When Is A Refund A Loan?

Fees charged by a financial institution for giving a consumer a "tax refund anticipation loan" were determined by a federal court to be just that-a "fee". A lawsuit had charged that financial institutions violated the consumer protection laws when they charged a $29 fee for the advance of a tax refund. When the financial institution, for a fee, gives consumers their tax refund within a few days of filing their return, the "refund " is actually a loan. The taxpayer gives the IRS the authority to pay the refund directly to the financial institution.

The Pennsylvania Court agreed with the courts in Richmond, Virginia and in Chicago, Illinois, which also found in favor of the financial institutions. They said bankers do not need to make Truth-in-Lending disclosures until they issue the "loan". The opposing argument was that disclosures should be made during the application process.

Copyright © 1995 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 5, No. 12, 8/95