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Refund loans on the ropes?

That old saying about it's an ill wind that blows no good certainly comes to mind in connection with the economy and refund anticipation loans. 

Last Minute Taxpayers File Just Before April 17 Deadline
It looks like the economic downturn that's hurt millions is at least partially responsible for a recent reduction in these sketchy financial products, known by tax wonks as RALs.

These are high-interest loans that too many people apply for just so they can get their hands on their expected tax refunds a few days early.

But that impatience usually comes with a high price. The sad truth is that most of the folks who take them end up paying annual percentage rates that often near 200 percent.

Too often, their refunds don't materialize as expected so they don't have the cash to pay the quick turnaround loans. Plus there are all those associated fees.

Now I'm generally for people being responsible and taking care of their own business. You can ask some of my relatives who were not happy when I wouldn't contribute to their profligate lifestyles like they thought I should have simply because I was a better money manager than they were.

But when it comes to these loans, I'm totally behind the consumer groups and even Uncle Sam who have been trying for years to find ways to put an end to RALs. A few years ago, the IRS specifically prohibited companies that participate in Free File from offering the products to folks who come to the IRS online filing site.

Because of the increase in e-filing in general and Free Filing in particular for lower- and middle-income folks who are prime RAL targets, the usurious lending products have outlived what minuscule value they had.

Economy tough on RALs, too: Still, they exist. But that seems to be changing.

The rough economy and tighter loan standards have thrown a monkey wrench into the process for one major tax preparation franchise, Jackson Hewitt, that offers them. And another, H&R Block, has decided that it no longer wants to have RALs' bad reputation rub off on it.

You can read more about the reduction in RALs at my other blog, Eye on the IRS.

Now I know folks reading personal finance and tax blogs are probably not likely to be in the market for a refund based loan. But just in case you -- or a family member or friend -- is considering getting one of these loans, please don't.

No, I'm not lending you the money (just ask my disgruntled family members), but if you'll just check out Free File or a Volunteer Income Tax Assistance (VITA), Tax Counseling for the Elderly (TCE) or AARP filing assistance programs in your community.

Heck, even Walmart, in conjunction with United Way, One Economy Corporation and the National Disability Institute, is offering free tax filing services again this year.

The University of Missouri's MoTax Web site will let you search for free tax-filing help in your area.

And if you need help for a tax problem that's beyond just filing a return, check out a Low-Income Taxpayer Clinic in your area.

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