Thanks to Tax Pro Today for the heads up on this.
The California State Supreme Court denied an appeal made by Liberty Tax Service on a 2009 ruling. Actually, they refused to hear the case after the state appeals court upheld the original ruling.
The judge in the original case said that Liberty had not adequately disclosed the fees it was charging on Refund Anticipation Loans (RAL). In fact, they were not making it clear to clients that these were loans against their refunds. Liberty was ordered to reimburse California clients $135,000 for the extra fees and pay the state $1.17 million in civil penalties. Liberty says they have already paid the penalties.
The RAL business has changed since the original ruling was handed down. The FDIC and OCC (Office of the Comptroller of the Currency) have pressured banks they oversee to drop their RAL programs. This doesn’t mean that the RAL problem has gone away. Some tax preparer have worked out arrangements with finance companies to offer loan programs. Also, all the national chains and many independent preparers offer programs where the tax preparation costs can come out of the refund for additional fee.
I can see why a taxpayer will take advantage of the RAL or other refund program. But it’s up to them to make sure they understand what the tax preparer is offering and what they will be paying in fees. Most preparers offering these programs are honest but it’s easy to skim over the paperwork and point to the signature lines when the office is busy or it’s clear the client isn’t interested in the fees just the refund.
This court case got some California taxpayers some of their RAL fees back in 2009. Liberty received a wrist slap for doing a poor job of disclosure but what about the other tax offices skipping over full disclosure? A taxpayer’s best protection against them is to insist on knowing what fees they are being charged and being willing to take their business to another tax preparer if they don’t receive the info they need.McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax