Just say no to refund loans

If you use a tax-prep company for your returns, refuse pitches for "refund anticipation loans." Promoted as a way to get your tax refund immediately, they are loans secured by your expected refund and can carry effective annual percentage rates of 50 to 500 percent, according to the Consumer Federation of America.

When you take such a loan, you're borrowing the refund amount before the Internal Revenue Service approves your return. If your refund turns out to be less than expected, you'll owe the difference between the amount you borrowed and the actual tax refund. Consumers are often misled about these loans and their costs.

In a mystery-shopper study conducted by the National Consumer Law Center, storefront tax-preparation businesses varied widely in terms of how much information they provided their customers on refund anticipation loans. Some left the mystery shoppers confused about the fees associated with those loans, as well as fees for tax preparation, which in some cases were paid from the proceeds of the loan.

An audit conducted by the Treasury Inspector General for Tax Administration last year found that 85 percent of the 250 taxpayers surveyed who received refund anticipation loans said their preparers generally made it clear that they were taking out a loan. But only 34 percent said they were told the interest rates. Fees and costs ranged from 5 percent to 25 percent of the taxpayers' refunds.

In both studies, researchers found that many tax preparers failed to explain to clients that they could receive their tax refunds quickly and at no cost by using the IRS's e-file program and having the refund deposited directly into their bank account. The IRS says that it can be done in as little as 10 days.