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A New RAL for 2013: the Simple Cash Option

Adam Rust's picture

Posted January 25, 2013

A private company from Springfield, Missouri has announced intentions to create a new RAL alternative known as the Simple Cash Option which will allow consumers to sell at least part of their

refund for a cash payment. The payment can be for as much as $5,000 and will be delivered within 24 to 48 hours after the IRS accepts the return.

AIT Financial's new product is called the Simple Cash Option. As if to clear up any doubt about its nature, SCO is advertised on www.ralreplacement.com.

The product mimics the structured settlement transaction. In recent years, this kind of product has been used by people that want to collect cash prior to their death in exchange for the future proceeds of their life insurance benefit.

The president of AIT Financial is Kevin Edmunds. Edmunds says he is a preparer that formerly used Chase, but who could not qualify for Republic's program because he was not preparing enough returns with bank products. He decided to make a RAL himself. After meeting with the attorney for the "major RAL players," (Chase, Santa Barbara, Republic, Atlas Financial, HSBC...), he came up with this new innovation in financial services.

Price is Pretty Opaque

"As an ERO," says Edmunds, "the answer that the price is about the same as a payday loan was never enough for me....Our cost per hundred varies. The more money that a client wants, the more expensive that money becomes."

While pricing does vary, it looks steep at just about any rate. By Edmund's description of possible loan terms, a $5,000 advance on a refund that was returned in 21 days could come with an APR of  as much as 521 percent. For a payment of $600 at 17 percent, the APR would be 296 percent. Now, for the reasons that are outlined below, such a calculation is impossible to predict with any certainty.

"They could get their money as low as 19, 17 percent," says Edmunds, "somewhere in that range. Could be as high as 27 to 30 percent.  They won't pay 27 or 30 percent for a simple $600 transaction.  They also won't pay 17 percent for a $5,000 transaction.The more money that they get back increases, the cost per hundred increases as well."

As a benevolent guy, Edmunds hope that they will use it for a car payment and not for a Super Bowl Sunday television.

An interesting detail is that AIT's price is going to change every day, depending upon their own cost of funds.

Edmunds points EROs to a few examples on their site of possible costs:

  • a) Taxpayer gets $1,250 for a promise to give up between $1,500 and $1,600 of their refund.
  • b) $925 for between $1,100 and $1,200
  • c) $600 for between $700 and $725

It is worth noting that those costs are far higher than what any other RAL product charged in years past.

AIT will give some EROs a rebate on SCO transactions.

 A Novel Disclosure Process

AIT says that any participating ERO has to have a webcam. Why? Because AIT wants to record each SCO transaction.