New Jersey Regulators Accuse Tax Preparers of False Advertising

By Alicia Cruz
Staff Writer
The New Jersey Newsroom

With a stagnate economy, soaring gas prices and brimming unemployment numbers, the lure of instant tax refunds with same-day cash offers are magnetizing to even the most level-headed tax-payer despite APR terms that carry a rate of 50 to 1,000 percent -- similar to those predatory payday loans.

Refund Anticipation Loans offered by many tax preparer companies, while attractive, come at a costly amount with high fees and interest rates deducted from the consumers’ refund.

The practice has become so commonplace, it caught the attention of The New Jersey Division of Consumer Affairs, The Attorney General and The Division of Consumer Affairs. All three regulators seem to agree the offers are predatory, not to mention deceitful, and launched an inspection last week at how more than 500 tax-preparation offices in seven counties promoted their offers of refund anticipation loans.

Businesses cited were Demian & Co. LLC in Cranford, City, Tax in Jersey City, Girotel NJ LLC in Union City, Personal Touch Taxes LLC in Newark, and MB Motorsports Inc. in Tinton Falls, which is actually a car dealer whom has collaborated with Tax Refund Services Inc., a finance company based out of Tampa, Florida. The company offers patrons in need of transportation the option of filing their tax at the car dealership and using their anticipated refund to purchase a car.

After the State inspection, owner Jesse Lehman posted this notice: "the advertised 48-hour refund was intended to read, '48-hour refund anticipation loan provided through our partnership with Tax Refund Services, TaxMax dealer program.' MB Motorsports had no intention of deceiving its clients and we would like to sincerely apologize for any inconvenience this may have caused."

The New Jersey Division of Consumer Affairs said it is seeking a civil fine of $1,500 for each violation against all five New Jersey businesses found to be falsely advertising RALs as "instant" or "same day" refunds. Consumer advocates and government regulators agree that in the end, taxpayers are simply better off waiting three weeks for their refunds to come directly from the IRA versus paying exuberant fees for cash upfront.

The Neighborhood Economic Development Advocacy Project, which assists low-income residents in New York, said tax companies offering RALs often target mis-educated recipients, many whom are struggling financially. The agency believes a number of these people become ensnared in the fast-money trap because they are outside the “realm of mainstream banking and rely on lightly regulated fringe products” offering them a quick fix off high-rate loans.

In 2007, a survey showed that more than 80 percent of RALs prepared in New York City were to low-income citizens, and more than 60 percent went to EITC recipients.

Last week was not the first time consumer watchdog agencies, working in conjunction with the IRS and the Office of the Comptroller of the Currency have engineered campaigns to rein in lightly regulated tax-preparation offices. 

In 2010, the National Consumer Law Center and the Consumer Federation of America sought to have refund anticipation loans eliminated saying the method preyed upon low-income filers, those most susceptible to these high-end, short-term loan practices, but government response has been slow to acknowledge their efforts.

Tax preparation companies HR Block and Jackson Hewitt, the nation's second largest vendors of RALs, faced class action lawsuits alleging they violated state and federal laws by deliberately peddling high-cost RALs to low-income taxpayers. 

Jackson Hewitt settled their lawsuit, filed by the California Attorney General Bill Lockyer, in 2007, agreeing to fork over $5 million, including $4 million in consumer restitution. HR Block agreed to a $4.85 million settlement, plus $2.45 Million in restitution to California consumers. 

The Justice Department sued five Jackson Hewitt franchises, including 24 individuals who worked at the companies saying they knowingly prepared fraudulent tax returns for consumers at several of the more than 125 offices they owned in Chicago, Atlanta, Detroit and Raleigh-Durham, N.C.

The Justice Department’s lawsuit alleged that Jackson Hewitt defendants "created and fostered a business environment" in which fraudulent tax return preparation is "encouraged and flourishes."

HR Block complaints
Jackson Hewitt complaints

State of New Jersey Taxpayer Walk-In Assistance
124 Halsey Street
Newark, NJ 07102
(973) 648-4713