Often, it's because there's a lack of competition among retailers and other businesses where poor people live.

        That's especially obvious in personal financial services. Fewer banks open branches, fewer financial advisers set up shop, and fewer accountants hang up shingles in poor neighborhoods than elsewhere.

        That helps explain how the nation's big tax preparation firms and some high-interest lenders have been able to take 6 cents out of every dollar sent to the working poor via earned-income tax refunds.

        A recently released national study shows that the earned-income tax credit — a federal tool to boost some low-wage families out of poverty — has instead made these taxpayers lucrative targets for profit-minded tax preparers and predatory lenders.
       

Fast cash, high rates

        Researchers at the Brookings Institution and the Progressive Policy Institute found that tax preparers and lenders take about $1.75 billion in fees and interest annually from about $30 billion in refunds due low-income, working parents nationwide.

        Top tax preparers, H&R Block and Jackson Hewitt, and their lending partners, Household International and Pacific Capital Bancorp, make money by preparing returns for fees, then charging extra for “fast cash” refunds, the study says.

        Dionne Owens says she sees it all the time among her first-time tax preparation clients.

        Ms. Owens works at Smart Money Community Services, a nonprofit financial services agency in Over-the-Rhine. Smart Money prepares tax returns, teaches budgeting, encourages savings and helps the poor obtain banking services.

        Smart Money's tax services are free. Ms. Owens said many of her customers have paid, in the past, up to $175 for completion of the relatively simple 1040A return, and then another $88 or so in fees to get paid “fast cash.”

        “People are intimidated by the forms. Plus with all the commmercial hype, they figured this is what you do,” she said.

        “My motto is: you waited a whole year to get the money, what's another two or three weeks?”

        Most don't realize they've taken out a loan, Ms. Owens said.

        If, for whatever reason, the refund turns out not to be as much as expected — because of unpaid tax liens, student loans or child support, for instance — then lenders will demand steep interest and penalties.
       

Once-a-year windfall

        Some of these refund-anticipation loans command hefty interest charges, Ms. Owens added.

        It's understandable that many of these families would feel a need for an immediate payoff.

        A parent with one child who earns $28,281 a year could receive a $2,428 refund, Ms. Owens estimated. A family wth two children averaging $32,121 in annual income could receive $4,008, she said.

        Tax prep firms aren't the only ones clamoring for these dollars. New and used car lots, furniture stores and even clothing stores have been offering tax preparation and filing, hoping those refunds will be spent on their products.

        It's true that government can't save people from themselves. But it can make waiting look more attractive, by speeding up returns.

        Meanwhile, more banks and tax preparers should pursue this obviously profitable market.

        A little more competition might help.

       Call Denise Smith Amos at 768-8395, or e-mail damos@enquirer.com.
       

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