With the discipline of savings practically decimated in this country, it is sad to see so many people using the government as a mechanism to save money even though it is the equivalent of stuffing money under the mattress because it generates absolutely no interest.

But tax refund loans simply add insult to injury because of their absurd fees and astronomical interest rates. And if the IRS withholds the refund, such as to divert it to a student loan, child support, or alimony, then that individual then becomes stuck with a terrible sub-prime loan that he or she still has to pay back.

Except for putting it on a silver platter, the federal government has already done everything it can to make the tax return and refund process as painless as possible. How much more convenient can you get in being able to file your return electronically to the IRS and then getting your money by direct deposit in about ten days?
 

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And you can even get your refund a lot sooner if you file before the height of tax season.

In the old proverb, you can lead a horse to water but you cannot make him drink it. Unfortunately, the same goes for taxpayers. The only thing the government can really do at this point is to continue to educate the public about the ease of electronic filing and the efficiency of getting your tax refund sent to you in a short time. In addition, non-profit organizations also need to get involved in helping increase awareness.

But for the record, I do not see in anything wrong the concept of tax refund loans. What makes them bad are the outrageous fees and high interest rates that are involved. And perhaps I don’t have much sympathy for the procrastinators and the lazy people who all of a sudden need their refund immediately but waited until the last minute to get their money. However, I do care about these predators that exploit the uninformed, especially the impoverished.

Charging someone a triple digit interest rate is obscene especially if they are truly uninformed about all the options available to them. Of course there will always be emergency situations which cannot be avoided. However, not every one of the millions of people who annually utilize these loans needs the money right at that moment. They are simply being taken advantage of.

I am a devout adherent to the free market system and I am the last person to advocate that the government solve all of our problems, but then there are times that blatant exploitation of the uniformed by predators has to stop. The state of Connecticut capped the fees on refund anticipation loans at a 60 percent annualized rate, which is a good start.

And for the consumer, there are plenty of ways to prevent getting gouged.

The first step is just to avoid such loans altogether and to encourage people that you know to run away from them.

If you intend to use a tax preparations service, then find an independent authorized preparer instead of the big chains or the flashy predators that operate more like a used car lot. Make phone calls to them in January so you can get quotes and estimates on the cost of their services. Do this ahead of time allows you to be prepared to file your taxes.

And most importantly, go to your tax preparer the moment that all of your tax paperwork is available. Don’t procrastinate!

Gather all of your forms the moment they arrive. This immediacy will cut out the temptation of using an anticipation tax refund loan because it prevents you from waiting until you end up in a desperate moment. And that is what the predators are counting on, that you are at your most vulnerable when you are desperate.

And finally, open up a savings account. Like many things, saving money is habit forming and that is perhaps one of the best habits you can develop. And once you develop a decent size savings account, then you can slowly forgo giving the federal government zero interest loans.

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