Don’t mess with New York. That’s the message that came out Wednesday from the office of the attorney general in that state. The top lawyer in the Empire State, Eliot Spitzer slapped a $250 million lawsuit against tax giant H&R Block. And where did the bean counters go wrong? Did they try to deduct something inappropriate or send an inflated bill to Michael Bloomberg? No. The lawsuit alleges that Block used fraudulent practices to market their Express Individual Retirement Account (IRA) when people have their taxes done. As I understand it, the conversation would go something like this:
Tax-Preparer: If you’ll put some money into our Express IRA, we can save you some money in taxes.
Customer: Really? How’s that?
T-P: As long as you put the money into the IRA by April 15, you can deduct it on last year’s income. If you were to put, let’s say, $500 in, that would increase your refund by $125! That’s like free money.
Customer: Wow! Where do I sign?
What the tax-preparers didn’t mention, Mr. Spitzer claims, is that this particular IRA imposes fees that, in 85% of cases, cost more than the account pays in interest. In other words, you could parlay that $500 into a cool $475 in just five years. What a deal.
Block claims that they’re doing people a favor. They keep the minimum investment amount low on their Express IRA’s, so that people who have never saved anything in their life can get in on this good habit of life.
Spitzer believes that he can see through that thinking. The people who wind up taking advantage of the Express IRA are the same people who “take advantage” of those “Instant Refund” deals. Of course in those cases, the instant refund is in reality a loan bearing a high interest rate that bridges the time between the tax return going in and the refund coming back. How high is that interest rate? Try 222.5%. No, that decimal point is in the right place. For the privilege of getting money some two weeks faster, many consumers—some 40% of H&R Block’s customers—are forking over around a third of their refund.
Some might be tempted to say that there’s a reason why poor people are poor. If you don’t have the sense to ask yourself why these nice people are handing you a check today rather than making you wait, then maybe you deserve to pay usurious rates. If you don’t check into the fine print on an investment, maybe you deserve to see your nest egg dwindle away. Maybe, but Isaiah makes it pretty clear here that those who take advantage of the poor won’t be winked at by God.
I can’t say that I know everything about shady business practices. Maybe H&R Block is providing a valuable and essential service to consumers. Maybe those payday loan places are a vital cog in the wheel of commerce. Maybe the “We Finance Everybody” car lots are truly in it to help people get some wheels. I can’t say for sure.
What I can say for sure is that I have no excuse to deal sharply with people. Some day I will stand before the Lord. Let me not be accused that day of “making widows their prey and robbing the fatherless.”
Tune My Heart is primarily an aid to the devotional life of its author, Mark Browning, who holds the copyright for this material. It is provided online in hopes that some will find it edifying. All contents, unless otherwise noted, may be redistributed freely provided that you give credit for its origin and do not charge anything.