Shanel Samuelu, an employee at Taxbusters in Kalihi, didn't blink when offered the choice by her boss. She could have her tax refund deposited directly into her bank account within two weeks, or she could pay $120 for a refund anticipation loan and get cash within a couple of days.

Samuelu, a tax preparer herself, took the loan. She says she's doing the same this year.

"Of course it's worth it," said Samuelu, who used the money to pay off credit card debt and put a down payment on a car.

Samuelu's choice of a refund antici-pation loan, or RAL, probably has some consumer advocates shaking their heads. A Brookings Institution study shows at least 10,000 people in Honolulu use refund anticipation loans. The short-term loans, usually for two weeks, are sold at fixed prices that can range from $35 to $110, depending on the loan amount. That can equate to annual interest rates of as much as 700 percent, depending on the cost and loan amount.

The business generates at least $1.7 billion for banks and the tax preparers through which the loans are offered, according to a report from the National Consumer Law Center and the Consumer Federation of America.

People choosing the loans typically are among the poorest wage earners and start queuing up at tax preparation firms when they get their W-2 forms at the end of January. Local preparers generally offer loans from three Mainland banks that dominate the refund anticipation loan market. How much they charge for the loan varies.

Recipients tell preparers they need the money quickly because they owe their landlord a payment or have bill collectors hounding them. There also are some folks who say they want the money quickly so they can go on a vacation or put a down payment on a car.

"A lot of times, they need it," said Calvin Cole, owner of Executive Tax Services in Mililani. "No one wants to wait six to eight weeks (to receive a check by mail)."

But critics say the loans are being taken out by those who can least afford them, and that they should be used only in financial emergencies.

Studies show a disproportionate number of people applying for the loans are working poor who qualify for the earned-income tax credit, which can boost returns by as much as $4,400.

"The greatest prevalence is for those individuals that are low income, and we've got our share of low-income families here in Hawai'i," said Wayne Tanna, a Chaminade University professor of accounting. "It's too easy pickings for paid preparers."

There is no doubt that the loans are fueling business for paid preparers such as H&R Block, which advertises "instant money" refunds in television commercials run nationally. While they don't get a big amount — firms interviewed charged nothing to $20 — for arranging the loans, they help attract clients that otherwise might not pay to get their taxes done.

Typically, the firms will prepare a return and run through the options for receiving the refund, including having a check mailed to them. For those who choose it, a printout of loan costs is usually given to customers.

For a typical $5,000 refund at Taxbusters, the total would come up to $240 — $75 to prepare the return, $45 for federal and state electronic filing, $10 for Taxbusters to arrange a loan from a Mainland bank, and $110 to the bank for the loan.

Once the loan is approved, Taxbusters prints out a certified check from the bank for the refund amount minus the $240. When the Internal Revenue Service issues the refund, it goes directly into an account at the Mainland bank to pay off the loan, said Hank Erwin, Taxbusters owner.

"I have repeatedly told people, if they don't need the money right away, not to do it this way," Erwin said, noting many recipients are living paycheck to paycheck and are broke. "Most get the loan."

Local tax preparers said they'd lose clients to competitors if they didn't offer refund anticipation loans. "People will go where it is if you don't have it," said Marie Grant, office manager of Tax Relief Services on South Beretania Street. "It's usually the person that brings it up."

The loan typically adds an extra 10 minutes or so on time devoted to a client as the preparer reviews loan costs and has the borrower sign papers. More time can be chewed up by borrowers who call frequently to see if their loans have been approved, Grant said.

At least two states, Minnesota and Illinois, require tax preparers to disclose fees and other information regarding the loans.

In December, H&R Block, the nation's largest tax-preparation company, agreed to settle a class-action lawsuit that included claims that the company failed to disclose that it was taking a share of finance charges related to the loans.

Denise Sposato, an H&R Block spokeswoman, said clients are receiving full disclosure to make informed decisions. "We make sure clients know they have other options," Sposato said. "We can't make the decision for the clients. They have to."

The Brookings Institution, a Washington-based think tank, said a study of 2002 IRS data shows use of the loans was lower in Honolulu than in most of the 122 cities surveyed.

Yet some of the same trends on the Mainland were prevalent in Honolulu, including a strong tie between those who claim an earned-income tax credit and those who seek refund anticipation loans.

The study found 20 percent of people who sought an earned-income tax credit used a refund anticipation loan — five times the rate of those who didn't seek the credit.

The credit is one of the federal government's biggest programs for fighting poverty, with more than $38 billion distributed to low-wage taxpayers annually.

Critics see the loans as helping banks to take money intended to aid low-income families.

Sen. Daniel Akaka, D-Hawai'i, says the refund anticipation loans are a type of predatory lending, in which lenders entice customers to take loans that may not be in their best interest. Akaka has co-sponsored a bill that calls for regulation of refund anticipation loans and expanded tax-preparation assistance for low-income taxpayers. A second bill co-sponsored by Akaka would prohibit the loan when the taxpayer is claiming the earned-income credit.

The National Consumer Law Center last year found earned-income credit borrowers spent $740 million in loan, administrative and application fees for refund anticipation loans in 2002. The center has been critical of an IRS program that lets preparers check whether a taxpayer's refund will be paid or intercepted to pay off existing government debts such as outstanding taxes or student loans.

"The program represents a form of corporate welfare and government subsidy of an industry already rolling in profits from making usurious loans," the center said in a July 2005 report.

Usage of the loans declined nationally from 2001 to 2002, the latest years data are available for, as more people became aware of the high costs, the Brookings study found.

It also noted volunteer efforts to help low-income people prepare taxes may result in lower refund lending.

The Aloha United Way is coordinating an effort by community groups to help Hawai'i's poorest residents claim the earned-income credit. An estimated $30 million of the credits available went uncollected in Hawai'i in recent years because 19,000 residents weren't filing for them.

The program, which promotes free tax help from nonprofit groups such as AARP and Goodwill Industries of Hawaii, doesn't offer refund anticipation loans.

Yet there are many people who don't hesitate about using the paid preparers. The refund anticipation loan cost isn't a big concern to people having their taxes done at Cole's Executive Tax Services. He said more than 200 people have gotten the loans this tax season. Only one person declined the loan after the fees were described, he said.

"They don't seem to have a problem with that," said Cole. That includes people who used it last year and came back for another this year, he said. Besides the $5.25 application fee, the bank fees at his firm start at $34 for a $200 to $499 loan. "The majority of people who have come to me this year have asked for RALs."

Reach Greg Wiles at 525-8088 or gwiles@honoluluadvertiser.com.

POOR CLIENTS SEE APPEAL IN FAST TAX REFUND

The proportion of people requesting refund anticipation loans can range as high as 80 percent at Taxbusters, which operates six offices on O'ahu, said Hank Erwin, owner.

People who request the loans generally are living paycheck to paycheck and use the money to pay back rent and bills, fix cars and cover medical expenses, he said. Some use the money for a vacation.

A typical customer coming into his Kalihi office may be a single mother with two children who makes about $12,000 a year and lives nearby at Kuhio Park Terrace, the largest public-housing project in the state, he said.

The typical client qualifies for a $4,000 to $5,000 earned-income tax credit, but most likely doesn't have the money to prepare her return and file it electronically, Erwin said. If she learns she can get her taxes prepared and cash in a few days through a refund anticipation loan, "every time she will take it," Erwin said.

Getting that money can cost more than $200 for some returns once all fees are added. There are even higher costs if the recipient uses a check-cashing service to get the money.

— Greg Wiles

THERE ARE CHEAPER WAYS TO GET NEEDED CASH

Consumer advocates recommend people avoid refund anticipation loans, except for emergencies. Loan fees, along with the electronic filing and handling fees that some tax preparers charge, can total more than $150. Add tax preparation costs and a check-cashing service to redeem the loan check, and the total is higher.

"Unless you're being evicted tomorrow, you shouldn't do it," said Susan Tamanaha, Aloha United Way self-sufficiency initiative coordinator.

Some alternatives that consumer groups recommend: