February 11,2008

Grassley, Schumer Urge Payday Lenders Not to Exploit Stimulus Rebate Checks


With Uncle Sam About To Mail Rebate Checks To Help Jumpstart Economy, Scams May EmergePromising Money Up Front—But With a CatchIn Letter, Senators Urge Top Payday Loan Companies And Tax Preparers To Steer Clear ofPredatory TacticsSimilar to So-Called “Refund Anticipation Loans,” Payday Loans on Rebate Checks CouldCarry Interest Rates Far Higher Than 100%

WASHINGTON, DC—With Congress passing an economic stimulus package last week that thePresident is expected to sign on Wednesday, U.S. Senators Chuck Grassley and Charles E. Schumertoday warned the nation’s leading tax preparers and payday loan companies to steer clear of socalled“instant rebates” that could bilk Americans out of huge portions of their rebate checks.

The senators said today that families who should receive large rebate checks in the next few monthsneed to beware promises of upfront loans that promise refunds without the wait, but that come withmassive interest rates and hidden fees. The senators noted that taxpayers – particularly families withchildren that are due to get back the largest amounts – could lose out on hundreds of dollars if luredby these payday loan companies.

Grassley said, “These rebates are meant to put money in people’s hands, not increase their debt.Taxpayers should understand that refund anticipation loans are just that – loans. As loans, they cancarry very high interest charges that make them a very bad deal for the taxpayer. The companies thatoffer these loans need to stand down and not try to exploit an economic downturn for their gain attaxpayer expense.”

Schumer said, “We’ve all seen the catchy slogans and colorful advertisements for RALs: Simplysign a form, pay a fee, and walk out with cash against your coming refund check. Well, we don’twant something similar to happen with these rebate checks. These checks are meant to be a shot inthe arm for taxpayers who are struggling, not open season for scam artists. Tax preparers oftencharge interest rates for these loans that can run on well into triple figures, all for the privilege ofgetting money a few days or weeks earlier. The American people are getting a boost from us anddesperately need that check as soon as we are able to provide it to them. In fact, many families areso cash-strapped, I am worried that they may not even wait for the IRS to send them a check butinstead turn to a payday loan or similar product.”

In their letter, which was sent to the chairman of the Financial Services Centers of America as wellas tax preparers like H&R Block and Jackson Hewitt, the senators demanded that these companiesnot “take any actions that will be harmful and undermine the intended goals of the legislation ofgetting the full amount of the tax rebate into the hands of individuals who will increase spending inthe economy.” Schumer and Grassley added, “We will be monitoring this matter closely and willlook to federal and state regulators to fully examine this issue if there are any improprieties.”On Thursday, both the House and Senate passed a stimulus package that rushes rebates of $600 to$1,200 to most taxpayers and $300 checks to disabled veterans, the elderly and other low-incomepeople. President Bush indicated he would sign the measure on Wednesday.

Grassley and Schumer today warned Americans to avoid anticipated scams where tax preparers andpayday loan vendors promise rebate checks up front or instantly because these deals usually carryhuge interest rates and hidden fees. Companies, like H&R Block and Jackson Hewitt, typically offersuch advances on taxpayers refunds, called “Refund Anticipation Loans” or “RALs”. The IRS haspublicly expressed concerns that because these are the largest rebate checks ever issued, thesecompanies are likely to push these scams right away.

RALs are high cost loans secured by and repaid directly from the proceeds of a taxpayer’s refundfrom the IRS. In the case of the stimulus checks, consider a married couple with two children,expecting a $1,600 check in May, and a RAL provider or loan vendor promises to give them $1,400in March instead. This means they are being charged an interest rate of 87 percent and this doesn’tinclude any hidden processing fees and taxes that typically come with these loans.

The IRS has already announced that it may ban the practice altogether by next year.

A copy of Grassley and Schumer’s letter appears below. The letter went to the followingcompanies:

Kenneth E. ComptonPresident and Chief Executive OfficerAdvance America, Cash Advance Centers, Inc.135 North Church StreetSpartanburg, SC 29306

Jared Davis and David DavisChief Executive OfficersCheck 'n Go5155 Financial WayMason, OH 45040

Jay B. ShipowitzPresident and Chief Executive OfficerAce Cash Express1231 Greenway Drive, Suite 600Irving, TX 75038

Alan BennettInterim Chief Executive OfficerH&R Block1 H&R Block WayKansas City, MO 64105

Mr. Joe Coleman, ChairmanFinancial Services Centers of AmericaCourt Plaza South, East Wing21 Main Street, 1st FloorHackensack, NJ 07602

Michael C. YeringtonPresident and Chief Executive OfficerJackson Hewitt3 Sylvan Way, Box 264Parsippany, NJ 07054

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February 11, 2008

Dear Sir,

We are writing to the leading organizations and businesses in the tax preparation, payday loan,and check cashing industries to express a concern that we have relating to the economic stimuluspackage passed by Congress last week.

As you know, the lion’s share of the stimulus package is a rebate check that will go to allworking families: a maximum of $600 for singles and $1,200 for married couples, as well as$300 per child. In addition, the legislation includes a modification by the Senate that will providechecks to low-income seniors and disabled veterans (or their widow/er). This will provide amuch-needed benefit to these families and help encourage spending. These checks will begin tobe mailed once the busiest part of the 2007 tax filing season has ended, probably by mid-to-lateMay, and it may take ten weeks for all of the checks to be mailed. We are working closely withthe Internal Revenue Service to make sure that the checks can be processed as quickly aspossible.

These rebate checks are meant to be money in the pockets of working families, veterans, andseniors – not money in the till for tax preparers or payday loan vendors. We are determined thatmembers of your industries not take any steps to publicize or otherwise encourage workingfamilies, veterans, or seniors to take a loan or other credit arrangement based on the rebatechecks approved by Congress. Such actions will be harmful and undermine the intended goals ofthe legislation – namely, getting the full amount of the tax rebate into the hands of individualsand families who will spend the money and provide a short-term boost to the economy.

Here are a couple of examples to clarify our concern. Consider a married couple with threechildren that is expecting a $2,100 check in June. Clearly, it is not the intent of Congress that apayday lender, tax preparer, or other entity would offer that family $1,600 in April in exchangefor the $2,100 check two months later. Such an “advance” of the rebate would represent a loan atan annualized interest rate of 190 percent. Or consider a single mother with two children thatpays a $200 fee to get her rebate back 60 days faster – which amounts to a 122 percent interestrate on the $1,000 loan she receives. Clearly, it is the intent of Congress that these checks shouldgo into the pocketbooks and checking accounts of working families – not to enrich unscrupulouslenders. We will be monitoring this matter closely and will look to federal and state regulators tofully examine this issue if there are any improprieties.

In addition, we are particularly concerned that tax-exempt entities that engage in payday loansnot engage in this behavior. We view such actions as raising legitimate concerns about whethersuch an effort would be in keeping with their tax-exempt status.

Thank you for your time and courtesy on this important matter.


Senator Chuck Grassley 

Senator Charles E. Schumer