Tax Relief and Rapid Rip-Offs

By Gretchen Dykstra

Riding the tide of the consumer movement, in 1969 New York City enacted the landmark Consumer Protection Law and established the Department of Consumer Affairs, which I now head.

Today, the Department of Consumer Affairs is responsible for enforcing city and state laws that protect customers against illegal business practices. We mediate consumer complaints, conduct daily inspections of companies, and ensure that small businesses under the agency's purview are properly licensed.

One of the department's primary goals is educating the public. The old adage is true, an once of prevention is worth a pound of cure, and when it comes to consumer protection a little education - backed up by the appropriate legal measures - can go a long way towards protecting consumers. The department regularly keeps New Yorkers up to date on business scams. We are also working to stop merchants from selling cigarettes to minors, reducing drug prices for seniors, and ending destructive predatory lending practices.

When the agency's efforts are coordinated and targeted towards educating consumers and halting abusive business practices we have seen substantial impact both on the New York economy and the pocketbooks of hard working men and women of our city.

With the support of Mayor Bloomberg and through our web site, we are currently working to publicize two important tax related issues. First, we hope to encourage eligible low-income New Yorkers to file for the tax break for which they are eligible. And we are warning tax filers, who are enticed by promises of quick refunds only to find out that they have been duped into an expensive short-term loan.

In 1975, Congress decided to give a tax break to people who work but who still cannot make ends meet. They called it the "earned income tax credit." Now almost three decades later, it is the second largest federal program that provides assistance to low-income people, having enabled millions of people to receive a tax credit for as much as $5,000 on their income taxes. But incredibly, this year, some 230,000 eligible New Yorkers will not get this tax break, simply because they are unaware of it.

If all New Yorkers who were eligible actually filed, the result would be not just a boon to the individuals, but to the local economy as well - an additional $463 million. It is not too late, even if consumers have filed their taxes already. They can file an amended return if they are eligible for the earned income tax credit; amended returns can be filed even after the April 15th deadline.

Unfortunately, figuring out the amount of the credit can be confusing. We can refer people to the Internal Revenue Service, who will provide assistance to taxpayers.

Many people prefer to go to a paid tax preparer for advice, and assistance. But New Yorkers should beware of private tax preparers who promise to get a refund in as little as two hours to two days. These services -- often billed as "Rapid Refunds," "Instant Money," or "SuperFast Cash" -- are actually loans against your own money. When calculated on an annual basis, consumers are paying interest rates that range from 224 to 500 percent for money that they already have coming to them. These "Rapid Refunds" quickly become Rapid Rip-Offs.

While there may be extreme cases where a consumer needs to have nearly instant access to cash, the problem is that some tax preparation services fail to clearly differentiate to consumers between a refund and a loan. In a recent New York City Department of Consumer Affairs investigation of H & R Block, the fourth largest discount broker in the nation, inspectors found that over 80 percent of the time the employees failed to distinguish the difference between the consumer's refund and loan products.

Tax time is already taxing enough. No one wants to pay an extra dollar in taxes to the government. And no one should be taken for one penny in interest by a tax preparation service that misrepresents its services.

Gretchen Dykstra is the Commissioner of New York City's Department of Consumer Affairs.

Posted April 10, 2002