Attorney General LockyerAnnounces $5 Million Settlement with Jackson Hewitt to Resolve Suit Alleging Unlawful Practices in Pushing High-Cost Loans

Consumers Who Bought Refund Anticipation Loans to Receive $4 Million in Restitution

Wednesday, January 3, 2007
Contact: (916) 210-6000,

(OAKLAND) – Attorney General Bill Lockyer today 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.”

Lockyer today filed the settlement in Alameda County Superior Court, along with the lawsuit it resolves. Judge Frank Roesch approved the settlement. The complaint alleges Jackson Hewitt violated 13 state and federal laws or rules that regulate debt collection practices, and prohibit unfair business practices, false or deceptive advertising, and unauthorized use or sharing of individuals’ tax return information.

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 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 other financial products bought from Jackson Hewitt, and full 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).
Jackson Hewitt Settlement
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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 and its RAL-lending bank 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 that ACRs and similar products 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 one of these “accelerated” products.

From 2001-04, California customers bought more than 200,000 RALs and other financial products from Jackson Hewitt, generating millions of dollars in income for the firm.

To indicate how Jackson Hewitt’s RAL program targeted the working poor, the complaint notes most of the firm’s customers are eligible for the Earned Income Tax Credit (EITC), established by the federal government to provide financial help to low-income families. EITC recipients, however, account for just 20 percent of all taxpayers. Not only did Jackson Hewitt steer EITC recipients into expensive RAL products, the firm also charged them an additional fee ($10) to buy the products, the complaint alleges.

Jackson Hewitt also participated in a deceptive debt collection scheme under the banner of its RAL program, the complaint alleges. Even if Jackson Hewitt’s partner bank - or any other RAL-lending bank - believed a customer owed debt on a RAL from a previous year, the customer could still fill out a RAL or other financial product application when they used Jackson Hewitt’s tax preparation services. The complaint alleges Jackson Hewitt and the bank did not adequately tell such customers that by signing the RAL or ACR application they agreed to automatic collection on the purported debt, which may not have been owed. The bank denied RAL applications from these customers, and the customers’ anticipated refund was used to pay off the alleged debt, plus a fee. “Jackson Hewitt customers believed to owe debt from a prior year have been offered an application for a loan in the amount of their refund, but instead have found themselves in the midst of a debt collection process,” the complain alleges.

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 help its partner banks collect on debts, the complaint alleges.

The Jackson Hewitt settlement is the second major development in Lockyer’s enforcement crackdown on RALs. He filed suit against H&R Block in February 2006, and the case remains pending in San Francisco County Superior Court.

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