Use of Refund Anticipation Loans by Earned Income Tax Credit Filers in Central City Milwaukee Neighborhoods

Abstract

This report, prepared by the Employment and Training Institute in cooperation with The Brookings Institution, reviews the use of rapid refund anticipation loans by zipcode area in central city Milwaukee neighborhoods. The analysis utilizes year 2000 income tax data files obtained by Brookings staff from the U.S. Internal Revenue Service. Nine central city Milwaukee zipcodes in the heart of the Community Development Block Grant neighborhoods were analyzed, as well as other predominantly City of Milwaukee zipcodes and predominantly suburban zipcodes in Milwaukee County. “Rapid refund loans” are similar to "payday loans." Companies advance money based on the worker's anticipated income tax refund, and the loan is repaid once the Internal Revenue Service issues the refund payment. Tax filers obtaining RALs usually pay steep charges to receive their tax refunds a few days or weeks early -- with interest rates often as high as 250 percent. By contrast, the Internal Revenue Service trains VITA (Volunteer Income Tax Assistance) volunteers who provide free tax preparation assistance at many area libraries and community agency sites.