Two consumer groups, the Consumer Federation of America and the National Consumer Law Center are calling for the federal government to regulate tax refund anticipation loans (RALs) because of their extremely high interest rates (50 to 500 percent generally) and excessive fees.

Tax preparation companies sell RALs by promising consumers a chance to get their tax refund money before the federal government processes their tax returns.

But that convenience comes at a price – high interest rates and high fees.

RALs drained the refunds of about 8.7 million American taxpayers in 2007, the last year on which the U.S. Internal Revenue Service provided data, according to a study released by the consumer groups. This represents about $833 million in loan fees, plus over $68 million in other fees. In addition, another 11.2 million taxpayers spent $336 million on related financial products to receive their refunds.

Nearly 2/3 of those who obtain RALs are lower income tax payers who are eligible for the Earned Income Tax Credit, according to the consumer groups’ study.

The consumer groups state that the loans are unnecessary because in most cases consumers would get their tax refund money within 7 to 14 days anyway. The IRS has expressed concern that use of RALs causes some tax preparers to inflate tax refund calculations.

Maybe there’s something to be said for delayed gratification after all.

To see the full report:

Feb. 27, 2009.