You too, Magic? Jackson Hewitt partnership puts Earvin “Magic” Johnson in a league with financial predators

Jackson Hewitt partnership puts Earvin “Magic” Johnson in a league with financial predators

For Immediate Release

March 5, 2009

Contact:

Kimberly Jones, California Reinvestment Coalition;415-864-3980

Peter Skillern, Community Reinvestment Association ofNorth Carolina; 919-667-1557, x22

Tom Feltner, Woodstock Institute, 312-368-0310

Sarah Ludwig, Neighborhood Economic Development AdvocacyProject, 212-680-5100, x207

 

You too, Magic?

Jackson Hewitt partnership puts Earvin “Magic” Johnson ina league with financial predators

 

SAN FRANCISCO, March 5, 2009 – The CaliforniaReinvestment Coalition, Woodstock Institute, Neighborhood Economic DevelopmentAdvocacy Project and the Community Reinvestment Association of North Carolinaare calling on Earvin “Magic” Johnson to stop promoting predatory tax refundanticipation loans this tax season as part of his partnership with JacksonHewitt, the franchise tax preparer notorious for preying on low-income people.Tax refund loans particularly target recipients of the Earned Income TaxCredit, one of the few federal safety nets for the working poor.

As part of a deal announced last November, Johnson isappearing in a marketing campaign throughout the 2009 tax season for JacksonHewitt. He appears in television ads, radio spots on urban stations andbillboards in communities of color endorsing the “Money Now Loan”—one of thelargest sources of refund anticipation loans in the nation. Jackson Hewitt’swebsite offers a 20 percent discount for customers who order Johnson’s book, 32Ways to be a Champion in Business.

Refund anticipation loans are short-term, high-cost loanssecured by a taxpayer’s federal refund. Borrowers end up paying exorbitantinterest (annual interest rates can range from 50% to nearly 500%) to receivewhat is billed as fast cash on their tax return. Jackson Hewitt charges feeswith an APR of either 134% or 140%.

“Refund anticipation loans are part of a spectrum ofabusive, high-cost small loans that have plagued low-income neighborhoods andcommunities of color, draining hundreds of millions of dollars in wealth, toooften through deceptive practices,” Sarah Ludwig, co-director of NeighborhoodEconomic Development Advocacy Project.

IRS data shows that 8.7 million taxpayers took out refundanticipation loans in 2007, costing them almost $1 billion in fees. Two-thirdsof these borrowers are recipients of the Earned Income Tax Credit (EITC), whichsupplements the wages of low-income workers. An estimated 4.5 million people,including 2.4 million children, are lifted out of poverty as a result of EITC,making it the most effective government anti-poverty program. EITC recipientsmake up only 17% of all taxpayers, but are vastly overrepresented among taxrefund borrowers. Based on IRS data, consumer advocates estimate that about$523 million was drained from the EITC program by refund anticipation loan feesin 2007.

“At this time of widespread economic crisis when manyfamilies are experiencing financial hardship, especially in low-incomecommunities of color, Magic Johnson should not get in the business of taxrefund loans,” said Kimberly S. Jones, policy advocate for the CaliforniaReinvestment Coalition. “Magic Johnson’s developments have been positive forcommunities of color and low-income communities. We admire him and hope he willstop this collaboration with predatory lenders.” 

Jackson Hewitt, the second largest commercial preparationchain in the country, has been the target of several government lawsuits forits abusive practices. In 2007, the California Attorney General won a $5million settlement from the company for violating state and federal laws inmarketing its tax refund loans to low-income customers. That same year, theDepartment of Justice sued five Jackson Hewitt franchises for preparingfraudulent tax returns that falsely claimed $70 million in refunds. Whenpreparers inflate refunds, or if the IRS denies or delays the refund, theconsumer still has to pay back the loan.

On Feb. 20, Johnson announced another partnership withRent-A-Center, another purveyor of high-cost lending whose rent-to-own storescan be found in low-income neighborhoods throughout the country.

“As a lifelong Laker and Magic Johnson fan, and as onewho is enthusiastically reading his new book, 32 Ways to be a BusinessChampion, I am extremely concerned that Magic would endorse Jackson Hewittand their Money Now Loan. These loans do exactly the opposite of what Magic hasdone and supported in minority communities—these loans bleed money out ofthese communities, they deprive families out of hard-earned income and theykeep minorities out of the financial mainstream,” said Roberto Barragan,president of Valley Economic Development Center in Los Angeles, which alsoprovides a free site for Volunteer Income Tax Assistance (VITA).

VITA sites have played a critical role in helping toprocess EITC refunds for low-income taxpayers so they can keep more of theirhard-earned money. Tax filers with a total household income less than $38,000can have their taxes prepared for free at these sites and then directlydeposited into their bank accounts. The Internal Revenue Service canelectronically deposit tax refunds into tax filers’ accounts in as little asfive to 10 days for free.

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 For more information or to arrange interviews withadvocates, please call CRC Media Coordinator Tram Nguyen at (510) 213-3680.