California AG Settles With Jackson Hewitt One Year After Also Filing Against H&R Block

News from the tax preparer's front:

California Attorney General Bill Lockyer announced Jackson Hewitt, Inc. will pay $5 million, including $4 million in consumer restitution, to settle a lawsuit filed by Lockyer that alleged the nation’s second-largest tax preparation firm violated state and federal laws in marketing high-cost refund anticipation loans (RALs) mainly to low-income customers.

“Jackson Hewitt made a lot of money by pushing customers to take out expensive loans rather than encouraging them to wait a couple of weeks to get their refunds from the IRS for free,” said Lockyer. “In the process they deceived consumers and took money from low-income families who can least afford it. They even charged people extra for being poor. This settlement benefits consumers by holding Jackson Hewitt accountable for its conduct, prohibiting the unfair practices we targeted in our lawsuit and requiring the firm to conduct itself in a manner that could set the industry standard.”

The settlement requires Jackson Hewitt to pay $4 million in restitution to customers who purchased same-day “Money Now!” loans, “Accelerated Check Refunds (ACR),” and other RAL products that, according to Lockyer’s lawsuit, Jackson Hewitt illegally promoted. The $4 million will provide up to $30 per RAL purchased from 2001 to 2004, up to $15 for each additional financial product bought from Jackson Hewitt, and restitution to consumers victimized by the debt collection scheme. In addition to the restitution, Jackson Hewitt will pay $500,000 in civil penalties and another $500,000 to reimburse the Attorney General’s Office for its investigation costs.

As described in the complaint, RALs are loans provided to taxpayers, secured by their expected tax refund. Internal Revenue Service (IRS) rules prohibit Jackson Hewitt from providing loans itself, so the company contracted with banks for that purpose. But Jackson Hewitt provided clients the loan applications, filled out the applications, sent the applications to the banks, and distributed the loan checks to customers. Jackson Hewitt’s partner banks from 2001-04, the period covered by the lawsuit, were Santa Barbara Bank and Trust (now Pacific Capital Bank) and Household Finance (now HSBC).

In a typical case, Jackson Hewitt’s RAL program worked like this: After calculating a customer’s taxes and determining their refund amount, a Jackson Hewitt tax preparer signed up the customer for a RAL. If the bank approved the application, Jackson Hewitt ultimately provided the customer a check – not for the full tax refund amount, but for the estimated refund, minus various fees Jackson Hewitt charged the customer. Depending on the amount of refund, those fees forced some consumers to pay the equivalent of annual interest exceeding 200 percent.

Additionally, Jackson Hewitt’s marketing of RALs was deceptive in a number of ways, according to the complaint. Advertisements portrayed RALs as refunds or “Money Now,” instead of loans, the complaint alleges, and omitted information that would have informed consumers the products actually were loans. Jackson Hewitt also misled consumers by stating or implying RALs provided a faster way to get money at tax time than waiting to receive a refund from the IRS, according to the complaint. In fact, consumers who filed tax returns electronically could receive a direct deposit refund from the IRS just as quickly as they could get money from Jackson Hewitt through purchasing one of the firm’s high-cost loan products.

Additionally, according to the complaint, Jackson Hewitt violated state and federal law by using or sharing customers’ tax-return information without their written consent. Jackson Hewitt engaged in these illegal practices to market RALs and collect on debts, the complaint alleges.

posted by Consumer Help Web Editorial Team at 11:32 PM |