Diminishing returns: poor families are paying the price for fast tax refunds.

A group of activists is charging that corporations are taking advantage of the working poor's need for fast money by targeting the beneficiaries of a special federal program intended to boost people out of poverty.

"This is our money," said Elisha Blackemore, speaking in front of about 50 people who recently gathered outside an H&R Block office at 4020 W. Madison St. in the East Garfield Park neighborhood. A sign proclaiming "Instant Money" loomed in the store's display windows behind Blackemore. "Shame on you," he said.

There are hundreds of companies that offer quick loans on expected tax refunds, some which pop up just during tax season. H&R Block and Jackson Hewitt Tax Service are two of the largest tax preparation companies in the city, and both offer "rapid" refund loans through relationships with banks.

But Blackemore and other protesters, all of whom were members of the Chicago chapter of ACORN, a national group of low-and moderate-income families, charge that companies offering rapid refund loans with interest rates as high as 300 percent are concentrated in low-income neighborhoods. Activists say that's so the companies can get a slice of the Earned Income Tax Credit, which in Illinois averaged about $1,726 last year.

In 1996, when welfare reform pushed public aid recipients to get jobs, the number of people claiming the tax credit grew. Yet activists say the program's effectiveness is being crippled by the financial industry. Spokespeople at H&R Block said they seek to help low-income people, not prey on them.

By 2002, almost a quarter of all Chicago taxpayers got the earned income tax credit, compared with 17 percent in 1999, shows a Chicago Reporter analysis of Internal Revenue Service data. Half of those who received it in 1999 got it through a refund loan, shows the latest available data obtained by The Brookings Institution, a think tank based in Washington, D.C.

More than two-thirds of H&R Block and Jackson Hewitt locations are in African American and Latino neighborhoods, where most recipients of the earned income tax credit live, shows a Reporter analysis of company listings in Chicago phone books.

Neither rapid refund loans nor the companies that offer them are regulated by state law. A bill was introduced in the Illinois General Assembly during this session that would cap the amount of the interest rates companies could charge for short-term loans, including rapid refund, but the bill has yet to be discussed by lawmakers. A similar bill failed last year.

In a February 2003 speech, Illinois Attorney General Lisa Madigan warned consumers against getting rapid refund loans, pointing out that if the IRS gave them less of a return than they expected, they must repay the difference. However, her office has never taken any action against the loan companies.

Five minutes after the ACORN group left the East Garfield Park store, H&R Block District Manager Steven Hardy arrived. Hardy, noticeably flustered, said, "We do a lot of educating of our clients. Our goal isn't to take money, it's to help them." Hardy said H&R Block presents clients with all of their options.

"We allow them to choose if they want it in a day, or they want it in a week, or if they want it delivered here, or if they want it delivered to their home," he said. "And we outline how much of the cost is unfortunately going to be taken up."

Listing off the 17 Chicago sites he manages, Hardy said he didn't think the geographic distribution of H&R Block offices indicates they target low-income people. "I would say that we distribute our locations evenly," he said.

Prospect Heights-based Household International, which processes the rapid refund loans for all H&R Block offices and some Jackson Hewitt locations, charges interest rates as high as 120 percent. Activists say that's too much, but the corporation's spokesman, Mark Friedlander, defended the rates, saying they are comparable to those charged by credit card companies. Household International is the biggest rapid refund loan institution in the country, making 53 percent of the loans each year, according to Friedlander. The national market grows by 10 percent every year, he said.

H&R Block earned $110 million in 2003 with rapid refund loans--about 3 percent of its revenues, the company's year-end report shows. Jackson Hewitt is a franchise, and an owner of each office contracts with loan companies and usually takes a cut of the interest.

Advocates have compared rapid refund loans to other "predatory services" like high-interest payday loans. Poor people often live in neighborhoods with a dearth of banks and tend to rely on dangerous loan stores, said Marva Williams, the senior vice president of the Chicago-based Woodstock Institute, a nonprofit that examines the financial resources for people with low and modest incomes.

In the Brookings Institution's 2002 study, researchers wrote that tax preparers who offer rapid anticipation loans "can significantly diminish the economic benefits of the EITC--both for low-income families and the communities in which they live."

Taking a cut of the earned income tax credit especially hurts poor families because the money is more than some of the families will see in a lump sum all year, said Mary Ruth Herbers, senior director of programs at the Chicago-based Center for Economic Progress, an organization which provides economic opportunities for low-income people.

She points out that electronic filing has made the rapid loans less necessary by eliminating the long wait to get refunds. Herbers' organization offers a free tax preparation service and can get the refund to people in less than two weeks. But it can't compete with corporations, such as H&R Block, that use savvy marketing to entice poor people desperate for cash, she said.

And other businesses are picking up the tax preparers' strategy. Used car dealerships have begun doing tax returns so that people can fund a car purchase, said Herbers. And Jackson Hewitt Tax Service signed an agreement late last year with Rent-A-Center, so that people can buy used furniture with a refund anticipation loan, she said.

"More and more, there are lots of entities that are preying on the low-income population by offering them these rapid refunds in order then to turn around and purchase some product," Herbers said. "They know this is the time during the year that this population has access to a sizable chunk of cash through their tax refund."

Mary Carter was part of the group picketing outside Hardy's East Garfield Park site. In January 2000, Carter saw an H&R Block television ad that told her she could get her tax return back fast, she remembers.

"I needed some money right away" to pay bills, Carter said. She went to an office on 50th Street and Woodlawn Avenue. She said the people there explained the loan process to her in five minutes, and it took five minutes to sign the papers. Two days later, she had the money.

Carter, who is retired, lives on about $1,000 a month, drawn from her savings account. She went back to H&R Block for a rapid refund in 2001. To get it in two days through a refund anticipation loan, instead of the normal eight or 10 days, Carter paid $218 out of her total tax refund of $760.

"I've always known it wasn't a good deal because that's too much," she said. "But if you need money, all you see is that money coming back in a day or two that you can use right away--that you could've used yesterday."

This year, after learning she could have her taxes done for free by a nonprofit agency, Carter spurned H&R Block. She's decided that she can't afford to give the loan agent a cut.

Even with the increased pressure from protesters, Carter thinks companies will continue to offer rapid refund loans. "They're out to make money," she said.

Members of ACORN protest high-interest rapid refund loans at an H&R Block office in East Garfield Park.