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A tax refund loan is a loan made against any potential return coming your way after filing your federal and state income taxes. Most tax loans are made when you file your return with a tax preparation company such as H&R Block or Jackson Hewitt but funded by a third-party not affiliated with the tax preparation company. These loans allow you instant access to the money that will be refunded to you by the IRS without having to wait for your return to be processed.

Income Tax Loans in the Press

Income tax loans have come under a great deal of scrutiny in the past year, as agencies such as the National Consumer Law Center and the Consumer Federation of America have questioned the ways in which the loans are made. The agencies allege that IRS tax loans are targeted at low-income populations and often carry exorbitant fees that aren’t made transparent at the time the loan is made. According to these agencies, these loans are often hastily generated and the full extent of the fees are not disclosed, leaving naïve consumers holding the bag for huge amounts of charges to access money that is rightfully theirs.

Is the Refund Anticipation Loan Obsolete?

The sheer number of consumers standing in line to get a tax loan may be dwindling. Now that most returns are filed and processed online, refund checks arrive from the IRS in a matter of weeks. If a consumer elects to have the funds direct deposited, the money can be in his bank account within three weeks. More than 95 million taxpayers chose to e-file their taxes in 2009; of those who chose direct deposit, the majority received their funds in 8 to 15 days.

For the fourth quarter ending April 30, 2010, Jackson Hewitt reported it could not secure a lender for their refund anticipation loans for 2011, as the bank who originally handled their loans terminated the contract. H&R Block, who was anticipated by most in the business world to scoop up the benefits from the Jackson Hewitt fallout, failed to do so. H&R Block blamed this failure on a lack of clarity surrounding settlements. However, these signs may well be pointing to an overall trend: that anticipation loans are becoming more and more obsolete. Most consumers are willing to wait just a few weeks to have their refunds without having to pay the fees associated with refund anticipation loans.