Legislation introduced to regulate tax refund loans

As Michigan’s new legislative session begins, a new bill has been introduced that would regulate Refund Anticipation Loans (RALs), often called “instant refunds” given by tax preparers based upon one’s anticipated tax refund.

The bill, sponsored by Rep. Rashida Tlaib (D-Detroit) in the House and by Sen. Buzz Thomas (D-Detroit) in the Senate, would require full disclosure of the terms of the loan and the alternatives. Tlaib said in a press release announcing the legislation, “An RAL is not a tax refund – it’s a loan riddled with interest rates and hidden fees. By regulating RALs to include strong disclosure, taxpayers in Michigan will be able to make informed decisions when applying for RALs.”

This legislation would require disclosure of the following facts:

• All interest, fees and hidden costs associated with RALs;
• That an RAL is a loan and not a refund;
• That the taxpayer could file electronically without applying for the RAL to expedite processing time;
• The estimated time a refund would take to be issued by the government;
• That there is no guarantee that the refund will equal what is on the tax form; and
• That the taxpayer is responsible for the difference if the tax form is not correct.

Tlaib notes that the average person who files their taxes electronically gets their refund in two weeks or less.