Governor Quinn Cracks Down on Predatory Refund Anticipation Loans

CHICAGO – November 23, 2009. Governor Pat Quinn today announced that he has ordered his Secretary of Financial and Professional Regulation (IDFPR) to bar consumer installment lenders from facilitating high-cost loans based on expected federal or state income tax refunds. Currency exchange stores offering tax preparation services must apply to IDFPR if they wish to offer such loans. Refund Anticipation Loans (RALs) can cost as much as one-third of the total expected refund in interest and fees.

“Families may be tempted by marketing tactics that encourage taking an ‘advance’ on anticipated tax refunds to buy presents, take vacations or purchase new clothes in time for the holidays,” said Governor Quinn. “Taking out a RAL to pay for holiday gifts is too expensive. That’s why I acted to limit access to these predatory loans.”

Notices were sent today to 128 Illinois Consumer Installment Loan Act (CILA) stores that had authority to offer RALs during the last tax season. Currency exchanges that offered RALs as part of their ‘tax preparation services’ have been notified that lending will no longer be automatically allowed under the terms of their business licenses. They will have to apply to IDFPR which will determine, as the law requires, whether the proposed service is in the best interest of the public.

“We have worked hard to reduce predatory lending in Illinois, and to encourage families to wait until they can file their taxes in January rather than borrow against themselves,” said Brent Adams, Secretary of Financial and Professional Regulation. “Restricting the availability of RALs is a step in the right direction.”

According to a 2009 study issued by the Consumer Federation of America and the National Consumer Law Center, the price of a RAL for a typical loan of $3,000 can range from $62 to $110. In Illinois, the interest rate on a RAL can range from 40 percent for a loan of $9,999 to over 700 percent for a loan of $200. Nationwide, consumers paid an estimated $833 million in RAL fees in 2007 to get quick cash for their refunds – essentially borrowing their own money, sometimes at extremely high interest rates.

“Illinois taxpayers should take advantage of the opportunity to file their taxes online in January rather than borrow money now at predatory interest rates. E-filing is free and fast, and taxpayers can see their entire refund direct deposited into their bank accounts. Last year, state refunds were deposited in about a week, and federal refunds averaged just a bit longer,” said Brian Hamer, Director, Illinois Department of Revenue.

Once taxpayers have their W-2 and other forms, nearly all Illinois taxpayers can file for free on the Department of Revenue web site at Tax.Illinois.gov, and can also file their federal taxes electronically.