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| April 15, 2005 | |||
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COLEMAN INVESTIGATION PROMPTS BANK TO RESCIND LOAN SURCHARGE, SAVING LOW-INCOME MINNESOTANS THOUSANDS NEXT YEAR
Chairman of Senate Permanent Subcommittee on Investigations also urges adoption of federal code of ethics to protect all Minnesotans from costly and unnecessary tax refund products |
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St. Paul, MN –– At a field hearing of the Senate Permanent Subcommittee on Investigations (PSI) in Minnesota at the James J. Hill Reference Library, Senator Norm Coleman announced that thousands of Minnesotans will be further protected from expensive costs of tax-related bank products offered by tax preparers, products and services that are expensive alternatives to the Internal Revenue Service’s standard refund options and that penalize taxpayers seeking a speedy refund loan. As a result of Senator Coleman’s ongoing PSI investigation, Jackson-Hewitt and its partner bank, Santa Barbara Bank and Trust, have agreed to drop or eliminate the $10 surcharge that was paid by over 4000 Minnesotans who obtained a Refund Anticipation Loan (RAL) in 2004, totaling some $40,000 in fees above the other costs.
RALs are bank loans that are brokered through tax-preparation businesses. They are marketed to tax filers who expect to receive a federal tax refund but who want their refund immediately. More expensive than refund anticipation checks and refund transfers, banks and tax-preparation preparers both charge fees for RALs, which get deducted from the refund loan before the taxpayer gets his or her money. Preparers offering refund loans made over $200 million last year from clients who opted for RALs and other bank products. Banks currently charge anywhere from 28% to 700% APR on RALs. Senator Coleman, Chair of the Permanent Subcommittee on Investigations, also will urge IRS Commissioner Mark Everson to adopt a federal Code of Ethics that covers all tax preparers. As it currently stands, many tax preparers are not bound by a code of ethics that would place their clients’ interests first. A code of ethics would ensure that a client’s best interests are served, and that the client is not sold unnecessary products. “In recent years consumer interest groups have voiced their concerns about the high cost of tax-related financial products, especially refund anticipation loans,” said Coleman. “The purpose of today’s investigation was to identify the facts and ensure that consumers, especially those from Minnesota, are receiving products they want at a fair price. I’m pleased that I’ve had an impact on the return for EITC recipients and that my discussions with Commissioner Everson may lead to a code of ethics that covers all tax preparers and hinders a system that has the ability to sell costly and unnecessary tax refund products to their clients. There is a clear and definitive need for this code, and I hope to see it implemented soon.” “We applaud the Chairman’s efforts…to establish a Code of Ethics guided by IRS Publication 1345 applicable to the tax preparation and tax-related financial products industry,” said Gary P. Weinstein, Vice President, Legal and Government Affiars, Jackson Hewitt Tax Services, Inc. Friday’s hearing, entitled “Tax Refund Products Can Be Costly,” provided a forum for Coleman and 8 local witnesses to express their concerns about such products and services; draw attention to the growing problem of refund anticipation loans (RALs) and other tax related bank products that appear to be disproportionately used by low income individuals in the community; allowed the principal tax preparation companies an opportunity to testify on behalf of their services; and offered remedies to alleviate the burden of high costs to those can least afford it, including the elimination of certain EITC surcharges and the creation of a Code of Ethics. Additionally, the hearing offered alternatives available to low-income and elderly individuals from the IRS, as well as from Volunteer Income Tax Assistance (VITA) sites. While the IRS has announced plans to close roughly one-third of its tax assistance centers nationwide, Coleman stressed that it was important to retain and transfer resource savings from these closures to the VITA program to ensure that tax services to Minnesotans will not be eroded. The hearing was comprised of three panels of witnesses that include: former tax preparers and clients, consumer interest groups, and tax preparation companies. WITNESS LIST Julie Burbach, H&R; Block client Pat Eckelberry, Former H&R; Block Tax Preparer Nila Grant, Former Jackson Hewitt Tax Preparer Beth Haney, Research and Outreach Director, Children’s Defense Fund Bonnie Esposito, Executive Director, AccountAbility Minnesota Robert A. Weinberger, Vice President of Government Relations, H&R; Block Steven Barnett, Senior Vice President & General Counsel, Jackson Hewitt Tax Service FOR MORE INFORMATION: Andy Brehm (202) 224-5641 |
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