After its financing partners decided that they would be leaving the line of business, Jackson Hewitt Tax Service Inc. announced that it will stop offering "pre-season" refund anticipation loans.Unlike other tax-refund anticipation loans that are made after a taxpayer has filed their return, the pre-season loans were made to people before they filed, based on their pay stubs. In January, Jackson Hewitt paid $5 million to settle charges brought by California Attorney General Bill Lockyer, who was joined by consumer advocates in alleging that the high-interest loans were used to take advantage of low-income consumers.

The nation’s No. 2 tax preparer has been under fire since last week, when the Department of Justice announced that it was filing fraud charges against a handful of corporations running more than 125 Jackson Hewitt locations.

Santa Barbara, Calif.-based Pacific Capital Bancorp, which provides the loans to 30,000 tax-prep outlets around the country, said that it would set aside $6 million to cover outstanding refund anticipation loans that were made at the Jackson Hewitt outlets under investigation. Last week, Pacific said that it would no longer offer the loans at the Jackson Hewitt offices under investigation and on followed up with an announcement earlier this week that it would stop offering certain types of RALs altogether.

In March, HSBC Finance Corp. said that it would also cease its practice of financing RALs.

Jackson Hewitt has launched an internal probe into the allegations against its franchisee, and on Monday, temporarily suspended all of the tax franchisees named in the federal lawsuits.


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