Jackson Hewitt
"As a business owner and entrepreneur, I look forward to working with Jackson Hewitt in an effort to bring franchise and community outreach opportunities to neighborhoods across the country," -Earvin "Magic" Johnson.
But Magic, what are you and Jackson Hewitt really bringing to our communities?
High-Interest Refund Anticipation Loans for Low-Income Families
Jackson Hewitt, a tax preparation company, has come under fire in the press, the public realm, and the courts for its exploitative “Money Now” Refund Anticipation Loans (RALs) which provide high cost loans to taxpayers based on unconfirmed tax returns. Not only does the customer pay various service fees, if their refund from the government turns out to be less than the loan, they owe Jackson Hewitt the difference. These rates can be in the triple digits, for example, on a short-term RAL of $3,000, customers can be charged the equivalent of anywhere 77%-140% as an annual precentage rate when service fees are included.
What's worse, Jackson Hewitt’s RALs are targeted at low-income customers who are more likely to need cash instantly. They especially focus on areas where large numbers of people are eligible for the Earned Income Tax Credit (EITC), a tax credit for working people who earn low wages. According to a recent study by the National Consumer Law Center, nearly two-thirds of people who take out RALs are eligible for the EITC.
These loans can be particularly devastating if a family’s projected tax return varies greatly from the actual amount refunded by the IRS. Often times this happens when the IRS withholds money for an unpaid federal student loan or for unpaid child support.
Legal Trouble for Jackson Hewitt
While Jackson Hewitt always denied any wrong doing the company recently settled two cases involving RALs.
Department of Justice Lawsuit
In April 2007, the Department of Justice sued five corporations that operate Jackson Hewitt franchises alleging the systematic falsification of tax returns. According to the suit, RALs were strongly promoted at these franchises. The Department of Justice alleged more than $70 million in losses for the US Treasury. Although Jackson Hewitt was not a defendant in the suit, in September 2007, the company paid $1.5 million to the IRS to resolve an audit of the five franchises. They also spent more than $19 million to repurchase many of the 150 franchises operated by the defendants in four major cities.
Ongoing Lawsuit
In 2008, New York State Division of Human Rights (NYSDHR) filed charges against the Jackson Hewitt claiming that the company “violated and continues to violate Human Rights Law 296 by marketing to, targeting, and selling abusive, high-interest loan products...” In October, Jackson Hewitt responded by suing the NYSDHR for trying to limit the marketing of RALs. The NYSDHR has until April1, 2009 to respond to the suit, but has said it will continue its investigation into the exploitative nature of Jackson Hewitt’s RALs.
Due to the potentially abusive nature of RALs, fourteen states have passed laws which regulate them.
Recent State Actions
Currently a bill is before the Alabama House which would “subject tax preparers to a state oversight board...require individual tax preparers to obtain a license that would have to be renewed each year, and to pass an exam to demonstrate proficiency in tax knowledge.” The legislation came after an undercover study by an Alabama non-profit of unlicensed tax preparers. The legislation is expected to be signed into law by the governor.
NY Post, March 8, 2009
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Report on RALs
National Consumer Law Center, February 2009