Tax preparation service Jackson Hewitt Inc. will pay $5 million to settle allegations that it violated state and federal laws when marketing its refund anticipation loans to California customers.California Attorney General Bill Lockyer said that the tax preparer will pay $4 million in restitution to customers who purchased same-day "Money Now!" loans and other loan products. The company will also pay $500,000 in civil penalties and $500,000 to reimburse investigative costs.

Lockyer’s complaint alleged that Jackson Hewitt violated 13 state and federal laws or rules that regulate debt collection practices, prohibit unfair business practices or deceptive advertising, and also shared consumers' tax information without their consent.

Customers could receive up to $30 per RAL purchased between 2001 and 2004, and up to $15 for each additional financial product purchased. Jackson Hewitt must change its future practices, including the methods used when informing consumers about the terms of RALs compared to other refund options.

Lockyer said that California consumers bought more than 200,000 RAL products – some carrying annual interest rates of 200 percent -- from Jackson Hewitt in the period covered by the settlement. More than a third of Jackson Hewitt's clients took out the loans in 2005, according to the company's annual report.

Lockyer’s lawsuit against H&R Block, filed in February 2006 and alleging similar RAL charges, is still pending.

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