Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, February 3, 1993 TAG: 9302030048
SECTION: VIRGINIA PAGE: B1 EDITION: METRO
SOURCE: By MIKE HUDSON and DAVID M. POOLE STAFF WRITERS
DATELINE: LENGTH: Medium
TAX BUCKS RETURN FAST - LESS ANOTHER BITE
Greene H. Lawson Jr. reaches for the buzzing cordless phone on his desk. "Your check's here," he tells the caller. "It'll be ready in 45 minutes."The phone rings again. "No, ma'am," Lawson says. "Didn't come in on this bunch. Call back in an hour."
Some taxpayers don't want to wait weeks for their IRS refunds, and companies like Lawson's fasTAX are happy to oblige - for a price.
Roanoke Valley companies charge $64 to $89 for "refund anticipation loans" that can put a check in taxpayers' hands in two or three days.
Consumer advocates say the price is too high. Finance charges on the loans are equal to annual interest rates ranging from 25 percent to 300 percent.
If customers simply borrowed the same amount of money on a credit card, they generally would pay an annual rate of no more than 18 percent.
Fran Stephanz, director of the Better Business Bureau in Roanoke, said patience pays off when it comes to tax refunds.
People who mail in their tax returns early can get a refund in a few weeks without paying a middleman, Stephanz said.
"I wouldn't pay $75 even if I was in a crunch situation," she said. "I would rather wait."
Lawson - whose fasTAX service charges $75 for a refund loan - said his price is competitive with those of others offering the loans. He said many of his customers are low-income people and blue-collar workers. They're willing to pay the fee because they want their money fast, he said.
In fact, he said Monday, every one of his customers so far has asked for the quick-refund loan instead of simply asking for electronic filing.
Taxpayers who electronically file returns via computer will generally get the money in 10 to 17 days, according to the IRS.
The agency estimates that taxpayers who mail their returns will receive refund checks in six to eight weeks.
A refund anticipation loan, meanwhile, can cut the waiting time to 36 hours or less.
The prospect of an IRS check - expected to average $900 this year - makes many taxpayers eager to cash in as soon as possible.
The refund season is barely a week old and more than 100,000 Virginians have filed electronic tax returns. No statistics are available, but most of them also took out refund anticipation loans.
"It beats waiting the six weeks," said one woman who applied for a loan at the fasTAX office on Williamson Road. "I need the money now to pay off some of my bills."
Companies that offer refund anticipation loans advance customers money in the amount of their expected tax refunds - minus the loan fees and interest charges. The loans appear painless because the customer pays no money up front; all fees are deducted from the loan check.
William K. Plymire, a fiber-optics cable installer, went to fasTAX determined to get his $311 IRS refund as soon as possible.
Plymire said the company deducted $95 - or nearly one-third of his refund - for tax preparation, handling fees and bank charges.
"It is a little expensive," Plymire said, "but you do get it back quicker."
Out of the $95, Plymire paid a loan finance charge of $33. That equals an annual percentage rate of more than 250 percent. If the other charges connected to the loan were figured in, the rate would go even higher.
IRS rules require companies to charge a flat rate no matter how much the refund. The rule is designed to cap fees. But it also means the smaller the refund, the higher the interest rate.
Some companies like fasTAX, which has four locations in the Roanoke Valley, give customers a flier that discloses annual percentage rates for typical refund loans.
But others make it impossible for consumers to calculate what interest rate they are paying.
Prime Time Rentals charges $79.95 for a refund anticipation loan. But Prime Time, which issues loans through Banc One of Columbus, Ohio, does not itemize its fees, so there is no way for a customer to know how much is being paid in finance charges.
North Carolina has passed a law that requires tax-preparation companies to disclose the annual percentage rate for refund anticipation loans. Virginia has no such law.
Using his regulatory power under the law, North Carolina's banking commissioner, Bill Graham, has ordered that charges for refund anticipation loans be no more than $50 a loan.
Graham said state examiners have found loans with annual percentage rates as high as 426 percent.
Graham acknowledged that the high numbers do not scare away people who are desperate to get their money as soon as possible.
"It's a strange business," Graham said. "Why anybody would pay these kinds of rates to get their checks a week or 10 days or two weeks early is beyond me. But they do it."