by Roger Russell and John Covaleski
New York - Accountants providing refund anticipation loan services may be unknowingly sending their clients off to debt collectors.
A former client of Jackson Hewitt has sued that tax services company and Santa Barbara Bank & Trust Co., in California, one of the major RAL providers, claiming that the bank illegally seized her 2002 tax refund to pay back an alleged seven-year-old debt to another bank. Jackson Hewitt’s Trotwood, Ohio, office performed the tax preparation work that initiated the RAL.
Lawyers who are familiar with the issue say that other accountants who offer RALs may be in danger of similar litigation. “Preparers involved in RALs become debt collectors, subject to the rules on third-party debt,” said Chi Chi Wu, an attorney with the National Consumer Law Center, a Washington-based national research and advocacy organization. Wu is co-counsel on the lawsuit, a class action that also represents the Congress of California Seniors, an advocacy group for the elderly.
Wu warned that other tax professionals handling RALs should be aware of the potential to be sued. “The fact that the preparer, as well as the bank, is being sued shouldn’t be lost on other preparers,” she said.
“This looks like a situation where an injured party is looking for deep pockets, and accountants are clearly on that list,” said Dan Goldwasser, an accounting litigation specialist with the New York law firm of Vedder, Price, Kaufman, Kamm-holz & Day.
Plaintiff Camiela Hood, who now lives in Los Angeles, accused Jackson Hewitt and the bank of “misleading” her into the RAL, alleging that Hewitt told her about “rapid refund” options, without explaining the full nature of RALs.
Hood claims she was not told that the stack of documents she signed at Hewitt’s office included a cross-collection agreement that authorized Santa Barbara to take her refund to pay back any debts that were owed to any lender that makes refund anticipation loans. Santa Barbara seized Hood’s tax refund of over $2,000 in February 2002, to pay a debt she owed to Household Bank, a RAL provider in Prospect Heights, Ill.
Spokespersons for the defendants note that the papers that Hood signed clearly stated that her refund loan was subject to seizure to pay any outstanding debt to other RAL providers. They also say that the phrasing in Hood’s case is standard in all RAL agreements.
Other RAL provider banks in the cross-collection agreement are Bank One, of Chicago; Republic Bank & Trust Co., in Louisville, Ky.; and River City Bank, of Irvington, Ky.
The plaintiffs are attacking the legality of the RAL system’s cross-collection agreement and are portraying Hood and others who have had RALs seized as victims. “I was counting on my tax refund to pay my rent and bills. I didn’t know that Santa Barbara could take it to repay an old debt owed to someone else,” said Hood. “I am still struggling financially because of the loss of my refund.”
The suit says that Hood’s case “adequately represents” the Congress of California Seniors members who had RAL agreements rejected or RAL funds seized by SBBT.
And Wu is adamant about the right to include Jackson Hewitt in the litigation. “We’re suing Jackson Hewitt because that’s the name on the door. We’re alleging that they aided and abetted Santa Barbara in their illegal and unfair debt collection practices,” she said. “When preparers solicit or ask a client to sign a RAL agreement they are potentially participating in third-party debt collections, and it makes them debt collectors.”
“It’s outrageous that they are acting as concealed debt collectors for each other without providing consumers real and meaningful notice that they are risking the loss of their tax refunds by applying for a RAL,” said James Sturdevant, Hood’s San Francisco-based co-counsel.
Hood’s lawsuit further alleges that SBBT violated California debt collection laws in its RAL seizure, which it calls “unconscionable, unfair.” Other observers say that the plaintiffs have little chance of winning. “I don’t see this as a viable case. The person owed money and had to pay it,” said Goldwasser.
“Our lawyers have looked at the allegations and they don’t think there’s much merit to the case,” said John Hewitt, chief executive of Liberty Tax Service, a Jackson Hewitt rival in tax services. “Anybody can sue anyone over anything. That doesn’t mean they have a good basis.”
William Nelson, vice president of sales and marketing for Republic Bank, agreed. “There are objections that come out every year from consumer groups about RALs. A lot are based on the fact that most RALs are tied to lower-income people, and that they have to go to a preparer and are charged a fee to help with the application for the RAL.”
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