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By NYSSCPA.org E-zine Staff
Posted on 3/20/08
ALBANY, N.Y. -- New York’s Division of Human Rights has filed complaints against tax preparers Jackson Hewitt and Liberty Tax Service, saying they disproportionately target minorities and military families for high-interest refund anticipation loans, and sued H&R Block to get information on its practices, The Associated Press reported Wednesday.
The agency last year began investigating the nation’s three largest tax preparers for their refund anticipation loans, which Commissioner Kumiki Gibson said can carry accumulated interest rates of up to 700 percent, the AP reported.
"We are particularly outraged by these products at a time where the economy is so troubled," Gibson said Wednesday, according the AP. "We are looking into whether it's discriminatory. We know it is abusive."
John Hewitt, chief executive of JTH Tax, doing business as Liberty, said the claim against his company is “without merit,” according to the AP. He said Liberty locates offices near H&R Block offices. “Sometimes they’re in poor areas, sometimes they’re in high-income areas. It has nothing to do with what they’re saying.”
After additional investigation, the next step would be a hearing before an administrative law judge, probably within a few months, where requested relief could include cease-and-desist orders, the AP reported.
Also, the New York Daily News reported Tuesday that in New York City alone, inspectors have visited more than 400 tax businesses citywide, often posing as customers, to see what kind of information they are giving consumers. The city has issued more than 700 violations, with fines ranging from $250 to $500 for a first offense.
“It's such a bad idea that tax preparers have to lie about it to sell to you, and lying about it is illegal," Consumer Affairs Commissioner Jonathan Mintz said, according to the Daily News. "You don't need a refund anticipation loan. The IRS will get you your money back in eight to 10 days."
Many of the businesses were cited for failing to disclose the fees and interest rates attached to the loans, according to the Daily News. Mintz said some of the loans carry sky-high interest rates, around 300 percent.
Inspectors also found tax preparers weren't handing customers the Taxpayers Bill of Rights, even though it's mandated by city law. That document outlines a number of safeguards that include forcing businesses to disclose the tax preparer's qualifications, the Daily News reported.
Meanwhile, a federal judge's ruling has blocked key provisions of a New Jersey law meant to limit the interest rates and fees national banks can charge for taxpayer refund-anticipation loans -- despite noting the loans' annual percentage rate averages 115 percent, the AP reported.
New Jersey is the second state, after Connecticut, to try unsuccessfully to cap how much consumers can be charged for borrowing money against their expected federal income tax refund. In both cases, provisions of the federal National Banking Act prevailed over the wishes of state legislators, the AP reported.
The New Jersey court challenge was triggered by a law that would have gone into effect on April 1, two weeks before the deadline for filing income tax returns, the AP reported.
Like laws in other states, it required companies handling the loans to state in large type the annual percentage rate for the loan, any fees involved, and how quickly the customer would receive a refund from the Internal Revenue Service if they did not get a loan. But the New Jersey law went further, imposing criminal and civil penalties for violating a New Jersey law limiting interest and fees to 30 percent of the loan's value, the AP reported.
And in California, state Attorney General Jerry Brown has requested an injunction against H&R Block, Legal News Line reported Tuesday.
The injunction is part of a two-year-old lawsuit against H&R Block, alleging the company engaged in false or deceptive advertising for its "Rapid Refund" program, Legal News Line reported.
This week Brown requested that the San Francisco Superior Court prevent H&R Block from telling its customers that tax refunds can be obtained within two days, without disclosing that such payments are actually loans, Legal News Line reported.
Jennifer Foster, a spokeswoman for H&R Block, told Legal News Line that California courts have already ruled in the company's favor on two previous occasions.
The court has scheduled a hearing to decide the matter on April 3, 12 days before the tax filing deadline, Legal News Line reported.
As for H&R Block, this week the firm signed a definitive agreement to sell the mortgage loan servicing business of its Option One Mortgage Corp. unit to an affiliate of private equity firm WL Ross & Co. LLC, Dow Jones reported Tuesday.
Based on Jan. 31 values, the formula purchase price would generate proceeds of about $1.04 billion, Dow Jones reported.
The transaction is expected to reduce debt by about $700 million, and return about $270 million in additional cash, Dow Jones reported.
H&R Block previously shut down Option One's mortgage origination activities after exiting an earlier sale agreement with Cerberus Capital Management LP in December 2007, Dow Jones reported.
The transaction has a breakup date of May 30, Dow Jones reported.
WL Ross & Co. would handle records for about $95 billion of subprime mortgages, behind only Countrywide Financial Corp., Ross's New York-based private equity firm said Tuesday in a statement, Bloomberg News reported.
The sale may close out H&R Block's 16-month effort to divest its mortgage operations, which caused losses of more than $1 billion at the Kansas City, Missouri-based company, the biggest U.S. tax preparer, Bloomberg News reported.
“The servicing side of the business is not taking a principal risk in the mortgages themselves,'' Ross said in an interview on Bloomberg TV. “It's early to be buying the underlying paper.''
