CFPB, Navajo Nation take action vs. illegal tax-refund loan scheme
April 14, 2015
WASHIINGTON (4/15/15)--A refund-anticipation lender who was charging low-income consumers as much as 240% for the short-term loans became the subject of Consumer Financial Protection Bureau action Tuesday.
The CFPB joined the Navajo Nation to file suit against Southwest Loans, as well as a company that owns several tax-preparation franchises, and two related individuals.CFPB Director Richard Cordray, announcing the action, said the agency's investigation found that the parties "illegally schemed to steer low-income citizens of the Navajo Nation into high-cost loans."
The CFPB identified Jeffrey Scott Thomas as the founder of Southwest Loans and, separately, the owner of four H&R Block tax-preparation franchises in New Mexico. The CFPB said the franchises declined to offer a lower-cost H&R Block refund-anticipation loan product in favor of a higher cost option.
Cordray said Thomas knew those he targeted were "particularly vulnerable because they had low incomes and needed immediate cash, and he harmed them by violating the law in several ways." Among the charges:
When consumers were steered to high-cost refund-anticipation loans, the significant financial stake that Thomas and his employees had in these loans was not disclosed. In fact, Thomas was the financier who earned interest and fees on these loans, and his tax preparers earned bonuses based on the number of refund-anticipation loans they could get their clients to take out;
The rates on the loans were grossly understated; and,
When consumers asked Southwest about whether their tax refunds had come in, they were deceived again and were convinced to take out a second or third refund-anticipation loan while they "waited" for their refund.
The CFPB concluded that consumers incurred more than $254,000 in unnecessary interest and fees as a result of the illegal practices.
The bureau and the Navajo Nation have proposed an order to address the violations. If approved by the court, Thomas and his associate, Dennis Gonzales, who CFPB identified as owner and president of Southwest Loans, would be banned for five years from doing any business related to refund-anticipation loans.
The defendants would have to provide a full refund of interest and fees to consumers who were deceived into taking out a second loan after their refund had already come in. The defendants also would have to pay $438,000 in civil penalties to the CFPB based on their illegal actions.