Taxpayer asks:
Why was my RAL denied?
Taxgirl says:
RALs are refund anticipation loans. They are basically loans (usually high interest) against your refund from the IRS.
I am not a fan of the RAL. In many cases, I think they’re oversold to folks who can least afford to pay the fees when a normal direct deposit refund would be available within about 10 days for taxpayers who e-file. But I digress.
RALs are private loans to taxpayers. In many cases, the marketer of the loans, such as a tax preparation service, is not the same as the lender.
The IRS does not impose a fee for a refund either by direct deposit or check. However, the tax preparer may impose a processing fee for a RAL and the lender may impose a fee and/or interest. According to Americans for Fairness in Lending, the average RAL lender fee is $100. The interest rates for a RAL ranges from 40% to 700% depending on the size of the refund.
Not all RALs are subject to credit checks, though they may be required as part of the terms and conditions imposed by the lender. This is because your tax refund is used for collateral – the lender is entitled to use the refund for repayment – making the loan, in theory, not much of a risk. So, credit history may be a reason for denial in some cases, but is not the most common.
The most common reasons for a RAL denial are a refund that is smaller than anticipated (many banks impose a minimum refund in order to qualify) or a refund that has been offset. Examples of offset refunds are back taxes, child support obligations and outstanding student loans.
Additionally, your RAL may be delayed if you have large EIC amount and no prior year history. In that event, you will be asked to substantiate your claims.
If you are denied or delayed, you may request that your RAL application be reviewed again.
However, there are two situations where a review will not produce a different result:
1, Since banks are anticipating a higher than usual volume due to the Rebate Recovery Credit, some banks are choosing not to allow RALs that include a refund based on the Rebate Recovery Credit. I have heard that Republic Bank has instituted this rule. If you know of others, let me know.
2, Members of the armed forces on active duty are prohibited by federal law from receiving most RALs due to restrictions on interest rates. Apparently, H&R Block has created a Military Refund Anticipation Loan, which keeps the total amount of interest and fees below 36% (yes, that says 36%) in order to allow them to continue to issue RALs to active duty.
All of that said, you are usually liable for the bank and loan fees, even if your RAL is eventually turned down. If your loan is approved but you don’t receive a large enough refund to cover the cost of the entire loan, you may still required to pay back the loan.
The bottom line is that these are private loans and as private loans and if you use these services, you’re subject to their terms and conditions. I can’t make you not use these products. I wish that I could. But I do hope that you’ll ask the right questions and make smart decisions. Don’t get ripped off.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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Jennifer…what Lisa says is true about how Rals/Racs essentially work. My gut feeling is that you really don’t have any debt issues with HSBC/H&R Block (based on the smooth sailing Fed)…and that the problem is with the state. Here are some things to consider going forward:
1. During the tax prep interview you should have been asked for your consent for H&R Block to discuss any questions about your tax return with the IRS or the State. Call the H&R office and see if a preparer can ascertain from the State what the problem is on their own…OR make an appointment to come into the office so you can make the call TOGETHER (some states just have to HEAR the client give consent before they will disclose any info.) You could also just wait for the letter that you said is forthcoming and take it into the H&R Office. I’m guessing the letter will dispel any myths as to whom the 3rd Party is and why they are making claim to your refund.
2. Please be patient with your tax office. This is their PEAK Season and they tend to get overwhelmed with the volume of clients they have to serve. A walk-in is probably not the way to go…make an appointment or ask if they have a district office which may better serve your needs (If the preparer AND the office manager start to blow you off, though, calmly ask for the District Manager’s phone number along with the number to Corporate Headquarters in Kansas City and that WILL get you some attention
….and by all means call the DM if you need to! Remember, your H&R Block Fees cover you throughout the whole year and any advisement you require is part of your investment in the company. I would always go through my tax preparer first before dealing directly with the State or Fed head on.
3. If the state (or whover this mystery entity is) has a legit claim on your funds…then I would ask HSBC if you will still be charged the $13.00 you were to pay to have a state RAC loaded onto an Emerald Card (remember the $13.00 fee is an HSBC Bank Fee/not an H&R Block Fee). If no funds are available to load then they can’t get their $13.00…or can they? I don’t know…find out.
4. In my opinion I do not think your tax problem was brought about by tax preparer error…but you need to clarify this especially if you purchased Peace Of Mind (the extra $30.00 coverage.) The tax preparer can not be all-knowing but they must perform due diligence and reasonably prepare the tax return with a certain level of expertise as well as be in compliance. If the WAS Tax Preparer error and you purchased Peace Of Mind you may have a claim. Regardless, H&R Block should still offer you every possible assistance in helping you deal with this issue.
5. One last thing…and I don’t have to tell you this, but definately get to the bottom of this…if the garnishment is in error, then “woo-hoo”/problem solved/get back your money! But if it IS legit then my question would be: Is it all PAID with the capture of my refund? If the garnishment was, for example, $500.00 and your refund was only $300.00….then they are coming back at you again for the outstanding $200.00 balance next tax season (if you do not otherwise resolve it)…and here we go again!
6. In Ohio we have a 1-800 number that we can call to find out if any offsets are pending BEFORE we file our State taxes (The Fed IRS also has a number for this purpose). BEFORE you file next year: see if your state has one so you can foresee what may be coming…if anything. Good Luck!
Jennifer…FYI…I wrote you back but my comment was placed at the beginning of this topic insted of in progression…hope it helps!
how can i find out the status of my RAL loan? is their a number in mississippi to find out if their were any problems or if i was even approved?
does anyone know how to find out the status of my RAL loan or when i will get it? i am having it direct deposited on my h&rblock emrald card?
Jamie: If H&R Block did your taxes then HSBC is the Bank that will approve your RAL. H&R Block should have given you a toll free number to call to verify your status. Call this number, enter your SS# and the year of your birth and an automated answer should be forthcoming. You can also call the H&R Block office that did your taxes and ask them to look up your return status in e-file. They will be able to tell you if:
#1. Your return was accepted by the IRS
#2. If your RAL was accepted or denied.
#3. When to expect the funds on your Emerald Card
As long as the IRS accepts your return…and as long as you do not have any offsets by the IRS…and as long as you can pass the credit check…your RAL funds should come through in 3 days at the most. If your RAL is denied them you must wait 8-15 days after IRS acceptance to expect your funds (once again, that is IF you have no other offsets or credit problems.) If you must wait the 8-15 days, you pay no finance fees (because you recvd no loan): That means only your H&R tax prep fees and a $29.95 HSBC bank fee can be withheld from your federal refund.
If you got it at Block you can call them and get the debt indicator #.
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