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Beware the instant tax refund

Jymi Bolden

In the past few years, H&R Block has marketed itself not only as a tax preparer but also as a financial partner. But what H&R calls a financial service, Diedre Murch calls a scam.

The company is aggressively selling overpriced tax refund loans that often charge large fees and interest rates to unknowing low-income taxpayers, according to Murch, head Cincinnati organizer for the Association of Community Organizations for Reform Now (ACORN).

Refund anticipation loans allow taxpayers to get their refunds faster than the IRS hands them out but include triple-digit interest rates and fees in the $150 range.

"This is a massive transfer of wealth from poor communities to rich communities in this country," Murch says.

Profits from the poor
Murch started the local ACORN chapter last fall. A community organization of low- and moderate-income families, ACORN has 750 chapters nationwide. The group is waging a campaign against H&R Block, one of the largest promoters of refund anticipation loans, with protests across the country.

The group says H&R Block often markets the loans to low-income families who qualify for the federal Earned Income Tax Credit, which can provide up to $4,000 for qualified taxpayers. Almost 40 percent of those who received the tax credit in 1999 got their refunds through refund anticipation loans, according to the Brookings Institution.

"The federal government's largest anti-poverty program in this country is being diverted to the profits for a corporation," Murch says.

H&R Block prepared taxes for about 21 million people last year. Almost 30 percent of those included a refund loan or short term account that included extra charges, according to Denise Sposato, spokeswoman for the company's tax division. But she says the company doesn't push refund anticipation loans.

"There's a lot of inaccuracy with what ACORN attempts to put out there, but it helps them grab headlines," she says.

Through a partnership with the IRS, H&R Block offers free online filing to anyone who makes $35,000 or less, Sposato says. If someone making $35,000 or less uses the IRS' free electronic filing service, they can get their refund in eight to 15 days.

The large number of Earned Income Tax Credit recipients who take refund anticipation loans do it because they need the money quickly, not because H&R Block targets them, Sposato says.

Last month Cincinnati ACORN, which includes about 75 member families, staged a demonstration outside the H&R Block office in Price Hill. Participants demanded the store manager forward a letter to H&R Block CEO Mark Ernst demanding the company practice fair business in low-income communities. The action corresponded with protests by 40 other ACORN chapters around the country. The manager promised to send the letter.

In another protest Jan. 31, members set up a "Wheel of Misfortune" outside the Price Hill office and handed out fliers advising customers to avoid refund anticipation loans and wait the extra 15 days it might take to get their tax refunds if they file electronically.

That message, however, seemed a threat to H&R Block.

"They threatened to call the police," Murch says.

An H&R Block employee grabbed Murch by the arm and removed her from the store, where she was handing fliers to customers, Murch says.

"We certainly were not the preferred people to arrive at their store," she says.

Not in Indian Hill
In 2001 between 8,000 and 9,000 residents filed tax returns in both the Price Hill zip code and the Indian Hill zip code, according to the Brookings Institution, a nonpartisan research organization. In Indian Hill — a community with many wealthy residents and only 181 recipients of the Earned Income Tax Credit — 29 people took refund anticipation loans. In Price Hill — with many low- to moderate-income residents and about 2,700 recipients of the Earned Income Tax Credit — 1,846 people took refund anticipation loans.

For Murch, this is clear evidence that H&R Block and other companies market the loans to poor and working people.

"In our members' experience, they have not always been totally clear about what their other options are as far as free filing or low-cost filing," Murch says. "The refund anticipation loans are very heavily marketed in low- to moderate-income communities, because that's where they'll make the most profits."

But H&R Block says the statistics show only that low-income earners are more desperate for the money.

"We offer them because our clients, point blank, want them," Sposato says. "We go above and beyond what is required by law with letting our clients know there are better options out there."

She says many companies offer refund anticipation loans, even some car dealers.

"That is why H&R Block continues to offer them, because we know how responsibly we offer them," Sposato says.

But Dionne Owens, financial services program manager for SmartMoney Community Services in Over-the-Rhine, says companies like H&R Block offer the loans a little too well.

SmartMoney is one of many social service agencies that try to publicize free tax preparation for low-income people, but they have trouble competing with television commercials that feature get-your-money-right-now messages.

"I think there's a lot of misinformation, just based on the attention commercials give to this time of year to 'come down and get your money quick,' " Owens says. "I think with those messages, people think that's what they're supposed to do, that there's no other alternative."

She encourages people not only to avoid refund anticipation loans but to avoid paying any tax preparation fees whatsoever.

Regardless of H&R Block's intent, Owens says the loans disproportionately hurt low-income taxpayers.

"I think they try to downplay it and say, 'We're just making our services accessible to anyone who wants to use it,' " Owens says. "But you will find an overwhelming majority of low-income people do gravitate towards those places."

To find out about free tax preparation, call the United Way Helpline at 211 and ask about the VITA tax services program.

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