The RAL Question

It is that time of year. Leaves are changing, we no long try to save daylight, it's getting colder and tax preparers start to plan for the next season. That brings up lots of questions: do I increase prices, how can I bring in new clients, why can't Congress leave the tax code alone, do I have enough folders/receipts/paper clips, who has the least expensive paper...you get my drift. Usually, one of my questions is which RAL bank will I use but this year it's do I want to beat the rush and drop them now?

I know that RALs (Refund Anticipation Loans) are controversial. They have been abused by the banks offering them, some preparers and many taxpayers. But they are a key reason for the growth of e-filing and they have helped many taxpayers in a time and money crunch. I have always offered them, either as an employee or owner, since the program went national. But RALs have changed greatly in the last couple years and with the IRS introducing modernized e-file refund times are going to go down for everyone.

Bowing to public outcry about the APR and fees, the banks involved (there are just a handful) have reduced their charges. To keep their profits up, they have mostly dropped the incentives to preparers and tax software companies. Until recently, a preparer received a payment for each RAL or RAC (Refund Anticipation Check, no money is advanced but the fees come out of the refund) that was approved. Sometimes there were extra incentives for a particular volume or if it was a new preparer or for a low default rate. They also payed the software company for development of the bank applications and transmission of the completed loan apps. With the cut in loan rates, the banks have cut fees to the people doing the work. I will spend an extra 15 to 30 minutes on a tax return when there is a RAL/RAC involved making sure the taxpayer qualifies, getting IDs, completing the application. Then there is printing the check, contacting the client, explaining why they weren't approved, and keeping all the paperwork for years. Now, if I want to get paid for my extra time, I have to add a fee in myself. (There are restrictions on how I can add a fee. It can't increase the APR.) Until incentives were dropped, I didin't add a fee and I only add about $12 now. But the idea that the banks want to keep their profit while shafting the ones doing the actual work has left a sour taste in my mouth. They want to shift the "bad guy" from them to someone else.

I don't do a lot of RALs. While I offer them, I don't push them. The client has to ask about the program. But I know if I cut them, I will lose some good clients, good people. Ones who won't wait for a couple of weeks to get their refund. I don't like the idea of them paying lots more than I have been charging them to get their money. Not just extra fees for the RAL but a high tax prep fee too.

I've crunched my numbers and found a replacement for the RAC program. All I am waiting for is to talk to the banks at Drake's update school next week. I doubt that they will give me any reason to keep RALs but it's hard to change a 15+year habit.

Comments

[Frank]

I have been offering RALs for many years and have a good relationship with the bank I work with. Some of your statements here just don't hold true. Where did you get your information? My bank cut the fee they pay me ($8) and the fee they pay my software provider ($16), and they cut their own prices ($35). To me that math shows the bank is making $17 less per RAL, and you are making $8 less. What kills me is that you are upset about the high price, but are unwilling to give up your share of the fee. How does that make you better than the bank you critisize? And its really unfair to say you do all the work. It is the bank risking thousands of dollars on your customers, it is the bank providing you a free service, and the bank providing you with free training, free marketing support, and my bank even helps me with getting training credits with the IRS.

[James]

Frank you are full of it. The banks did drop their interest rate due to pressure from the IRS, but they did not drop their fees. Their account fees still range from $29 to $35 dollars. They made up for the lost revenue from interest by cutting the rebates given to tax preparers and software developers. Most developers have replaced the rebates with new technology fees and most prepares are increasing their doc prep fees to offset their revenue loss. Still on a $3,000 dollar loan the bank makes about $65 dollars. This equates to an APR of 26% for a fairly safe loan. Remember the banks wait until the IRS accepts the returns.

[Greg]

I am starting out new for this season and I have been unable to find a bank for RALs. I would be interested in learing what kind of replacment you came up with.

[Jim]

We as the people have to understand that banks are here to make profits. By being responsible with your money you can make the correct financial decisions when it comes time for taxes