'INSTANT REFUND'? THERE'S NO SUCH THING LOANS FROM TAX PREPARERS PREY ON THOSE WHO CAN'T AFFORD THEM.

Byline: Fabian Nunez

THE promise of ``instant money'' is one that millions of consumers are tempted with every year by tax preparation firms. But what is behind that promise robs millions of consumers each year of much-needed cash.

This instant money offer is called a Refund-Anticipation Loan - a short- term loan, backed by the consumer's tax refund. RALs come complete with high administrative and processing fees as well as annualized interest rates well into the triple digits. Although this is the type of deal you might expect from Tony Soprano, tax preparation firms are marketing these loans as nothing more than a quick way to receive a tax refund.

Can people in crisis really turn down an offer to pay excessive interest rates and fees for a chance to get money a couple of weeks early even if they would normally get that money for free by waiting? Income-tax preparation firms like H&R Block, Jackson Hewitt Tax Service and Liberty Tax Services, and lenders like Household International are betting no, and they're winning the bet.

According to the National Consumer Law Center and the Consumer Federation of America, almost 13 million RALs were processed in 2002, with consumers paying about $1.5 billion in RAL and associated fees during that year's tax-filing season. Over half of these RAL consumers were working-poor families who receive the Earned Income Tax Credit.

Tax preparation services and lenders claim consumers like the loans. They say people just want their money, and that they are just helping people in need. In actuality, these financial entities are earning easy money at the expense of the people who can least afford it. A person who is nearly broke has to make difficult decisions about whether to buy groceries or pay bills. This is exactly the type of person who is a candidate for the instant money offer that an RAL supposedly provides.

This is how the RAL business works:

A person walks into a tax-preparation firm to have his or her taxes done. The tax preparer tells the customer the IRS owes him or her a refund and then changes hats from a tax specialist to a salesperson. Armed with the knowledge of the customer's financial straits, the salesperson begins to discuss various products and services to assist consumers in getting their refunds quickly.

What this salesperson/tax specialist doesn't fully explain is that the customer can get his or her return for free in about two weeks and that there are layers of fees associated with the instant money product. These fees include a loan-application and loan-preparation fee on top of the fee paid to prepare the tax return. Frequently, there are also fees to electronically file the forms and establish temporary bank accounts.

The RAL is a loan and not an actual refund; therefore, the bank is required to calculate its interest rate on an annual basis. The RAL's annual percentage rate can be as low as 70 percent or as high as 700 percent. Neither rate is a good deal. The fees and interest rates combined can cost a person expecting a refund of $1,000 up to $200 or more.

To address this problem, I introduced AB 2868, which is modeled after laws in several other states, to require tax preparers to disclose to consumers the fees, interest rates and other costs associated with refund anticipation loans.

For a low-income family, that $200 is money that is better spent on groceries, rent or utility bills. Instead, it goes into the pockets of lenders and tax preparation services that say they just want to help people get their money faster.

People applying for refund anticipation loans have a myriad of reasons why they need the money right away. But frankly, consumers are only hurting themselves when they borrow their own money at exorbitant rates.