Despite regulators looking askance at tax refund anticipation loans, there are still some credit unions out there offering them.
As Credit Union Journal has reported, most credit unions don't offer this controversial product, a high-interest loan made in anticipation of a tax refund and criticized as predatory by many consumer advocates.
But credit unions that do make such loans have a practical reason why: some members want them.
Huntington County FCU, a $3.5 million institution in Huntington, Ind., issued about a dozen such loans last year, according to CEO Kathy Borskey.
Northeast Community FCU, a $12.8 million institution based in San Francisco, which primarily serves low-income residents of the city, offers a tax refund loan that charges a 6% interest rate (versus the 18% rate it charges for unsecured personal loans, grace loans and payday advance loans).
Such loans are available to members with savings accounts of at least $25 and are sent to them by direct deposit. A CU spokesman said many of its members are low-income and usually "need the money right away."
Like Huntington County FCU, Northeast Community generally only does about 10 of these loans per year, the CU said.
San Angelo FCU, a $22 million institution in San Angelo, Texas, offers a "Tax Refund Loan," which features an 18% APR and a $30 application fee. The loan is directly deposited into the member's account—and there is a stipulation that the tax returns must have been filed by a professional source.
Manuel Ramirez, vice president of lending and loss mitigation at Cooperative Center FCU, a $113 million institution in Berkeley, Calif., said his CU does not currently offer a rapid tax refund program; however, it is looking into re-launching the program.
"We didn't stop the program due to issues surrounding risk or cost, but rather a lack of internal resources to keep it going," Ramirez explained. "It was initially only offered to members who were having their taxes prepared through our VITA free tax preparation program, in connection with our services to members of modest means. We are a CDFI and we are always looking for programs that address member needs/wants."
Ramirez added that Cooperative had some changes in infrastructure in late 2012, and it also launched a program offering share secured VISA cards as part of a financial literacy and savings program for underserved members of modest means. "Because that program was much more time-intensive and required a greater investment of our resources, that program took priority over the rapid refund offering," he noted.
The far more common tax-related offering at credit unions is participation in the IRS' Volunteer Income Tax Assistance (VITA) program, which provides free tax preparation services for low-income consumers. Many credit unions have served as VITA sites for years and report that not only is it doing a good deed for low-income members, but it can also be a way for CUs to reach out to non-members and bring them into the fold.
For example, Bethpage FCU, a $6.3 billion institution in Bethpage, N.Y., has been participating in VITA the past 13 years.
As part of the program, Bethpage also seeks to educate working families about the Earned Income Tax Credit (EITC), an anti-poverty program available to four-out-of-five eligible Long Island households.
Last year, Bethpage FCU completed 2,516 VITA tax returns and helped secure IRS refunds of almost $2.8 million. Bethpage FCU also helped gain $344,991 back in child tax credits and $713,557 in EITCs, with the average figure being $8,293.
One of the most prominent credit unions committed to VITA is State Employees' Credit Union (SECU) of Raleigh, N.C. The $32 billion CU has offered the service since 2008.
"For several years prior to becoming a VITA partner, SECU made information about this program available to our membership on our website and in our newsletters," said Tenesha Carter, SVP for tax preparation services at SECU. "Because a large number of SECU's members met the criteria to participate in VITA, and because the program fit right in with our mission as an organization, we decided to increase our involvement and directly offer the service."
Last year, SECU prepared more than 91,000 free tax returns at 254 locations.
