Teilhet targets predatory lenders

"For too long, Georgia and other states have looked the other way as predatory lenders have deceived taxpayers into loans soaked with extravagant fees and triple digit interest rates, " Teilhet said. "By passing this bill, Georgia will say "yes" to full disclosure and "no" to deceptive sales pitches."

Tax preparers aggressively market "refund anticipation loans" at interest rates deep into the triple digits as "instant tax refunds" to low-income families that qualify for the Earned Income Tax Credit, a tax credit meant to offset the high income tax burden on families of modest income. Borrowers are led to believe they are receiving their tax refund more quickly, when in fact they are taking out a high-interest loan that they are obligated to repay whether or not they receive a tax refund. Most consumers who receive "refund anticipation loans" are not aware that they can receive their refund within about 10 days by direct deposit from the IRS.

An example of a typical "refund anticipation loan" is as follows: a woman with annual income of $13,800 has her tax return prepared by a service that offers "refund anticipation loans." She is found to be entitled to a refund of $3671. She is sold a loan by the service that prepared her taxes, with the following costs:
. A bank fee of $126.95
. A preparation fee of $212
. A finance charge of $56.80
She receives a "refund anticipation loan" of $3275 with almost $400 dollars in fees and interest that must be paid back in 10 days. The annualized percentage rate of interest is an astounding 392 %. She is never told and does not know that she was entitled to receive her full refund via direct deposit from the IRS free of charge in about 10 days.

Representative Teilhet's bill would require that notice be given to taxpayers in large font and posted both on the walls of the tax preparer's office and in the loan documents themselves that the taxpayer is receiving a high-interest loan, not a refund, and that they are entitled to receive their refund within about 10 days free of charge from the Internal Revenue Service without the need for a loan.

Recent studies have found that in the metro Atlanta area, almost sixty percent of the Earned Income Tax Credit dollars that should flow to low-income residents is siphoned off by predatory lenders in the form of "refund anticipation loan" interest and fees. Those dollars are meant to boost purchasing power and savings rates of the state's most economically vulnerable people. Instead, the majority of Earned Income Tax Credit dollars are going to two large, out-of-state companies responsible for the marketing of predatory loans.

In recent days, the Internal Revenue Service has begun an investigation into whether the tax preparers responsible for “refund anticipation loans” are guilty of filing fraudulent tax returns claiming inflated refunds so they can justify predatory loans to consumers for higher amounts.