Seattle City Council
9/9/2004 4:05:00 PM
TAX LOAN DISCLOSURE BILL APPROVED BY COMMITTEE
SEATTLE –Legislation, requiring all lenders to disclose detailed information regarding Refund Anticipation Loans, passed from the Human Services Committee to the Full Council today. Taxpayers often use Refund Anticipation Loans to get fast access to money they expect in a refund from the Internal Revenue Service (IRS). This legislation requires anyone who facilitates those loans to provide written disclosure on many defined elements of the loan, or face penalties.
Nationwide, consumer advocates say tax preparers often target the low-income, failing to inform them about the costs of the loans and other ways they can obtain quick refunds from the IRS.
The Earned Income Tax Credit is regarded as one the most successful anti-poverty programs in the country. But it’s estimated that in 2002, about $324 million from the Earned Income Tax Credit, intended for working families, was diverted to commercial tax preparers to pay refund anticipation loan fees. It’s estimated that as many as 20,000 Seattle households use these loans.
Consumer advocates say people have the right to be informed about the real costs of these loans and the alternatives that exist in obtaining their tax refunds. Councilmember Tom Rasmussen, sponsor of the legislation says, " This legislation is the most basic form of consumer protection. It’s only fair that people have all the information necessary to make informed choices on whether to pay to get their tax refund more quickly or to wait and get it from the IRS. "
Rasmussen’s bill was approved with a 3-1 vote in the Housing, Human Services and Health Committee. If approved by the Full Council, beginning in January of 2005, anyone in Seattle offering such loans will be required to give customers the following information:
- The taxpayer need not agree to a refund anticipation loan (RAL) in order to get tax help.
- The loan must be repaid even if the IRS delays, reduces, or denies the taxpayer’s refund.
- The taxpayer is paying interest and fees (with taxpayer specific calculations).
- A quick refund can be obtained by having the IRS direct deposit it into an account.
- A taxpayer without a bank account can open one to get a refund anticipation check.
The bill will require tax preparers to have written disclosure information available in both English and Spanish with clear oral explanations. Violations could result in City fines up to $700. The Full Council will consider Rasmussen’s bill on Monday, September 20. For more information, call Michael Fong at (206) 684-8808.