PROPOSED BILL WOULD PREVENT TAX LOAN DECEPTIONS
Council committee considers proposal to protect consumers from deceptive marketing
SEATTLE -Consumer advocates nationwide say a significant number of tax preparers are offering loans to low-income individuals in anticipation of tax refunds without providing disclosure of the fees being charged or alternatives that are available.
Today, Councilmember Tom Rasmussen outlined a proposal for legislation requiring Seattle's commercial tax preparers to disclose detailed information about tax refund anticipation loans or face penalties for violating the law.
"There isn't any problem with the loans being offered," said Rasmussen. "But I believe it's a big problem if consumers are being misled about the charges and how long it takes to get an income tax refund. We need local regulation to assure that people have all the facts about these loans so they can make informed choices regarding their tax refunds."
In April, Seattle resident Mike Thomas told a City Council panel he was elated to hear a commercial tax preparer tell him he would receive a $900 tax refund in 2003. But he was also told it would take two months for his check to arrive from the Internal Revenue Service. The tax preparer told Thomas that he could get his money sooner-in fact directly deposited into his bank account the next day-if he took advantage of a tax refund anticipation loan. Thomas agreed, but ultimately received only $600 in his account. The rest went to the tax preparer.
"I didn't really understand all the fees...it wasn't explained at all that there was another intermediate option which is electronic filing and a shorter time period, 8 or 10 days to receive the refund," said Thomas. "My assumption was two months and I wasn't going to be able to do that." (Mike Thomas can be reached for comment at (206) 349-2112.)
Rasmussen's proposal would require tax preparers to disclose to their customers in writing the following:
- The annualized interest rate for the refund anticipation loan;
- The date when a refund is expected to be obtained through electronic filing without a refund anticipation loan;
- The actual amount the consumer will receive after fees are applied; and
- If the Internal Revenue Service reduces or denies a refund, the customer is still responsible for repaying the entire loan amount and all related costs and fees.
The proposal would also require tax preparers to have written disclosure information available in English and Spanish and to provide a point-by-point oral explanation in a language that is understood by the taxpayer. Violations of these disclosure requirements could result in fines levied by the City up to $700.
Rasmussen intends to introduce legislation shortly after a public hearing schedule for August 12 at 5:00 p.m. "I want to hear from members of the public about their experiences with these loans and whether the disclosure requirements that I am proposing seem reasonable and adequate to protect consumers from misleading information," said Rasmussen. "The hearing will give council members an opportunity to evaluate the extent of this problem in our community."
A public hearing for this legislation will take place on August 12 at 5:00 p.m. The hearing will be held in Council Chambers at City Hall, 600 4th Avenue, 2nd floor (entrance on 5th Avenue between Cherry and James).
A summary of Councilmember Rasmussen's proposal may be found at http:// www.seattle.gov/council/rasmussen/legislation.htm
Mike Thomas can be reached for comment at (206) 349-2112.