Combating Illegal Tax-Refund Scheme
The Consumer Financial Protection Bureau is a federal agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. First Nations Development Institute shared our mystery shopper reports of improper tax preparation practices (documented in the Tax Time Deception project section) with key staff at the Consumer Financial Protection Bureau (CFPB), prompting the CFPB to launch an investigation. The CFPB has the ability to subpoena records from financial firms if they suspect a pattern of potentially illegal activity.
The CFPB announced that, together with the Navajo Nation, it is taking action against S/W Tax Loans, Inc., a company that they claim operated an illegal tax-refund scheme. The scheme was based on tax-preparation franchises steering low-income consumers, including many citizens of the Navajo Nation, toward high-cost, refund-anticipation loans. A proposed order, if approved by the court, would result in roughly $438,000 in total consumer redress and require the defendants to pay $438,000 in civil penalties for their unfair, deceptive and abusive practices.
The complaint alleges that the tax firm failed to disclose to more than 1,500 consumers that their tax refunds had been received from the IRS and were already being processed by the company. Instead, when these consumers inquired about the status of their refund, they persuaded the consumers to take out a second or third refund-anticipation loan. As a result, many consumers were led to pay a substantial finance charge for an unnecessary high-interest loan.