Analysis: Arkansas AG Suit against Mo’ Money Taxes

I have obtained a copy of the complaint (pdf) prepared by Arkansas Attorney General Dustin McDaniel against Mo’ Money Taxes, its successor MoneyCo, and the principal owners of the firm.

The complaint alleges violation of Arkansas’ Refund Anticipation Loan Act (“RALA”) and the Arkansas Deceptive Trade Practices Act (“ADTPA”).

Mo’ Money ceased to exist on August 8th, 2010. Since then, Mo’ Money c0-owner Markus Granberry has established a new company, known as MoneyCo USA. It has its headquarters at the same address as Mo’ Money Taxes. On MoneyCo USA’s web site encourages people to return to MoneyCO at the same store where MMT had formerly been located, in order to take advantage of MMT client records that have been transferred to MoneyCo.  Although it seems like common sense that MoneyCo is only a rebranded version of MMT, McDaniel’s suit still must contend that neither Granberry now MMT co-owner Derrick Robinson can escape liability for their MMT business even though the firm no longer exists. McDaniel says that Robinson is also a “controlling person” in MoneyCo USA.

Here is an edited list of some of the violations:

• failure to display a fee schedule in stores that is at least 16 inches in width by 20 inches in height and in a type no smaller than 28-point.
• Failure to post interest rates for loans of $250, $500, $1,000, and $2,500 on a display of equivalent size.
• Failure to disclose specific language outlined in the RALA, including this phrase: “You can usually get your refund in 8 to 15 days without paying any extra fees and taking out a loan.”
• Failure to disclose that if the actual refund was less than the amount loaned, that the filer would be obligated to make up the difference. This disclosure is supposed to communicated orally.
• Mo’ Money charges a $29 Service Bureau fee to filers with a settlement product, but only $5 for other customers. Interestingly, that fee was not paid to Mo’ Money, but instead to “Cayman Service Bureau.”

This Dispute Touches Upon Relevant Questions for the new CFPB

McDaniel’s suit addresses disclosure violations and product-type violations. This is significant, at least on a symbolic level, in the larger policy debate that will form around the creation of the new Consumer Financial Protection Bureau. It is clear that Elizabeth Warren has staked out the political authority to pursue more disclosures in financial transactions. A more contentious issue is whether or not the Bureau will be able to control the nature of financial products. The “suitability” framework would give the Bureau the right to shape the makeup of products and to disallow those features that violate “suitable” frameworks. Arkansas’ RALA includes a suitability provision in that it does not allow a tax prepare to charge a customer that gets a RAC or a RAL for any additional fees beyond those collected by their bank partner.

Within the Complaint

The AG quotes a Mo’ Money flyer: “Up to $1,800 in 30 seconds or up to $10,000 the next day.”

In 2009, MMT processed 1,157 tax returns for Arkansas households. Of those filers, 721 received a RAL and 235 received a RAC.  That means that 82.6 percent of MMT customers got a settlement product. As high as that sounds, it falls below the rate at Jackson Hewitt. Their most recent 10-k says that more than 90 percent of JTX consumers got a settlement product. Both these numbers underscore the high use of settlement products.

The complaint spells out a corporate culture that mandates the use of settlement products. It states that MMT’s corporate offices require franchisees to generate at least 500 refund anticipation loans by their third year of operations. If they don’t, those franchisees have to pay a $29 fee for each missing loan product.

Penalties

The AG wants to penalize MMT $1,000 for each violation of the RALA. Additionally, they want MMT to refund each $29 service bureau fee.