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RALs, "cross-collection," will banks take for credit card debt?

A client walks in the door and that's the last thing on his or her mind. Their issue, very understandably, is whether or not they will be approved for the loan. My first year, out of approximately a hundred clients that took the loan product, two of them had their entire refund taken by Household Finance for "debt offset." My second year, out of about eighty loan applicants, about half a dozen were blue sheeted, meaning the computer showed they owed debt, which could have just been the holiday debt, it was vague, but we did not adequately inform them. They walk out the door thinking they weren't approved and might as well just try the next place, not realizing their entire refund for the year might be at risk. That even if we were trying to have a real conversation (rather than a guarded corporate conversation) it would be hard to communicate this.

It would be as surprising as if a person with an ordinary middle-class income is opening up a bank account and signing the ordinary paperwork, and you later discover the bank took money from your account to pay third-party debt, and the paperwork gave them permission for this. No one reads the paperwork. You would have to be an extremely strong reader, like someone who reads Henry James for enjoyment, and it would still take you all afternoon to read it, and the vague parts would still be vague, and scary.

So, if a client, for example, went to Jackson Hewitt back in 2002 and got a RAL but the bank did not get the expected refund and if they then go to H&R Block in 2008, some or all of their refund may be taken for "cross-collection." This happens. This is definite.

My question is whether this happens for old credit card debt. It would surprise me if the banks did not try and push this as far as possible, simply because debt collection is a profitable business. (Major RAL banks these days are HSBC and Santa Barbara Bank & Trust.)

Often in talking to clients, I try to be a good guy, they think, and sometimes conclude, Well, it worked out okay last year. That's a good sign. But, I think it changes every year. Again, it's a profitable sideline for the banks.

And no, no, No, this is not adequately disclosed to clients.

Any help. How to inform?

Thanks,

Doug

Reply to
Doug
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"Doug" wrote

Hewitt and Block are just loan processors. If they both use the same bank for the RAL's, the taxpayer is bound to get any current refund applied to the old bank debt.

I doubt this happens.

I think there's a third one who is a major player. There may be hundreds of small local lenders who get into the RAL business.

Just keep telling them, or pre-read the loan documents so you can specifically point out the areas of concern.

It may be that they don't even know that a prior year refund was never paid to settle the loan.

Reply to
Paul Thomas, CPA

Even though I am NOT in the RAL business, any preparer should make efforts to adequately inform clients as to the ramification, pitfalls, risks, etc. of the RAL. Having the terms printed on a document and given to the client is not sufficient, size of type notwithstanding.

But help MAY be on the way. Look at the IRS website for information on how IRS currently views the situation. They have new regulations, AND are soliciting comments from the public for the next 90 days as to the general climate regarding RAL's.

Follow this link:

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7075,00.html

It's time for everyone to step up to the plate and let IRS know how he feels.

ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

Doug wrote: [...]

If you owe the IRS (Treasury Dept) and choose not to pay on time, they penalize you and have other ways to go after your money.

If you owe child support and choose not to pay on time, they penalize you and have other ways to go after your money.

If you owe a bank and choose not to pay on time, they penalize you and have other ways to go after your money.

What's the difference?

Here's one of the most unconscionable "profiting from debt collection" schemes I've seen:

Suppose you owed, say, $1,500 tax on a $10,000 required minimum distribution (RMD) from an IRA. This tax was due no later than April 15. Now, BEFORE THE DUE DATE, you realize you owe the tax (say, on February 15). You want to pay it and bring your account up to date. Too late, you are now subject to a penalty of $5,000 in addition to the $1,500 tax (since you didn't take your RMD on time and trigger the normal $1,500 tax). I can't even bring myself to estimate the APR (annual percentage rate) on that...

How is that any different from applying part of your most recent payment to late fees, and then claiming that your payment continues to be less than the required minimum, thereby generating more late fees?

I heard that HSBC has a toll free number that can be called, prior to agreeing to the RAL, to find out if you have prior debt awaiting collection. If you don't want to call from your home phone, use that of your tax preparer who is offering the RAL.

-Mark Bole

Reply to
Mark Bole

The banks collect for each other. "You authorize JHI [Jackson Hewitt] and SBBT [Santa Barbara] to exchange information about your current and prior RALs with other RAL lenders including Bank One, N.A., Beneficial National Bank/Household Bank, First Security Bank, River City Bank, County Bank of Rehoboth Beach, DE and Republic Bank & Trust Company/Refunds Now."

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And I kind of remember the case from several years ago, although the client was very distressed, that it was old credit card debt. And again, such collection would be a profitable sideline (and if you're on the edge of legality, minimal disclosure, etc, etc).

-Doug

Reply to
Doug

There is a class action lawsuit involving this issue pending in the California courts. The case is Canieva Hood Et Al v. Santa Barbara Bank & Trust, Jackson Hewitt, Et Al. According the law firm's web site (Sturdevant Law Firm), the trial court's ruling was reversed on appeal in favor of the plaintiff. That was in 2006 with no further status update. Here is a link with information about the case.

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Condor

Reply to
Condor

And now Hood vs. Santa Barbara Bank & Trust can go to jury trial. As I understand it, the original trial court threw out the case on grounds of federal law preempting state law. And the appeals court, by a vote of 2 to 1, reversed that dismissal, the key part of their decision seeming to be, "Both the deposit-taking regulation and the non-real estate lending regulation "save" or "exempt" certain state laws (including contracts, tort, and debt collection laws) from preemption."

RALs are a blatant rip-off. "Cross-collection" is perhaps the worse abuse, although admittedly not very common. At the very, very least, we need MEANINGFUL disclosure.

Contributing factors might be: That companies are slow getting out W-2s, that the IRS might be able to turn around faster than two weeks on straightforward returns filed electronically, and that many low- income persons have difficulty gettting bank accounts because of bank credit (?), even plain vanilla savings accounts.

And, Oh Yeah, Santa Barbara Bank & Trust is now owned by Pacific Capital Bank.

The Code of Hammurabi said, The first task of government is to protect the powerless from the powerful. Well, it sure don't always work that way!

Cheers,

(and bit-by-bit we will improve things, we will!) (at a certain point we will probably need community groups picketing the storefront chains during high season, although perhaps that's an Ace we won't actually need to play)

-Doug

Reply to
Doug

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