Is this what Congress had in mind when it committed $700 billion in taxpayer money to the economic bailout? A bank in wealthy Santa Barbara, California has irked consumer groups by announcing plans to use its $180 million in TARP program federal bailout money to underwrite expensive income tax refund anticipation loans (RALs) to needy families at annual interest rates amounting to 50- to 500-percent.
"Santa Barbara is feeding off of taxpayer money twice in making RALs this upcoming tax season," stated Peter Skillern, Executive Director of the Community Reinvestment Association of North Carolina (CRA-NC) in a press release. "First, Santa Barbara is skimming off hundreds of millions in refund dollars in making RALs to working families. Second, it is funding its RAL loans using tax dollars from the bailout."
RALs are very short-term loans secured by the taxpayer’s federal income tax refund. In addition to Annual Percentage Rates (APRs) of 50- to 500-percent, RALs typically carry service charges of $32 to $130. Because of their high cost relative to loan value, RALs are often considered similar to payday loans.
According to CRA-NC, banks typically market RALs to low-income taxpayers, especially those claiming Earned Income Tax Credits. In 2006, nearly 9 million taxpayers nationwide got RALs, costing them nearly $1 billion in loan fees.
To date, the Treasury Department has invested $177.5 billion in TARP money to banks in 41 states and Puerto Rico. The TARP investments made so far have ranged from $1.5 million to $25 billion.
Also See:
Bailout Money Not Helping Small Business?
When Should the Government Bail Out Private Companies? (US Economy)
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