 million is drained from the Earned Income Tax Credit program.

Type of Fee	Cost to Taxpayer	Drain on EITC Program
RAL loan fee	$75	$324 million
Electronic filing fee	$40	$172.8 million
Check cashing fee	$67	$130 million
Tax preparation fee	$85	$367.2 million
Total	$267	$994 million

"Tax-payer money meant to lift families out of poverty is being siphoned off by high-priced loans and tax prep charges," Hoopes said. "Consumers in Colorado need help to find free tax assistance and should consider opening their own bank accounts to get faster refund deposits."

Consumers can find free tax assistance through the IRS Volunteer Income Tax Assistance (VITA) program, which operates with IRS-trained volunteers and can be found in libraries, community centers, and other locations during this time of year. For the nearest VITA site, call the IRS toll free at (800) TAX-1040 or contact AARP at (888) 227-7669. AARP's Tax-Aide project staffs volunteer tax sites. Consumers can also search for local help at www.aarp.org/taxaide/ and click on "find the tax help center nearest you."

To speed up tax refunds, consumers should file their taxes electronically. Taxpayers filing returns electronically usually receive their refunds within two weeks or less. Some VITA sites can file taxes electronically.

If consumers also sign up for direct deposit, the IRS will electronically send the refund to the taxpayer's bank account. A few banks are working in partnership with free tax preparation services to open savings accounts for EITC recipients. (Your group) also urges consumers without bank accounts to shop around for the best price to cash tax refund or RAL checks. Check cashing fees as high as 10 percent of the check further reduces the amount of money consumers receive.

CoPIRG is a non-profit, non-partisan consumer and environmental advocacy organization with members around the state. You may download the report from our website at www.copirg.org.

The Consumer Federation of America is a non-profit association of over 280 groups, with a combined membership of over 50 million people. CFA was founded in 1968 to advance consumers' interests through advocacy, research, and education.

The National Consumer Law Center is a nonprofit organization specializing in consumer issues on behalf of low-income people. We work with thousands of legal services, government and private attorney's, as well as community groups and organizations, from all states who represent low-income and elderly individuals on consumer issues.