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. The temptation of speedy cash was too great for Marisa Thomas. Thomas, 20, made $9,089 as an appointment setter for Craftmatic Beds last year. When it was time to file her taxes this year, she went to an H&R Block office in West St. Paul and paid $39.95 for a rapid-refund loan, plus $84 in preparation fees to get her $531 refund. "I figured, `Well, I am not bringing in thousands of dollars and I need money now,' " she said. Her decision, which she now regrets, cost her 23 percent of the value of her refund. It's a decision that a growing number of the state's and nation's poorest residents are making, driving the rise in rapid refund loans and creating a booming business for tax preparers and the banks that back those loans. Representatives for H&R Block, Jackson Hewitt and other tax preparers say rapid-refund loans provide a valuable service to consumers. Consumer advocates say the loans target low-income residents who can least afford to pay their high fees and undermine tax credits created to help the poor. Rapid-refund loans, officially known as refund anticipation loans, or RALs, generally put cash in filers' hands only one to two weeks sooner than if they had electronically filed with the IRS, while charging interest rates that run between 70 and 700 percent when calculated on an annual basis. The loans carry little risk for the preparers: They have done their clients' returns and know whether they qualify for an Earned Income Tax Credit (EITC) or a refund. The use of RALs is especially prevalent in low-income neighborhoods and among recipients of the Earned Income Tax Credit, which was expanded in 1993 to boost the incomes of millions of low-income families. A Consumer Federation of America study released this year found that EITC recipients represented only 15 percent of all taxpayers but 55 percent or 7 million of all RAL consumers. It also found that RAL volume is growing, even though low-income workers are eligible for free tax service at thousands of nonprofits nationwide. In Minnesota, $15 million of Earned Income Tax Credits claimed in 2003 were spent on tax preparation and filing costs, according to a January report by Children's Defense Fund Minnesota. Another $4 million to $5 million was paid in interest on RALs, according to the group. About half of the 8,747 Earned Income Tax Credit recipients in six Minneapolis ZIP codes - including neighborhoods on and near Franklin Avenue and Lake Street and in north Minneapolis - paid for tax preparation and RALs, according to IRS statistics. The story is much the same in St. Paul. There, about one-third of the 6,056 Earned Income Tax Credit recipients in four St. Paul ZIP codes paid for tax preparation and RALs. Three of those neighborhoods run along University Avenue in or near Frogtown. Refund anticipation loans "are high cost and are not good for consumers," said attorney Chi Chi Wu, a nationally recognized expert on the topic with the National Consumer Law Center in Boston. That's particularly true for the many low-income filers who could get their taxes done for free by nonprofit groups. Consumer advocates point out the high number of tax offices in poor neighborhoods in asserting that RAL providers target the poor with expensive loans. "Just because it's legal doesn't mean you have to take advantage of people," said Beth Haney, benefits outreach director with Children's Defense Fund Minnesota. "What I find the most disturbing is the fact that these tax preparers are really preying on people who rely on the Earned Income Tax Credit, the most effective anti-poverty tool we have. We wrote the credit into law to help struggling families, not to help multimillion-dollar corporations." . Criticism is `silly' Representatives for tax preparers such as H&R Block, Jackson Hewitt and others say they are filling a need among consumers and point out that they disclose all options and fees. H&R Block spokeswoman Denise Sposato said claims that the company targets low-income people and neighborhoods are "downright silly." "We have over 10,000 offices," Sposato said. "We are within 10 minutes of just about every American home. . . . This year we are in over 600 Wal-Mart locations, and we have been in Sears for over 30 years. The point is to make it convenient. So I would say that criticism has no validity at all." Scott Reid, owner of 14 of the 20 Jackson Hewitt offices in the Twin Cities area, said his clients can make their own decisions about the value of refund loans and other products. "My feeling is that I am not one to take a paternalistic view toward my clients and to tell my clients what they should and should not do," Reid said. "We can convey the options to them and let them make their decision. I mean, they are all responsible adults. They can make decisions about how to handle their finances." Often those decisions, by choice or necessity, are in favor of getting immediate cash, regardless of the cost. Tax refunds are, after all, a form of forced savings and can be the single largest check some people receive all year. Community activist Oliver Moore is well aware of the temptation, having failed to persuade his own daughter against taking a RAL this year. "I couldn't get her to wait. I just couldn't get her to wait," said Moore, shaking his head. "She just had a baby . . . and is struggling. . . . When they're struggling, they just want to get that pain off them." Moore and other members of the Association of Community Organizations for Reform Now (ACORN) spent time during this tax season in front of an H&R Block office in Minneapolis armed with fliers that said, "Don't Let H&R Block Steal Your Tax Refund." "You let them know that they can go to the Urban League right up here on Lyndale" for free tax service, Oliver told one woman who complained about how much one of her sons paid to have his return processed. "Spread the word. It's free." Free doesn't necessarily mean well-publicized, however. Minnesota has 350 free tax-preparation sites that typically are available to families making less than $35,000 a year. But Thomas and many other low-income workers filing taxes this year said they had no idea they could get the service done for free. . Plenty of clients Because the availability of free tax help is not widely known, professional tax firms have no shortage of clients in low-income areas. Reid's Jackson Hewitt franchise serves roughly 8,000 Minnesotans a year, charging $90 and up for tax-preparation services. Many clients pay another $90 to $150 for a RAL, said Joan O'Rourke, a Jackson Hewitt office manager in St. Paul. Miko Randle, a Minneapolis preparer who reports to O'Rourke, said her clients don't complain about fees because they don't pay them up front. Instead, the fees are deducted from the refunds. "They just want their refund," Randle said. Reid conceded that RALs are expensive but said customers willingly pay for them. "It's not unusual for us to have clients with $4,000 or $5,000 in refunds. . . . So for a lot of them, paying out an extra $120 or $150 doesn't seem burdensome. The RAL is the fastest turnaround," he said. "A certain segment of our client base is very interested in speed." . Pricey refund Christine Nelson, 22, was interested in speed when she went to H&R Block. A receptionist at Farm Oyl Co. in St. Paul, she made $13,224 in 2001. She was struggling to make her rent and car payments when she went to get her taxes done. H&R offered her a three-day refund anticipation loan in advance of her federal tax refund. Pressed for cash, she went for it, in 2001 and again last year when she filed her 2002 taxes. This year, she knew better. The quick payouts came at a hefty price - more than $330 in fees and interest that ate up about 30 percent of both refunds. "The tax-prep fee was $131 and then there was a fee for a three-day rapid refund loan that was $29.95" in 2001, said Nelson, a resident of St. Paul's Frogtown area. She was also charged $37 to have her return electronically filed to the IRS. "My total refund was supposed to be $767, but I received about $569" after Block subtracted its fees. "I really could have used that money," Nelson said. "I felt betrayed." On an annualized basis, the cost of her loan was 495 percent in 2001 and 150 percent in 2002. . `Instant money' Jackson Hewitt and H&R Block promote their services by giving clients $5 or $10 cash for referrals. The storefronts also commonly sport banners promising "refunds fast" or "instant money." An H&R Block office in north Minneapolis this spring had a sign advertising rapid-refund loans for $39.95. Once inside, clients learned that it would cost roughly $90 for their return to be prepared and another $10 for electronic filing. H&R Block, Jackson Hewitt and other tax preparers offering refund loans technically act as loan brokers, working with a variety of bank partners such as Pacific Capital Corp., Imperial Capital Bank and Household Finance Corp. that actually front the loans. Those banks reported more than $240 million in collective income last year from RALs nationwide. ACORN, the Children's Defense Fund, Legal Aid Services and the Consumer Federation of America are lobbying legislatures to require more stringent disclosures by the tax-preparation industry. The groups also would like to see caps on fees and aggressive education campaigns to educate the poor about their options at tax time. Representatives of both Block and Jackson Hewitt oppose such proposals, adding that they should not be required to notify low-income clients of free tax help. "It would be like a newspaper making referrals, telling customers, `Don't buy my paper, read it online,' " said H&R Block's Sposato. "You know when you walk in that there is a fee affixed to professional service, face to face. We are a business. It's no different than walking into a McDonald's." Jackson Hewitt's Reid said some of his employees may direct eligible clients to free tax services but only if the client first expresses serious concerns about cost. He suggested that volunteer tax sites need to better advertise their services. Regardless, some legislators are pushing for change. Minnesota Rep. Paul Thissen, DFL-Minneapolis, previously backed a successful bill that required clearer language in the application process so that borrowers are informed in bold print that a RAL is a loan. Tax firms also must state the annualized interest rate. Next year, Thissen wants more regulation - to license tax preparers. "We have barbers licensed. And to leave this area of tax preparation, which involves money, unlicensed seems odd. It seems like an area that should have more oversight and clarity to explain what is expected of people who will file tax returns for money," Thissen said. . Cap on interest State Rep. Neva Walker, DFL-Minneapolis, plans to back a bill next year that would cap RAL interest at $20 by law, a step previously proposed by RAL expert Wu. Two years ago, Walker successfully sponsored a bill that secured four years of state funds for Minnesota's free tax-preparation centers. Walker's mother, Clarissa Walker, runs one of those centers, in the Sabathani Community Center in south Minneapolis. "I get to see who is using it," Neva Walker said. "We have families who have hit their time limit with welfare. And we have families who are only supposed to be using the food shelf once a month. But needing it more than once a month is a reality. "Many of these people were working last year, but with layoffs or the bus strike and rising child care costs . . . getting their tax refund" free and soon becomes a necessity, she said. Haney of the Children's Defense Fund said the IRS data showing widespread use of RALs in poor areas demonstrates the need for action. "This is the same thing as if we charged people for their welfare benefits or their food stamps or their Social Security," Haney said. . Dee DePass is at ddepass@startribune.com. . Providers of refund anticipation loans Refund anticipation loans (RALs) are bank loans that are brokered through tax-preparation businesses. They are marketed to tax filers who expect to receive a federal tax refund but who want their refund in one or two days. The bank and its tax-preparation partner both charge fees, which get deducted from the refund check before the taxpayer gets his or her money.

TAX PREPARERS SERVICES OFFERED 2003 RAL INCOME H&R Block Largest U.S. tax-prep service $104 million with 9,000 locations; broker of RALs and checks for Household Finance and Imperial Bank Jackson Hewitt A unit of Cendant Corp.; $48 million (estimate) second-largest U.S. tax-prep service with 4,000 offices . BANKS SERVICES OFFERED 2003 RAL INCOME Household Finance Bank that issues RALs for $185 million Corp. H&R Block and others Imperial Capital Bank Unit of ITLA Capital Corp. $13.6 million Partners with H&R Block Santa Barbara Bank A unit of Pacific Capital $41 million & Trust Bancorp that partners with Jackson Hewitt

. Tax tips - Free tax help: Low-income individuals and families are eligible for free tax preparation, free electronic filing and quick returns. - Quick refunds: Most tax filers can get tax refunds in 10 days if they file their return electronically to the IRS. The IRS then can electronically deposit refunds right into the taxpayer's bank account. - Tax-credit eligibility: Families may be eligible for the Federal Earned Income Tax Credit and the Minnesota Working Family Tax Credit if they have: No children and income of less than $12,000. One child and income of less than $30,666. Several children and income of less than $34,692. - Reduction or refund: Tax credits can reduce families' taxes to zero or may result in a refund. - Money below minimum: Workers can get money from the credits even if they don't earn enough to owe any income taxes. - Past-year credits: Eligible taxpayers can file three years back for unclaimed tax credits. - Tax help: For a tax problem, call tax-information or taxpayer-advocate help lines at: Internal Revenue Service: 1-877-777-4778 or 1-800-829-1040. Minnesota Department of Revenue: 651-296-3781 or 651-296-0992. Legal Aid Society of Minneapolis: 612-334-5970 University of Minnesota Law School Tax Clinic: 612-625-5515 . Free tax preparation There are more than 350 free tax-preparation centers operating in Minnesota during the tax season. Services generally are free for families making less than $35,000 a year, individuals making less than $25,000 and self-employed tax-filers making less than $45,000. . To locate Voluntary Income Tax Assistance Sites in your area, call: - 651-297-3724 - First Call for Help at 211 or 1-800-543-7709 - Tax Council for the Elderly/AARP Minnesota at 1-888-227-7669 (toll-free) Or call one of the tax-prep service centers: St. Paul - AccountAbility Minnesota, 651-287-0187 - CLUES, 651-379-4200 - Eastside Community Center, 651-771-8821 - Martin Luther King Center, 651-224-4601 - Neighborhood Development Alliance Wabasha Center, 651-292-0131 - Ramsey Action Program, 651-645-6445. Minneapolis - Brian Coyle Community Center, 612-338-5282 - Chrysalis, 612-871-0118 - CLUES, 612-871-0200 - Eastside Neighborhood Services, 612-787-4100 - North Regional Library, 612-630-6600 - Sabathani Community Center, 612-821-2302 - Urban League north office, 612-302-3100 - Walker Library, 612-630-6650 Bloomington - FamLink Bloomington Creekside Community Center, 9801 Penn Ave. S., 952-928-0444 Crystal - Thorson Family Resource Center, 7323 58th Av. N., 763-504-7680 St. Cloud - Salvation Army, 223 E. St. Germain, 320-252-4552 - TRI-CAP, 700 W. St. Germain, 320 251-1612 - Catholic Charities, 157 Roosevelt Rd., 320-229-4560 - Waite Park City Hall, 19 13th Av. N., 320-252-6822 Marshall and Worthington - Children's Defense Fund, 507-350-9228