Contact:
Chi Chi Wu, NCLC, 617-542-8010
Jean Ann Fox, CFA, 757-867-7523
Consumer Groups Question the “Free” in the IRS “Free File”
Program
Washington, DC: The National Consumer Law Center (NCLC) and Consumer Federation
of America (CFA) today warned taxpayers using the newly-unveiled IRS Free File
program to avoid high-priced “refund anticipation loans” and other
high-priced products that commercial tax preparers may pitch as part of the
program. The groups criticized the IRS for forming an alliance with commercial
tax preparers without imposing adequate consumer protections.
The Free File program launched by the IRS today provides web links from the
irs.gov web site to seventeen commercial tax preparers or software companies
who are offering free online federal tax return preparation and electronic filing
to over 60% of taxpayers. The Free File companies offer their program to groups
of consumers based on income, age, military status or eligibility for the Earned
Income Tax Credit.
“The IRS should be providing all taxpayers with the ability to file
taxes online free of charge,” said the NCLC’s Chi Chi Wu. “Instead
the IRS is connecting taxpayers to commercial tax preparers who are free to
charge triple-digit interest rates for ‘instant refund loans and extra
fees for other services.”
NCLC and CFA have been highly critical of loans marketed to low-income consumers
in a hurry to receive their tax refunds or Earned Income Tax Credits. RALs are
high-cost loans secured by a taxpayer’s refund, with annual interest rates
ranging from 67% to an astounding 774%. Commercial tax preparers sell RALs in
conjunction with banks, and RALs are mostly marketed to low-income consumers,
draining hundreds of millions of dollars from EITC antipoverty benefits.
“Free File could be the ‘loss leader’ for commercial tax
preparers,” stated Jean Ann Fox, CFA. “Although the Free File rules
prohibit tying the free offer to purchases of expensive extras, there is nothing
in the agreement to stop companies from heavily marketing RALs.”
For example, the H & R Block site offers a refund anticipation loan of
up to $2500 for a finance charge of $90 and charges an extra $29.95 for professional
review of tax returns before they are filed. The Free1040Taxreturn.com link
on its home page touts “Receive your refund in as little as 24 hours after
acceptance by the IRS with our Refund Now Option.”
Wu and Fox point out that the Free File program may not be easily accessible
to the low income taxpayers who most need a break from high commercial tax preparation
fees and who need prompt access to Earned Income Tax Credits. According to government
data, the majority of EITC recipients don’t have the Internet access needed
to take advantage of free online filing. NCLC and CFA cited a Brookings Institution
report released on Monday detailing how tax preparers skim billions of dollars
off the EITC by selling usurious tax refund loans and high cost services to
low-income workers. A refund through E-filing is faster than mailing in a tax
return, but low-income consumers who do not have bank accounts to receive direct
deposit from the IRS will still have to wait for a paper check to arrive in
the mail.
In September NCLC, CFA, and other consumer groups filed comments with the
IRS urging stronger consumer protections. A copy of that letter is available
at CFA’s web site www.consumerfed.org, NCLC’s web site www.consumerlaw.org,
and U. S. Public Interest Research Group’s site www.uspirg.org.
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CFA is a non-profit association of almost 300 pro-consumer groups, which, since
1968, has sought to advance the consumer interest through advocacy and education.
NCLC is a non-profit organization specializing in consumer issues on behalf
of low-income people. NCLC works with thousands of legal services, government
and private attorneys, as well as organizations, who represent lowincome and
elderly individuals on consumer issues.
