Tax re­fund ad­vance of­ten too good to be true

The Buffalo News - - MONEYSMART - By Su­san Tompor Su­san Tompor is the per­sonal finance columnist for the Detroit Free Press. She can be reached at stom­[email protected]­ress. com.

Plenty of peo­ple would jump at the chance to speed up get­ting some of their tax re­fund cash, es­pe­cially in light of the govern­ment shut­down, job cuts and other fi­nan­cial headaches.

But Tif­fany Vernier’s story should make some who are des­per­ate to pay their bills think twice about hand­ing over a few hun­dred dol­lars to get their taxes done in the hopes of snag­ging a tax re­fund ad­vance of up to $3,000.

We’re bom­barded with TV ads, win­dow signs and other pitches for a loan prod­uct that some con­sumers might not even con­sider a real loan. Isn’t this tax ad­vance just a way to get some of your own re­fund money a few weeks early? Not ex­actly.

And while tax re­fund ad­vance loans may be pop­u­lar and work OK for some peo­ple, they’re not al­ways a fast-cash guar­an­tee – es­pe­cially if you have a bad credit score.

“A lot of peo­ple are go­ing for this re­fund ad­vance be­cause you can’t get a stan­dard loan,” said Vernier, 38, who ad­mits her credit score of around 530 needs work.

Vernier found out too late that she couldn’t qual­ify for a tax re­fund ad­vance, ei­ther.

Her story is worth telling be­cause it’s easy to gloss over the de­tails in a rush for cash.

Many fam­i­lies feel the pres­sure of too many bills smack­ing up against too lit­tle cash. Only 40 per­cent of Amer­i­cans, for ex­am­ple, would be able to pay an unexpected $1,000 ex­pense from their sav­ings, ac­cord­ing to a sur­vey by Bankrate.com.

About 1.7 mil­lion re­fund an­tic­i­pa­tion loans were made in the in­dus­try in 2017, ac­cord­ing to a re­port is­sued in March 2018 by the Na­tional Con­sumer Law Cen­ter.

Vernier, a mother of two chil­dren un­der 4, had her taxes done on Jan. 16 in the hopes of qual­i­fy­ing for one of the heav­ily ad­ver­tised tax re­fund ad­vances. She wanted some quick re­lief to catch up with car pay­ments and other bills.

“My part­ner is out of work,” Vernier said, not­ing that he has had health is­sues.

“We’re on one in­come. We’re strug­gling right now, as I’m sure a lot of peo­ple are,” Vernier said. “It’s just been me with the equiv­a­lent of mak­ing $12 an hour.”

Vernier, a free­lancer who spe­cial­izes in tech­ni­cal writ­ing and draft­ing pro­pos­als, re­ported nearly $27,000 in in­come on her 2018 tax re­turn.

She thought she’d be able to re­ceive some type of re­fund ad­vance.

The loans vary in amounts: $500, $750, $1,250 or $3,000. The amount of the ad­vance de­pends, in part, on the ex­pected amount of your re­fund.

For many, some ad­vance money be­comes avail­able the same day you file your taxes.

“I knew my credit score wasn’t go­ing to be high enough for a stan­dard loan,” Vernier said.

But she said she was told by the tax pre­par­ers that she likely would qual­ify, given that she was ex­pected to re­ceive more than $7,800 in fed­eral and state tax re­funds with the earned in­come credit and the child credit.

Her re­fund will be re­duced $327.95 (after a $25 coupon) for the cost of get­ting her taxes done at an H&R Block of­fice near her home in Tim­berville, Va., in the Shenan­doah Val­ley. The fees in­clude a $39.95 charge for a fed­eral re­fund trans­fer, a processing fee as­so­ci­ated with pay­ing tax prep fees out of your re­fund and avoid­ing out of pocket costs.

After she had her taxes com­pleted, she waited for a text to show the ex­act amount of her re­fund ad­vance, which could vary. No text. In­stead, she said she had to call the 800 num­ber later to find out that she didn’t qual­ify for any­thing.

After all that, she’s wait­ing un­til at least mid-Fe­bru­ary to get her re­fund and she’ll get a some­what smaller re­fund be­cause the tax prep fees will be taken out. Fees she might have avoided oth­er­wise.

She feels she was blind­sided.

Con­sumers con­fused by some terms

“The tax pre­par­ers do not call it a loan,” Vernier claimed. “They as­sured me it was not credit-based.”

She feels some of the fine print is “de­lib­er­ately vague.”

On­line, the criteria for ap­proval is ex­plained as such: “You first must meet cer­tain el­i­gi­bil­ity re­quire­ments such as hav­ing a suf­fi­cient tax re­fund from the IRS, and pro­vide ap­pro­pri­ate iden­ti­fi­ca­tion. You then sub­mit an ap­pli­ca­tion to Axos Bank, the lender. The bank will eval­u­ate your ap­pli­ca­tion based on stan­dard un­der­writ­ing criteria and makes the de­ci­sion to ap­prove or deny your ap­pli­ca­tion.”

Vernier takes is­sue with us­ing words like “un­der­writ­ing criteria,” as well.

“Peo­ple un­der­stand credit checks,” she said. “Peo­ple don’t un­der­stand un­der­writ­ing.”

Get­ting a re­fund ad­vance, though, means you’re tak­ing on a loan made by a bank.

“This is a loan,” said Chi Chi Wu, staff at­tor­ney at the Na­tional Con­sumer Law Cen­ter in Boston.

“When­ever you ap­ply for a loan, a lender au­to­mat­i­cally has the right to check your credit re­port and your credit score.”

What con­sumers must un­der­stand with the re­fund ad­vance loans is that you’re not ac­tu­ally get­ting your tax re­fund faster. You’re get­ting a loan that re­flects a por­tion of your re­fund.

H&R Block said it is fo­cused on be­ing upfront.

“Trans­parency is im­por­tant to H&R Block,” said H&R Block spokesper­son Su­san Wal­dron.

“That’s why we’re pro­vid­ing tax prep prices be­fore the tax pro­fes­sional starts a re­turn and the terms for Re­fund Ad­vance are also dis­closed to the client,” she said.

Wal­dron told me the bank may re­view the client’s credit re­port as part of the ap­pli­ca­tion for the loan.

“The client is in­formed of this and agrees to it as part of the loan ap­pli­ca­tion,” she said.

Wal­dron said the ap­proval rates for the H&R Block Re­fund Ad­vance is more than 75 per­cent.

Not every­one would re­ceive a re­fund ad­vance loan.

“The client is also told that the bank will make a de­ci­sion on the loan ap­pli­ca­tion based on the bank’s un­der­writ­ing stan­dards and there is no guar­an­tee of ap­proval,” Wal­dron said.

“We regret this client was not happy with her ex­pe­ri­ence, but we can’t change the bank’s de­ci­sion on the loan.”

Vernier, who reached out to me to tell her story, said she’s con­cerned that oth­ers could fall into this trap be­cause she main­tains the credit-check as­pect of the loan was not spelled out to her. She’s con­cerned that other con­sumers could eas­ily be con­fused, too.

Of­fers and rules can vary

H&R Block has been heav­ily ad­ver­tis­ing its re­fund ad­vance of up to $3,000. It’s a no-in­ter­est loan from Axos Bank and of­fered to cus­tomers who file their taxes at H&R Block from Jan. 4 through Feb. 28 at par­tic­i­pat­ing of­fices.

Other tax prep firms of­fer some type of re­fund ad­vance loans, too.

Jack­son He­witt Tax Ser­vice has a “No Fee Re­fund Ad­vance Loan” that is avail­able in amounts up to $3,500.

An ex­tra $1,000 ad­vance is avail­able to qual­i­fied new clients from Jan. 2 through Jan. 27. So new clients could get be­tween $200 and $4,500, sub­ject to el­i­gi­bil­ity, ap­proval and fac­tors in­clud­ing the size of the tax re­fund. The loan is of­fered by Me­taBank. The fine print reads: “Availability sub­ject to iden­tity ver­i­fi­ca­tion, el­i­gi­bil­ity criteria, and un­der­writ­ing stan­dards.”

The TaxSlayer web­site pro­claims: “Skip the wait with a re­fund ad­vance from TaxSlayer and you could get up to $1,000 in as lit­tle as 24 hours.”

The TaxSlayer site also notes: “If your ap­pli­ca­tion is ap­proved, the loan amount ($500 or $1,000) will be sub­tracted from the to­tal fed­eral re­fund amount is­sued by the IRS. In other words, the loan amount will re­duce any fed­eral tax re­fund amount you get later.”

Lib­erty Tax just an­nounced that it was ex­pand­ing its Easy Ad­vance pro­gram to of­fer fur­loughed fed­eral govern­ment work­ers or those work­ing with­out pay pre-ap­proved ac­cess to an im­me­di­ate tax re­fund ad­vance of $500 with no in­ter­est or fees, if they have an ex­pected tax re­fund of at least $1,001.

The min­i­mum ad­vance of $500 would be of­fered with­out the nor­mal loan ap­proval process to the fed­eral govern­ment em­ploy­ees hurt by the shut­down. The Lib­erty re­fund ad­vance loan is se­cured by and paid back with your tax re­fund and of­fered by Repub­lic Bank & Trust.

“For amounts higher than the preap­proved $500, the tax­payer’s tax re­turn data, ex­pected fed­eral re­fund, pre­vi­ous his­tory with the trans­mit­ter and credit bureau will be eval­u­ated to de­ter­mine the like­li­hood that it will be funded by the IRS,” ac­cord­ing to Brian Ashcraft, a spokesper­son for Lib­erty Tax.

“The credit bureau check is con­sid­ered a ‘soft check’ and does not af­fect the tax­payer’s credit score,” he said.

The money is re­paid from the client’s tax re­funds. If ap­proved, clients will typ­i­cally have ac­cess to the loan amount within hours of ap­ply­ing.

Many of the pro­mo­tions high­light that the re­fund ad­vances have no fees and charge zero per­cent in in­ter­est. But again, you do have to pay for tax prepa­ra­tion ser­vices, which can add up de­pend­ing on your tax sit­u­a­tion.

In the past, con­sumer watch­dog groups in­di­cated that some lower and mod­er­ate-in­come tax­pay­ers who qual­ify for the Earned In­come Tax Credit faced tax prepa­ra­tion fees of $400 or more in some cases.

Many who qual­ify for the Earned In­come Tax Credit are el­i­gi­ble for free tax prepa­ra­tion at vol­un­teer sites, such as the Ac­count­ing Aid So­ci­ety, which will open its metro Detroit of­fices Jan. 26.

Fam­i­lies and in­di­vid­u­als with in­comes up to $55,000 may be el­i­gi­ble for the Ac­count­ing Aid So­ci­ety’s full ser­vice tax help. If so, the ser­vice of­fers to pre­pare and file your fed­eral, state and lo­cal in­come tax re­turns, and to en­sure you re­ceive all of your fed­eral and state Earned In­come Tax Cred­its.

Vernier – who has pre­pared her own taxes in the past – said she wouldn’t have paid all that money to wait a month or more for a re­fund. In­stead, she said she would have used tax soft­ware to do the tax re­turn her­self and skipped the $327.95 in fees.

Her taxes, she said, aren’t that com­pli­cated.

“I took the stan­dard de­duc­tion across the board,” she said.

While tax re­fund ad­vance loans may be pop­u­lar and work OK for some peo­ple, they’re not al­ways a fast-cash guar­an­tee – es­pe­cially if you have a bad credit score.

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