Makin' Money

This is just wrong

Chris Farrell Jan 13, 2011

Personal finance columnist Michelle Singletary highlights that despite the new CARD law credit card companies are still targeting young adults.

It’s frustrating. The abuses on college campuses were real and the law tried to put an end to the most egregious practices. That’s still the case, but it appears the credit card companies are figuring out how to get around at least some of the marketing barriers. Singletary rightly emphasizes a trend drawn from the survey by Jim Hawkins, a professor at the University of Houston Law Center and the source for the data:

One finding in Hawkins’s survey particularly disturbed me. Twenty-nine percent of students younger than 21 who obtained a credit card since school began this past fall used student loan proceeds as part of the income they reported when applying for the card.

It will be a never ending battle, but wouldn’t it be nice to ban the practice?

Certainly, that is what regulators should do with tax refund anticipation loans.

Regulators did force H&R Block out of the business. (According to the story probably because the bank backing the loans wanted out). But it looks like Jackson Hewitt is poised to fill the vacuum.

Refund anticipation loans give filers the option to pay a hefty fee to get their expected tax refund on the spot. In turn, the lender keeps the taxpayer’s refund when it comes back from the IRS. Jackson Hewitt customers can get a maximum of a $1,500 anticipation loan, which could carry an APR of 24% among other charges, according to Kartik Mehta, a research analyst for equity-research firm Northcoast Research. That fee is split between the bank–which gets north of $100–and a fixed $20 to Jackson Hewitt. H&R Block, meanwhile, charged a $96 fixed fee, split 50/50 with its bank. Smaller competitor Liberty Tax Service will also offer anticipation loans (the company got in trouble in 2009 for some of its loan-related marketing practices).

These loans are a lousy deal for the poor. In many cases, even when a financial practice doesn’t pass the smell test, critics should be wary of calling for a ban. Sometimes, the law of unintended consequences is even worse. I don’t think that’s the case here, however. It’s bad public policy. Get rid of it.

Washington gave you a “raise” this year with the payroll tax cut. What difference will it make to your take home pay? Kiplinger’s offers a simple calculator.

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