More RAL Litigation against Tax Preparers

Jackson Hewitt and H & R Block both suffered setbacks in their efforts to defend their refund anticipation loans in New York courts last week.

In Jackson Hewitt Tax Service v. Kirkland, a judge dismissed an effort by Jackson Hewitt to prevent the New York State Division of Human Rights from continuing with its investigation of the marketing of JTX’s refund anticipation loans. Kirkland, the Commissioner of the New York State Division of Human Rights, was listed as the defendant. Kirkland original case focused on how JTX had marketed its RAL products. Kirkland argued that JTX pushed the RALs on to African-Americans, Latinos, and military families.

In New York State Division of Human Rights v. H&R Block Tax Services, Inc., a judge dismissed requests by Block to allow the tax preparer to ignore requests by the state to have more specific data about refund anticipation loans. New York had requested the following information:

• number of stores in New York offered refund loans in the last three years.
• Number of RALS originated at each of those stores.
• A list of where Block marketed its RALs.
• Marketing plans for those loans.

New York State had requested the data from Block, but also from Liberty Tax and Jackson Hewitt. Block did not consent and filed to quash. The others complied with their subpoenas.

Strategic Implication

These are procedural efforts.  The major tax preparers face financial risk if regulatory agencies like the New York State Division of Human Rights can make their case. The marketing plans discussed are national in scope.

The financial risk is independent of reputational risk. Certainly, if Block of Jackson Hewitt were proven to be pursuing a marketing strategy that discriminated against military families and minorities, it would be an ugly mark that would last for some time. You know – it is sort of like the Master Card commercials: lose court case in New York – $1 million.  Cost of a ruined reputation – priceless.

This should prompt a question. Why risk all of that for a few dollars? Why continue to risk all of that, when losses on RALs made without a debt indicator are about to drain margin off of these products?