Liberty Tax penalized $1.16M in case over its advertising

VIRGINIA BEACH

A California court imposed $1.16 million of civil penalties on Liberty Tax Service, saying Liberty engaged in deceptive practices when promoting its refund anticipation loans to tax-return filers.

The state Superior Court in San Francisco ordered the Virginia Beach-based chain of tax-return preparers to monitor the advertising used by its California franchisees and discipline those who failed to get approval for their ads.

In a decision filed June 15, Superior Court Judge Curtis E.A. Karnow said Liberty falsely portrayed its refund anticipation loans as tax refunds from the IRS. Liberty also failed to educate its staff about the legalities of advertising and failed to control its franchisees, he said.

John Hewitt, Liberty's founder and CEO, said in a statement Wednesday that the company was disappointed with the decision and planned to appeal. Liberty is the nation's third-largest tax preparation chain.

Refund anticipation loans, short-term bank loans offered to tax-return customers, have come under attack by consumer advocates because of their costs.

In a report issued in February, the Consumer Federation of America and National Consumer Law Center said that the annual percentage rates for the loans range from about 50 percent to nearly

500 percent. Nearly two-thirds of the borrowers taking the loans are from lower-income households that receive the earned income tax credit, the two consumer groups said. They calculated that 8.67 million filers used refund anticipation loans during the 2007 tax-filing season.

California Attorney General Edmund G. Brown Jr., who filed the suit against Liberty, reached a similar settlement with H&R Block. Block, the nation's largest preparer of tax returns, agreed in January to pay as much as $2.45 million in restitution to customers who used its refund anticipation loans. It also agreed to pay $500,000 in penalties and $1.9 million in fees and costs.

As part of a $5 million settlement in 2007, Jackson Hewitt Tax Service agreed to refund $4 million to customers who used its refund anticipation loans. In their settlements, Block and Jackson Hewitt denied allegations of any wrongdoing.

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com