Monday, February 14, 2005

Tax season, and Big Banks look to rip off the working poor

So filing taxes is neither easy nor intuitive. It's a challenge, especially for the majority of the American population that are not college graduates. (Isn't that an amazing figure -- less than half of the over-22 population has a college degree).

The working poor get a lot of tax breaks, as they should, to increase purchasing power among those who will spend their money in this country and boost our economy, creating jobs here.

But filing for those breaks is a challenge, and people often need that money fast.

There are two ways to deal with this.

One is to get governments and non-profits set up to help people file their taxes, teach them how to do it, and get more working people their money.

The other is to see this as a profit center. Get the biggest financial companies in the country to open up store fronts in poor neighborhoods, fill out the tax forms for them and charge, oh, 100% interest. A HUNDRED PERCENT!

And the latter is what's happening.

This article in Crain's Chicago Business lays it out.

And so the feds cut the funding for non-profits to do this for our residents, instead letting the banks make money off our residents.

It's basically exporting wealth from our working residents to the owners of the banks (few of whom live in Illinois, as these big banks are publicly traded. Maybe the Saudi Royal Family is getting rich of Illinois residents filing taxes, if they own a big chunk of stock in these banks. That's a feel good thought, isn't it?)

Maybe we should require every Illinois resident to open a bank account and quit getting ripped off by these banks.


Anonymous said...

Hey Dan-
Your link takes one to a "subscribe to Crain's" page. Are you in their pocket now, or was that an innocent mistake?

Dan Johnson-Weinberger said...

I am now in the pocket of Crain's and you all must subscribe in order to continue reading. . . .(I don't know what happened; I'll see if I can fix it). And here's a scoop: Senator Jeff Schoenberg (D-Evanston) is working on a legislative fix.

Anonymous said...

What, exactly, is the practice you're worked up about? Because I'm pretty sure, knowing you, that its actually not something to be concerned about.

Also, the Saudi Royal Family? Is that some kind of joke? Big U.S. banks are owned by the same people who own every other public company in the U.S. - namely, pension funds, mutual funds, and individuals (mostly in the U.S., but some from other countries). Try to ease up on the xenophobia a little.

bsullivan said...

Dan is right about the practice. I'm a CPA and need to get back to filling out tax returns in a second.

What Dan is talking about is known in the biz as "refund anticipation loans." Low-income folks with kids are often eligible for the earned income credit, which can amount to $2000 or more when they file their taxes. Of course, these folks want the cash immediately, rather than in 2 weeks if they cough up the money to do electronic filing or in 4 weeks if they file normally with direct deposit.

So, the banks and storefront tax return providers step in and loan these folks the money then pay the loan off with the refund from the IRS. H&R Block settled a class action lawsuit involving these loans a while back.

In our society, there always seems to be a way to rip off poor, desperate people. I personally like that someone gets worked up over it. Thanks, Dan.

ted said...

Thanks for bringing up the issue, but 100% interest in what timeframe? Your post would benefit by specifying this. If it was 100% interest per two weeks, then when you got your refund in two weeks, you'd have to give back the money they loaned you and they'd also keep your entire refund. If it's 100% per year, it's still usurious, but is only $40 on a $1000 loan for 2 weeks (do I have my math right?)

Lazerlou said...

It is over a 100% interest in most cases, and that is annualized, as all interest rates are. We have a class action against H&R Block and Beneficial. At least they now call it a "loan" as opposed to a "rapid refund."

Lazerlou said...

The practice he is complaining of is income tax Refund Anticipation Loans (RALS). They are unconscionable, and they prey on the poor and uneducated. You are better off running up credit card debt temporarily.