Nearly four years after tax refund anticipation loans were all but removed from tax preparation offices, similar costly financial products continue to be offered to many low-income consumers in need of a cash infusion before their tax refund actually hits the bank. This appears to be the case for a loan company accused of providing thousands of refund anticipation-like loans with hidden fees to people living in and around the Navajo Nation. 

A class-action seeking lawsuit [PDF], filed last week in U.S. District Court in Albuquerque, claims that T&R Market, Tancorde Finance, and T&R Tax Service deceived consumers about the terms of their refund anticipation-like loans, saddling users with hidden charges and excessively high interest rates.

Refund anticipation loans (RALs), which were largely prohibited in 2012, are loans secured by and repaid directly from the proceeds of a consumer’s tax refund from the Internal Revenue Service.

As we’ve previously reported, companies have turned to offering non-bank and “no-fee” RALs. Such is the case for T&R Market, Tancorde Finance, and T&R Tax Service, which offers Holiday Loans and Instant Cash Loans.

According to the lawsuit, the companies — part of a business venture serving towns situations on the border of the country’s largest Indian reservation — allegedly imposed hidden charges, deceptively understated [the interest rate], and engaged in other unlawful and deceptive conduct when providing customers with RAL-like loans.

The Loan

In the case of the plaintiffs, a couple sought a Holiday Loan in Nov. 2016 in order to travel and buy food for Thanksgiving.

In order to obtain a Holiday Loan, a customer first visits the T&R Tax Service office, where a T&R Market employee prepares a loan application with the customer. That application is then transferred to a T&R Tax Service employee.

Because W-2s have not been issued at the time a Holiday Loan is offered, the tax return can not be prepared and the T&R Tax Service employee must estimate the amount of the refund.

In this case, the couple was notified that their estimated refund would be $8,000, and that they were approved for a Holiday Loan of $1,250.

The contract identifies Tancorde as the creditor for the loan, stating that customer is obligated to repay the loan proceeds plus a finance charge.

Under this specific contract, the couple was required to make two payments of $762.50, the first on Nov. 23 and the second two weeks later, for a “Total of Payments” of $1,525. The Total of Payments consisted of the return of the principal $1,250 loan, a $250 finance charge, and a $25 document fee.

The Costs

The lawsuit claims that the document fee was a change imposed as an incident to the extension of credit, making it a finance charge under the Truth In Lending Act. However, the companies disclosed the fee as part of the amount financed, meaning it was subject to interest charges.

Additionally, when the couple returned to have their taxes prepared, they were told they would be charged $145, which would be taken from their refund.

When the refund arrived, the couple returned to the business. There they were told they were owed a refund of $849.20 after various deductions.

While the deductions included the $1,525 total of payments from the contract, it also included a tax preparation fee of $157.05, more than the previously stated charge of $145, as well as an undisclosed “credit check fee” of $9.75.

The lawsuit claims that the companies had no contractual right to charge more than $145 for tax prep or charge the $9.75 credit check fee.  As a result, the interest charge in the contract of 264% was significantly lower than the actual interest charged of 385%.

The suit claims that the couple unwittingly paid more for the loan than they anticipated because the charges were not properly disclosed.

The lawsuit seeks actual and punitive damages for the couple and those who have also been deceived by the companies’ misrepresentation of fees.

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.