Plenty of people would jump at the chance to speed up getting some of their tax refund cash, especially in light of the government shutdown, job cuts and other financial headaches.

But Tiffany Vernier’s story should make some who are desperate to pay their bills think twice about handing over a few hundred dollars to get their taxes done in the hopes of snagging a tax refund advance of up to $3,000.

We’re bombarded with TV ads, window signs and other pitches for a loan product that some consumers might not even consider a real loan. Isn’t this tax advance just a way to get some of your own refund money a few weeks early? Not exactly. And while tax refund advance loans may be popular and work OK for some people, they’re not always a fast-cash guarantee — especially if you have a bad credit score.

“A lot of people are going for this refund advance because you can’t get a standard loan,” said Vernier, 38, who admits her credit score of around 530 needs work.

Vernier found out too late that she couldn’t qualify for a tax refund advance, either. Her story is worth telling because it’s easy to gloss over the details in a rush for cash. Many families feel the pressure of too many bills smacking up against too little cash. Only 40 percent of Americans, for example, would be able to pay an unexpected $1,000 expense from their savings, according to a survey by Bankrate.com.

Tax refund advances grow

The popularity of refund advance products has grown in recent years, in part, because the Internal Revenue Service is now required under law to delay the entire refund of early tax filers who claim the Earned Income Tax Credit or the Additional Child Tax Credit until at least mid-February.

The delay was designed to combat tax refund fraud. But waiting the extra weeks can be a hardship for many cash-strapped, working families. Thanks to the Earned Income Tax Credit, their tax refund is the single largest lump sum payment they get in a year.

Last year, roughly 15 million taxpayers claiming those two credits had to wait until the week of Feb. 27 to get their refund from the IRS, according to H&R Block. About 1.7 million refund anticipation loans were made in the industry in 2017, according to a report issued in March 2018 by the National Consumer Law Center.

Vernier, a mother of two children under 4, had her taxes done on Jan. 16 in the hopes of qualifying for one of the heavily advertised tax refund advances. She wanted some quick relief to catch up with car payments and other bills.

“My partner is out of work,” Vernier said, noting that he has had health issues. “We’re on one income. We’re struggling right now, as I’m sure a lot of people are. It’s just been me with the equivalent of making $12 an hour.”

Vernier, a freelancer who specializes in technical writing and drafting proposals, reported nearly $27,000 in income on her 2018 tax return. She thought she’d be able to receive some type of refund advance. The loans vary in amounts: $500, $750, $1,250 or $3,000. The amount of the advance depends, in part, on the expected amount of your refund.

For many, some advance money becomes available the same day you file your taxes, even though the IRS won’t being accepting returns until Jan. 28.

“I knew my credit score wasn’t going to be high enough for a standard loan,” Vernier said.

But she said she was told by the tax preparers that she likely would qualify, given that she was expected to receive more than $7,800 in federal and state tax refunds with the earned income credit and the child credit. Her refund will be reduced $327.95 (after a $25 coupon) for the cost of getting her taxes done at an H&R Block office near her home in Timberville, Virginia, in the Shenandoah Valley.

The fees include a $39.95 charge for a federal refund transfer, a processing fee associated with paying tax prep fees out of your refund and avoiding out of pocket costs.

After she had her taxes completed, she waited for a text to show the exact amount of her refund advance, which could vary. No text. Instead, she said she had to call the 800 number later to find out that she didn’t qualify for anything.

After all that, she’s waiting until at least mid-February to get her refund and she’ll get a somewhat smaller refund because the tax prep fees will be taken out. Fees she might have avoided otherwise. She feels she was blindsided.

Consumers confused

“The tax preparers do not call it a loan,” Vernier claimed. “They assured me it was not credit-based.”

She feels some of the fine print is “deliberately vague.” Online, the criteria for approval is explained as such: “You first must meet certain eligibility requirements such as having a sufficient tax refund from the IRS, and provide appropriate identification. You then submit an application to Axos Bank, the lender. The bank will evaluate your application based on standard underwriting criteria and makes the decision to approve or deny your application.”

Vernier takes issue with using words like “underwriting criteria,” as well. “People understand credit checks,” she said. “People don’t understand underwriting.”

Getting a refund advance, though, means you’re taking on a loan made by a bank.

“This is a loan,” said Chi Chi Wu, staff attorney at the National Consumer Law Center in Boston. “Whenever you apply for a loan, a lender automatically has the right to check your credit report and your credit score.”

What consumers must understand with the refund advance loans is that you’re not actually getting your tax refund faster. You’re getting a loan that reflects a portion of your refund. H&R Block said it is focused on being upfront.

“Transparency is important to H&R Block,” said H&R Block spokesperson Susan Waldron. “That’s why we’re providing tax prep prices before the tax professional starts a return and the terms for Refund Advance are also disclosed to the client.”

Waldron told me the bank may review the client’s credit report as part of the application for the loan.

“The client is informed of this and agrees to it as part of the loan application,” she said.

Waldron said the approval rates for the H&R Block Refund Advance is more than 75 percent. Not everyone would receive a refund advance loan.

“The client is also told that the bank will make a decision on the loan application based on the bank’s underwriting standards and there is no guarantee of approval,” Waldron said. “We regret this client was not happy with her experience, but we can’t change the bank’s decision on the loan.”

Vernier, who reached out to me to tell her story, said she’s concerned that others could fall into this trap because she maintains the credit-check aspect of the loan was not spelled out to her. She’s concerned that other consumers could easily be confused, too.

Offers and rules can vary

H&R Block has been heavily advertising its refund advance of up to $3,000. It’s a no-interest loan from Axos Bank and offered to customers who file their taxes at H&R Block from Jan. 4 through Feb. 28 at participating offices.

Other tax prep firms offer some type of refund advance loans, too. Jackson Hewitt Tax Service has a “No Fee Refund Advance Loan” that is available in amounts up to $3,500. An extra $1,000 advance is available to qualified new clients from Jan. 2 through Jan. 27. So new clients could get between $200 and $4,500, subject to eligibility, approval and factors including the size of the tax refund.

The loan is offered by MetaBank. The fine print reads: “Availability subject to identity verification, eligibility criteria, and underwriting standards.”

The TaxSlayer website proclaims: “Skip the wait with a refund advance from TaxSlayer and you could get up to $1,000 in as little as 24 hours.” The TaxSlayer site also notes: “If your application is approved, the loan amount ($500 or $1,000) will be subtracted from the total federal refund amount issued by the IRS. In other words, the loan amount will reduce any federal tax refund amount you get later.”

Liberty Tax just announced that it was expanding its Easy Advance program to offer furloughed federal government workers or those working without pay pre-approved access to an immediate tax refund advance of $500 with no interest or fees, if they have an expected tax refund of at least $1,001. The minimum advance of $500 would be offered without the normal loan approval process to the federal government employees hurt by the shutdown.

The Liberty refund advance loan is secured by and paid back with your tax refund and offered by Republic Bank & Trust.

“For amounts higher than the pre-approved $500, the taxpayer’s tax return data, expected federal refund, previous history with the transmitter and credit bureau will be evaluated to determine the likelihood that it will be funded by the IRS,” according to Brian Ashcraft, a spokesperson for Liberty Tax. “The credit bureau check is considered a ‘soft check’ and does not affect the taxpayer’s credit score.”

The money is repaid from the client’s tax refunds. If approved, clients will typically have access to the loan amount within hours of applying.

Many of the promotions highlight that the refund advances have no fees and charge zero percent in interest. But again, you do have to pay for tax preparation services, which can add up depending on your tax situation.

In the past, consumer watchdog groups indicated that some lower and moderate-income taxpayers who qualify for the Earned Income Tax Credit faced tax preparation fees of $400 or more in some cases. Many who qualify for the Earned Income Tax Credit are eligible for free tax preparation at volunteer sites, such as the Accounting Aid Society, which will open its metro Detroit offices Jan. 26.

Families and individuals with incomes up to $55,000 may be eligible for the Accounting Aid Society’s full service tax help. If so, the service offers to prepare and file your federal, state and local income tax returns, and to ensure you receive all of your federal and state Earned Income Tax Credits.

Vernier — who has prepared her own taxes in the past — said she wouldn’t have paid all that money to wait a month or more for a refund. Instead, she said she would have used tax software to do the tax return herself and skipped the $327.95 in fees. Her taxes, she said, aren’t that complicated.

“I took the standard deduction across the board,” she said.

Susan Tompor is the personal finance columnist for the Detroit Free Press. ]]>