CFPB Suit Accuses Loan Company Of Targeting Low-Income Residents

A former H&R Block tax preparer and a refund-anticipation loan company in New Mexico that allegedly cheated poor Navajo residents out of a quarter-million dollars are being sued by the U.S. Consumer Financial Protection Bureau and the Navajo Nation, the CFPB announced on Tuesday (April 14).

Jeffrey Scott Thomas, who ran J. Thomas Development of NM — four H&R Block franchises that targeted low-income Navajos as customers — is accused of setting up a side business that offered high-interest tax-refund anticipation loans and steering his tax-preparation customers to those loans instead of the lower-cost refund-anticipation loans that H&R Block offered, as well as deceiving customers about the costs of the loans and whether their tax refunds had arrived so they wouldn’t have to extend the loans.

A lawyer for Thomas said the CFPB’s complaint contained “allegations, not facts” and that no consumers complained about the services, Reuters reported.

H&R Block wasn’t party to the scheme and canceled Thomas’s franchise agreements in September 2014, the CFPB said. The tax giant wasn’t a defendant in the lawsuit and isn’t expected to be charged.

Also charged in the complaint was Dennis R. Gonzales, who was installed by Thomas as the owner and president of the loan company, S/W Tax Loans.

According to the CFPB and Navajo Nation complaint, Thomas broke the law when he had his tax preparers steer customers to refund-anticipation loans with 240 percent APRs without disclosing that he was the financier who earned interest and fees, and that the tax preparers earned bonuses based on the number of high-interest loans they could get clients to take out.

The lawsuit also alleges that the loan rates were illegally and grossly understated, making consumers think they were less expensive than they actually were. And when customers asked Southwest whether their tax refunds had come in, the loan company didn’t answer, but steered them to take out a second or third refund-anticipation loan while they waited for their refund.

The CFPB the Navajo Nation have proposed a settlement that would require Thomas and Gonzales to be banned from the tax-refund loan business for five years, refund $254,267 in interest and fees to customers who were deceived into extending their loans after their refunds had arrived, and to pay $438,000 in civil penalties.

“This scheme exploited vulnerable consumers by grossly understating loan rates and by deceiving them about the status of their tax refunds,” CFPB Director Richard Cordray said in a prepared statement. “Today’s joint action with the Navajo Nation to police illegal and abusive practices is a milestone for the Bureau. Through our coordination and cooperation, we are putting an end to this sorry chapter.” The lawsuit marks the first time the CFPB and the Navajo Nation have taken joint legal action, after signing a cooperation agreement in 2013.

“Today’s action with the Consumer Bureau is the first time the Navajo Nation has sued a border town tax lending service,” Navajo Nation Assistant Attorney General Paul Spruhan stated in the release. “This action puts lenders on notice that the Navajo Nation is prepared to enforce federal laws against predatory lenders to protect its citizens.”

Deceptive loan practices have become a major target for the CFPB in recent months. In March the bureau said it uncovered legal violations at banks and credit unions that will result in $19.4 million being refunded to more than 92,000 consumers.