30 replies to this topic

[BulldogTom]

It does not happen as fast. The bank takes the application, and when the taxpayer's refund arrives at the bank, the bank takes its fees, forwards the preparers fees, and then forwards what is left to the taxpayer's bank account or authorizes the preparer to write a check to the taxpayer. It is not a loan. It is basically a way to make sure the preparer gets paid, with the bank taking a fee to broker the deal.

It is fee collect except it can be paid in a check as well as a direct deposit.

Tom
Lodi, CA

[David1980]

JohnH, on 15 January 2010 - 08:44 AM, said:

Just out of my personal curiosity and without intending to make any value judgment, what would the RAL cost on average in each of the following situations?:

1) $ 500 refund
2) $1,000 refund
3) $2,000 refund
4) $4,000 refund

I'm thinking of additional cost over and above a regular return preparation & filing, unless there are some RAL-related charges embedded in the basic fee.

TaxWorks has a decent page for rates. Not sure it's current.

http://www.taxworks....Enrollment.aspx

Looks like Chase is the most expensive of the banks they have there. It also has a very convenient interest rate to work with (1% of refund).

1.
$32 fixed bank fee
$50 interest charge. (I suspect they might actually consider the amount financed to be less the $32 fixed bank fee, but it isn't clear.)
$82 Chase fees.
$10 transmitter fee
$14 technology fee
$98 total fees.

2.
$32 fixed bank fee
$100 interest charge.
$132 chase fees.
$10 transmitter fee
$14 technology fee
$156 total fees.

3.
$32 fixed bank fee
$132 interest charge ($132 max fee)
$164 chase fees.
$10 transmitter fee
$14 technology fee
$188 total fees.

4.
$32 fixed bank fee
$132 interest charge ($132 max fee)
$164 chase fees.
$10 transmitter fee
$14 technology fee
$188 total fees.

So looks like it's the most expensive APR for the small refunds. As it increases upto $1320 refund the fees gradually fall as a percentage of refund. They fall dramatically faster after $1320, as the fees are already capped so the % falls.

Also makes me wonder if Chase approves a lot of RALs for about $1320 of the total refund ... since if the taxpayer were to apply for a $10,000 RAL and only get approved for $1320 chase makes exactly the same amount of money with a lot less money held up on the loan.

The cheapest RAL you can get? Reduce withholding... get AEIC if you qualify. Wish the taxpayers would listen to me...

[David1980]

JohnH, on 15 January 2010 - 11:29 AM, said:

That's interesting, because I was under the impression that the fees were much higher (don't know why I thought that).

I think you get a lot of people in some of the chains who would have prepared it themselves if it was not for the RAL. So perhaps they qualify for free tax prep due to low income or EIC, but don't want to wait a week or two... In which case the $200 or $300 a big chain charges for a couple kids with child tax credit and EIC could be considered part of the RAL. After all, the taxpayer treats it that way.

I also think the interest rates fell quite a bit from last year due to some change in the regulations. Pretty sure the "technology fee" did not exist for any of the tax prep softwares, yet they all have it now. The reason being the software companies were getting rebated money from those bank finance fees. It made it look like a bank fee to trick us into thinking it was the big bad bank and not the big bad software company. This year everyone's got a technology fee of some kind. Speculation here, but I think the banks had to drop the rates to meet the regulation and as a result stopped paying the software companies out of the bank interest charges. So the software companies simply took their fee and called it a "technology fee" so that they keep getting paid.

[taxguy057]

JohnH, on 15 January 2010 - 08:44 AM, said:

Just out of my personal curiosity and without intending to make any value judgment, what would the RAL cost on average in each of the following situations?:

1) $ 500 refund
2) $1,000 refund
3) $2,000 refund
4) $4,000 refund

I'm thinking of additional cost over and above a regular return preparation & filing, unless there are some RAL-related charges embedded in the basic fee.

I'm with Republic Bank and their fee is like 0.78% of refund plus 29.95 acct set-up, 21.00 cch tech fee, 10.00 transmitter fee then preparer fees.

I've have actually built my biz on RAL's! No matter what opinions we have about them, they are a neccessary evil in our field. People want their money and want it asap. Not worried about the fee b/c the need for the refund sooner outweighs that in their mind. And in business you have to compete for the clients that are out there to survive. Now my next question is; How do I pick up those newly neglected JH customers??!!

[jasdlm]

Thanks, Tom. This is going to sound really dense, but why would any customer agree to a Refund Transfer? What's in it for them?

Thanks.

[Lion]

They can get their taxes done now while they have no money, get their refund in the pipeline now, and pay you out of their refund. Otherwise, they wait until they save the money for your fee. They are trading money for time according to the value they put on it for them. It also allows them to be on the DD timeline which is a week faster plus mail time than the mailed check timeline even when they have no bank account of their own. If they have no bank account for DD and no credit card to pay you, it might be worth it to them to use a RT. I don't do them myself, but you have to think about your own client pool and their needs.

[JohnH]

So using the examples for the RAL fees vs refund amount, it looks like it would break down like this:

Flat Per Cent of Refund paid in fees:
1) $ 500 refund - 19.6%
2) $ 1,000 refund - 15.6%
3) $ 2,000 refund - 9.4%
4) $ 4,000 refund - 4.7%

Being very generous with the time frames, if we assume that the RAL facilitates the taxpayer getting their money one month earlier that by using normal filing, that means they are paying the above percentage times 12 when expresing it as an APR. So the amount actually being paid expressed as an APR is:

1) $ 500 refund - 235% APR
2) $ 1,000 refund - 187% APR
3) $ 2,000 refund - 113% APR
4) $ 4,000 refund - 56% APR

So while it's a horrible effective APR, I can see how some taxpayers might opt for the RAL since the actual raw dollar amount is relatively small in relation to the refund (at least once the refund gets over $1,000 or so). Maybe they don't have a checking account and would have to pay this much or more at a check cashing service once the IRS check arrives. Or maybe they worry about the IRS check being stolen from their mail box and facing 6-12 months to get a replacement. Or maybe they need to pay something(rent, car payment, tuition, etc)by next week or face an eviction, foreclosure, repossession, etc.

Fortunately this isn't my situation as I sit here today, but there have been times in my (younger) life when I'd have gladly forked over $188 to get my hands on $3K or $4K that somebody owed me, rather than have to wait 4-5 weeks for it even though I knew it was on the way. So I'm not going to say that someone getting a RAL is stupid or foolish, even though I'd recommend against it as a matter of prudent financial management.

Thanks for providing those numbers for comparison. If I've missed something in the math I'd appreciate someone correcting me. At least we have a little better perspective on the actual impact of the RAL in actual dollars and in terms of relative APR.

[jasdlm]

Thanks, Lion. You provided a very clear explanation, and I appreciate it!

[Booger]

JohnH, on 18 January 2010 - 01:02 PM, said:

So using the examples for the RAL fees vs refund amount, it looks like it would break down like this:

Flat Per Cent of Refund paid in fees:
1) $ 500 refund - 19.6%
2) $ 1,000 refund - 15.6%
3) $ 2,000 refund - 9.4%
4) $ 4,000 refund - 4.7%

Being very generous with the time frames, if we assume that the RAL facilitates the taxpayer getting their money one month earlier that by using normal filing, that means they are paying the above percentage times 12 when expresing it as an APR. So the amount actually being paid expressed as an APR is:

1) $ 500 refund - 235% APR
2) $ 1,000 refund - 187% APR
3) $ 2,000 refund - 113% APR
4) $ 4,000 refund - 56% APR

So while it's a horrible effective APR, I can see how some taxpayers might opt for the RAL since the actual raw dollar amount is relatively small in relation to the refund (at least once the refund gets over $1,000 or so). Maybe they don't have a checking account and would have to pay this much or more at a check cashing service once the IRS check arrives. Or maybe they worry about the IRS check being stolen from their mail box and facing 6-12 months to get a replacement. Or maybe they need to pay something(rent, car payment, tuition, etc)by next week or face an eviction, foreclosure, repossession, etc.

Fortunately this isn't my situation as I sit here today, but there have been times in my (younger) life when I'd have gladly forked over $188 to get my hands on $3K or $4K that somebody owed me, rather than have to wait 4-5 weeks for it even though I knew it was on the way. So I'm not going to say that someone getting a RAL is stupid or foolish, even though I'd recommend against it as a matter of prudent financial management.

Thanks for providing those numbers for comparison. If I've missed something in the math I'd appreciate someone correcting me. At least we have a little better perspective on the actual impact of the RAL in actual dollars and in terms of relative APR.

JohnH, this is what I meant by my flippant "loan shark" answer. The APR's are staggering.

Booger

[spstax]

Are you seeing Republic Bank loan on EIC? I just talked with Chase, this is our first time doing RAL in the past only RT, they said if the EIC is over half of the refund they will be denied. Had two clients, both working parents with some withholding and EIC. Both were denied because of the amount EIC to the total refund. Does Republic work the same way?

[Chowdahead]

Lion, on 18 January 2010 - 12:10 PM, said:

They can get their taxes done now while they have no money, get their refund in the pipeline now, and pay you out of their refund. Otherwise, they wait until they save the money for your fee. They are trading money for time according to the value they put on it for them. It also allows them to be on the DD timeline which is a week faster plus mail time than the mailed check timeline even when they have no bank account of their own. If they have no bank account for DD and no credit card to pay you, it might be worth it to them to use a RT. I don't do them myself, but you have to think about your own client pool and their needs.

This is a very good answer. Hit the nail on the head!