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Jackson Hewitt to end 'pre-file' loans HSBC was the first to drop that business

The nation's No. 2 commercial tax preparer said Tuesday that it will follow the lead of competitors and its lending partners by ending a controversial form of tax advance loans offered before the tax season even starts.
Parsippany, N.J.-based Jackson-Hewitt Tax Service said it supported the decision by lenders HSBC Finance Corp. and a California bank to stop underwriting "pre-file" products such as "holiday" or "paystub" refund anticipation loans, or RALs.

It said it would discontinue marketing the loans -- which it was the first to offer -- and said it didn't get any fees for them in its fiscal year ending April 30.

Instead, the firm said it will "focus on the tax preparation needs of its customers." But spokeswoman Sheila Cort said it will still offer traditional refund anticipation loans, whose equally high costs were detailed in The Buffalo News series, High Cost of Being Poor, last June.

"While our decision recognizes changes in the market place, we will continue to remain focused on providing value to our customers through our tax preparation services, as well as by providing products and services that support their individual needs," CEO Michael Lister said in a press release.

The decision by Jackson-Hewitt, likely based in large part on the lack of a bank partner, marks the death-knell for the pre-season products, derided by consumer advocates as abusive, risky and overpriced. Consumer Federation of America and National Consumer Law Center even issued a special report late last year just on them.

HSBC, by far the biggest provider of tax advance loans, said last month it would drop the pre-file products, after discussions with regulators and consumer groups. Santa Barbara-based Pacific Capital Bancorp made the same decision Tuesday.

J.P. Morgan Chase & Co., the only other major provider of refund loans, has said it never offered the early loans anyway, and Consumer Federation's Jean Ann Fox said First Bank of Delaware is out, too.

"I don't know of any other banks that will be offering these loans, which is a good thing, because they were risky for consumers," said Fox, CFA's director of consumer protection. "Now the next step is to reform the main event."

RALs are short-term loans of 10 to 14 days based on the expected value of a person's federal tax refund. The bank loans, which are marketed by tax preparers as "rapid," "fast" or "instant" refunds, are automatically repaid when the Internal Revenue Service electronically deposits the refund into a temporary bank account. But they are still due if the refund comes up short.

Flat fees range up to $125, depending on the size and speed of the loan, and don't include the average $150 tax preparation fee or $40 application or document processing fee some preparers charge.

Traditional RALs are made during the tax season, using the taxpayer's actual return, so the preparer generally knows how much of a refund is expected. But the pre-season products were offered from October through early January, before all information is available, and were based on estimates using interim paystubs. That became too risky for the banks.

Meanwhile, advocates and the government continue to put pressure on the industry. Fox said a coalition of more than 70 consumer groups on Monday delivered a letter to all U.S. senators, proposing a list of steps for Congress to take against RALs. A similar letter will be delivered to House members.

Congress also passed legislation last year barring storefront lenders from charging more than 36 percent annual interest, including fees, on short-term "payday" or car "title" loans to military families. Fox said proposed Defense Department regulations implementing the law would also apply it to RALs.

Jackson-Hewitt in January agreed to pay $5 million -- including $4 million in restitution to consumers -- to settle allegations by then-California Attorney General Bill Lockyer that it violated state and federal laws in marketing RALs to low-income consumers.

And on Monday, the New York State Division of Human Rights issued subpoenas to Jackson-Hewitt and No. 1 tax preparer H&R Block, demanding documents and information for an investigation into possible discriminatory targeting of the loans to minorities and military families. It had requested the same information from Liberty Tax Service, and Liberty voluntarily complied.


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