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Borrowers beware: payday loan tax filing is legit

  • Written by Dr. Sybill C. Mitchell

irs 600On the surface, it looked like a clear-cut case of identity theft and tax fraud. A Memphis woman uses a popular income tax filing software system to file her taxes, but she is blocked from completing the process because the system shows that her taxes have already been filed. Immediately, she believes that tax fraud villains have stolen her identity and refund.

Later, a painful possibility comes to light: She, herself, authorized a tax preparer and short-term lending office to electronically file her taxes.

"I am a tax-preparer myself," said Marcia Bonds of Memphis. "So why would I go and pay someone else to file my taxes? I work for a tax office."

At the crux of this dilemma is this: payday loans and short-term collateral loans and their intersection with tax-filing season. For little more than a $75-$100 loan debt, a business providing these services may have a borrower sign IRS Form 8879, or the "E-file Signature Authorization."

Check out this language:
"A general partner or limited liability company member manager and an electronic return originator (ERO) use this form when the general partner or limited liability company member manager wants to use a personal identification number (PIN) to electronically sign a partnership's electronic return of partnership income." (IRS)

In plain English, a tax preparer or financial services provider may file a borrower's income tax for repayment of the loan and accompanying fees that may apply. Employees of Tax Pros, LLC, the company that drew Bond's ire, were merely following the established protocol, said Rickey Greer, Tax Pros' owner.

"Ms. Bonds came to our office when she discovered that her income taxes had been filed by the company," said Greer. "I explained that the holiday loan she took out with us near the end of the year required her to sign the papers, which we customarily require before granting the loan. I told her that as soon as her refund arrives at our office, we will call her to come and pick up her money."

Bonds has filed a complaint with the Better Business Bureau and has made attempts to report Tax Pros to the IRS Identity Theft Department. According to Bonds, she was told to "wait until she received her money from Tax Pros" before lodging a complaint.

"They (Tax Pros) tried to say that I took out a holiday loan, but I did not," said Bonds. "I came down to the office with my sister, but I never took out a loan myself."

Greer said loan forms for Bonds were all properly filled out, and that she appears to be the borrower.

"Linda Johnson, one of my employees, actually signed and completed the paperwork for Ms. Bonds. Tasha Monroe, our manager at the Getwell Road office, called me when Ms. Bonds came in. I went over to the office and pulled the file. There is a copy of Ms. Bonds' license and Social Security card, which is required with loan paperwork," Greer said.

"I spoke to Ms. Bonds personally and told her that the signature on her Social Security card matches signatures on our paperwork. But she still maintains that she never signed for a loan with us."

Bonds said somehow the office was able to obtain her information without her knowledge and file tax forms in her name without her consent.

"I said to Ms. Bonds that the store next door to us has cameras, and we could review the tape for that particular date," said Greer. "That's when she claimed to have come to the office with her sister."

Bonds continues to assert that her information was obtained under fraudulent circumstances and plans to officially file charges after she receives her refund.

Greer said officials from the IRS and the Better Business Bureau are welcome to examine Ms. Bonds' file. He stands by the paperwork as legitimate and valid, saying, "There was no fraud committed here."

What is a RAL?

According to an online article, "Tax Refund Anticipation Loans" by financial planner and retirement specialist Jeremy Vohwinkle, a Refund Anticipation Loan (RAL) is offered by many tax preparation companies to people against their income tax return.

"A tax refund anticipation loan can be approved in a matter of minutes and the money accessible within a day or two. These loans are based on the full amount of the tax refund. Loans can be had for the entire amount or a partial amount of the anticipated refund. When the check arrives at the tax preparer's office, the loan is paid in full, with interest, and any remaining balance is issued to the recipient. Many people use this program for its quick access to money without considering the high interest rates attached."

The practice is a profitable one for payday loan companies, and useful in the event that quick cash is needed by the consumer. Greer said between the time taxes are filed and the refund check received, it is not uncommon for consumers who took out loans against their income taxes to become disenchanted with the process.

"We go through this every year. Irate customers come in demanding their money, or call constantly, many of them angry because they need their money now," said Greer.

"We're called all sorts of names before the refund arrives. When they come to pick up their money, I'm their best friend. Some even offer to take me to lunch. It's just the nature of this business."

RALs 'not consumer-friendly'...

Although refund anticipation loans have a strong niche market in working-class and lower-income communities, RALs have very high service fees and interest rates are attached. Short-term financing is not regulated under the same laws as conventional loans. Much like payday loans, a RAL loan has interest rates that soar well over 200 percent APR (annual percentage rate).

For instance, a refund anticipation loan could actually cost you a couple hundred dollars for borrowing a few thousand for five days, according to Vohwinkle.

"In this economy, there is a need for this type of lending," said Greer.

"While these loans are not for everyone, they are convenient for consumers who need cash immediately but can't get conventional loans because of credit issues or lack of collateral. We have many regular customers at all of our seven locations. A person must determine whether the immediate need justifies the cost of the loan. And for many, it does."

According to the Better Business Bureau, Tax Pros, LLC, has received four complaints over the past 12 months for "Problems With Product/Service." All four issues have been resolved and closed.

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