Liberty Tax Service is America’s third largest tax preparation chain. Back in 2007, Liberty advertised that they could have your refund to you in one day.
Sounds great, but there’s a problem with that: You can’t get refunds that fast. It was really an advertisement for refund anticipation loans (RALs). Those loans have usurious interest rates (they can be as high as 375%). California’s Attorney General, Jerry Brown, sued Liberty over the ads.
The result of the lawsuit was announced this week. Liberty lost, and must make restitution of $136,000 and must pay fines of over $1 million.
I’m very much against RALs. I don’t believe they serve any purpose other than enriching the pockets of those offering them. Hopefully we’ll see fewer RALs being offered in the future.
RALs are a way to make the IRS’s marketing correspond roughly to reality. When people hear about getting a “refund”, they may be inclined to assume that it’s like returning something to the Gap: you show them your receipt and the money is instantly back in your account. Whereas it’s more like, well, dealing with the IRS: you shovel forms at them, cross your fingers, and wait a few weeks or months for them to get around to giving you back your money.
For many folks, the weeks make more of a difference than the dollars. And for those people, an RAL is a way to bridge the gap between a conventional refund and a tax refund.