On January 17, 2008, the New York State Division of Human Rights filed a lawsuit against both Jackson Hewitt and Liberty Tax Service over their practices of lending lower-income taxpayers money in anticipation of their tax refunds.  The New York Times ran a story on it in the Friday January 18, 2008 edition which you can read here.  In December 2006, H&R Block settled four lawsuits for $62.5 million over its own refund anticipation loan program as well as a lawsuit filed by then-NY Attorney General Eliot Spitzer over the company’s “Express IRA” in which the only option within the vehicle was a money market account whose interest rate was below that of the hidden fees to maintain ownership thereby causing customers to lose principal.  A copy of that suit can be found here.

This practice has been going on for years, whereby tax preparation firms, most commonly large franchises, lend the taxpayers up to the amount of their income tax refund, less substantial ”application fees” (often times between $25 and $200) at very high annualized interest rates.  In fact when H&R Block first started this program it drew heavy criticism from consumer groups because it was initially being portayed as an advance rather than an interest-bearing loan with application fees attached to it.

For everyone’s knowledge, please know this: if you file your tax return electronically and accept direct deposit of your refund, you will generally see the deposit within 10 days to two weeks.  There is no reason to pay exorbitant interest rates or these ridiculous “application fees” to the tax preparation firms and the banks who back them.  In some cases you can qualify for free e-filing, while those who do not qualify should not have to pay more than $20 extra to do so with their tax preparer.

This entry was posted on Sunday, January 27th, 2008 at 6:48 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.