legislation to protect vulnerable, mostly low-income consumers from exorbitant interest rates and hidden fees on Tax Refund Anticipation Loans. The push to curb these abuses comes after customers of Mo’ Money Taxes, the target of a lawsuit filed by Illinois Attorney General Lisa Madigan, complained that their checks for refund money were late, much smaller than promised or couldn’t be cashed at all.
“Most taxpayers affected by these outrageous fees and interest rates are eligible to receive the Earned Income Tax Credit,” Sen. Collins said. “My colleagues and I just voted to increase the state EITC, and we want that money to go into the pockets of the working poor to spend on essential needs, not into the pockets of predatory lenders.”
Sen. Collins’ legislation, the Tax Refund Anticipation Loan Reform Act (SB 3523), would cap interest rates on refund anticipation loans made by payday lenders, prohibit tax preparers from charging extra fees for facilitating loans and prohibit all loans in anticipation of the state EITC.
Mo’ Money Taxes is under investigation in several states. Recent problems at a Chicago location spurred the Office of the Attorney General to investigate dozens of complaints and inspired Sen. Collins to find ways to protect taxpayers in the future. Her plan requires tax preparers to disclose interest rates, any applicable fees and the fact that customers can get their refunds within 8 to 15 days directly from the IRS – without taking out a loan.
Refund anticipation loans allow customers to get their refund money up front after a tax preparation firm estimates the amount. The interest rates are unregulated and often extremely high. The state cannot limit rates charged by banks, but Sen. Collins wants to cap rates charged by non-bank entities like pay-day lenders at 36% in order to protect
customers and discourage partnerships between tax preparers and high-interest lenders.
“When the state of Illinois designs policies to protect and uplift the least of these and unscrupulous businesses subvert the effect of those laws, we are compelled to act,” Sen. Collins said.
Senate Bill 3523 was approved unanimously on March 1 by the Senate Committee on Financial Institutions. It next faces a vote of the full Senate.