Business Practices & Corporate Accountability News

BOSTON - As millions of consumers rush to file their taxes by the April 15th deadline, MASSPIRG issued an April Fool's Day warning to consumers to watch for outrageous fees and sloppy privacy practices at tax preparation centers.

"Consumers should not be fooled when filing their taxes this year," said Eric Bourassa, MASSPIRG Consumer Associate. "Some tax preparers charge outrageous fees to deliver refunds only slightly faster than the IRS, and some do not adequately guard consumers' financial privacy."

"Shoulder-surfing" at Tax Preparation Booths Could Lead To Identity Theft

In February 2004, MASSPIRG, along with other state PIRGs, surveyed over a dozen tax preparation booths of H&R Block and Jackson Hewitt located in Wal-Mart stores nationwide. The group found glaring holes in privacy practices that could lead to identity theft. In one case, a PIRG surveyor was left alone with another consumer's completed tax forms. In all but one case, tax preparer's desks were set up so that passersby or shoppers could easily steal private information from computer screens or papers on tax preparer's desks.

"Companies that handle our personal financial information must do more to prevent identity theft," commented Bourassa. According to the Federal Trade Commission (FTC), 3,634 people in Massachusetts reported being victims of identity theft in 2003, up from 2,597 in 2002 and 1,425 in 2001.

While MASSPIRG has filed a complaint with the Federal Trade Commission to investigate privacy practices at tax preparation booths, the group issued the following recommendations for consumers:
- choose tax preparers whose locations are secure from prying eyes or ears rather than those in high traffic areas like food courts, supermarkets, or department stores;
- keep documents containing names, addresses and social security numbers hidden, such as storing them in folders while waiting in line; and
- insist that the tax preparer take all proper precautions to guard your data after you leave the store, such as locking up or shredding sensitive documents

Instant Tax Refunds Come with Big Fees

Refund anticipation loans (RALs) are marketed to consumers as fast refunds, but are actually loans that come with big fees, warned MASSPIRG. "Instant refunds are a way for lenders to charge ridiculously high interest rates on what are really small loans with outrageous fees that eat away at your refund," said Bourassa.

According to a recent report by the National Consumer Law Center (NCLC) and Consumer Federation of America (CFA), the various fees associated with these loans translate into effective annual percentage rates (APRs) ranging from 70 percent to 1,837 percent. The NCLC and CFA report showed a RAL for an average refund of around $2,100 will cost a total of $132 and bears an effective annual percentage rate (APR) of about 180 percent. For comparison, APRs for small loans in Massachusetts are capped at 23 percent, and most credit card APRs are less than that. This small loan statute was originally enacted during the late 19th century to combat the practice of loan sharking.

MASSPIRG urged consumers to skip the expensive RALs, and instead use free options offered by the IRS to help speed up your refund. "The IRS allows consumers to file electronically or over the phone, and to receive their refund by direct deposit for free," commented Bourassa. In many cases, those refunds can appear in consumers' bank accounts in as little as ten days.

"Consumers can avoid being fooled, ripped-off or defrauded this tax season by guarding their financial information and avoiding refund loans offered by tax preparers," concluded Bourassa.

MASSPIRG is a statewide nonprofit, nonpartisan public interest organization dedicated to consumer rights, environmental protection, and good government. Visit www.masspirg.org to learn more.