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With RALs, Gone Suits Threaten RACs

RAL TbomstoneRefund Anticipation Loans died following the end of tax season. But the attack on bank products utilized by tax software companies and preparers has entered a new phase. A broad-based legal challenge has been mounted against refund anticipation checks while the suits also seek damages based on fees charged for RALs for several years. Last fall, class action suits were filed against the two leading tax preparation chains, H&R Block and Liberty Tax and this month the cases were consolidated before the federal court of the Northern District of Illinois.

The complainants want disgorgement of profits, compensatory and statutory damages, restitution, civil penalties and attorneys' fees and costs. The suits allege that the issuance of RALs and RACS in as many as 42 states and the District of Columbia were unfair, deceptive and fraudulent acts that violated many state consumer protection laws from 2007 on. They also claim that RALs were accompanied by inaccurate Truth in Lending Act disclosures. RACs are brought into the picture as the plaintiffs - along with consumer advocates - considered RACs to also be loans. But since they were issued without the disclosures, these also violated disclosure requirements, the suits allege.

The cases and complaints were spelled out in SEC filings by H&R Block and JTH Holdings, the parent of Liberty Tax. JTH is in the process of going public. Both H&R Block and Liberty are being sued and the JTH filings said two of its competitors were named in the litigation. While Jackson Hewitt is the second largest tax chain, the filings do not state if that company is also facing the legal actions. A query has been made to Jackson Hewitt's public relations department by this publication.

According to the JTH filings, the actions against it began in November in federal courts in Arkansas, California, Florida and Illinois with suits filed in Maryland and North Carolina in January and in Wisconsin in February. JTH notes that the plaintiffs argue that  filers are being loaned the amount of the tax preparation fee and therefore the bank products, called electronic refund checks in the case of Liberty, should be subject to loan disclosures and other consumer protections. A case brought by the California Attorney General that was decided in 2008 had already found ERCs to be loans. JTH is appealing that decision.

Reports on website of consumer advocate groups make it clear that they plan to keep pressure on bank products. A February report by the National Consumer Law Center reports that "The next challenge is to ensure RACs are made unnecessary and tax preparation fees are subject to standardized, easy-to-understand disclosure." This site and others also caution filers against the cost of setting up accounts for pre-paid debit cards and similar programs, including those established by state governments.

Bob Scott
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He  has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that.  A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
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