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U.S. consumer bureau charges firms in tax refund scheme targeting Navajos

WASHINGTON (Reuters) – The U.S. consumer bureau and the Navajo Nation filed charges on Tuesday against companies and executives they say used H&R Block franchises to operate an illegal tax-refund scheme.

The Consumer Financial Protection Bureau said it is seeking court approval to collect about $438,000 in civil penalties, plus more money in redress for victims, many of whom are Navajo citizens.

The CFPB said Jeffrey Scott Thomas and his company, J. Thomas Development of NM Inc, no longer own the four H&R Block franchises and that H&R Block did not participate in the scheme.

The bureau also charged Dennis Gonzalez and his loan company, S/W Tax Loans, alleging they participated in the scam to steer low-income consumers into expensive risky loans.

Michael Goodman, an attorney for Thomas and his company, said the CFPB’s complaint represents “allegations, not facts” and that no consumers complained about the services.

An attorney for Gonzalez did not respond to a request for comment.

According to the CFPB’s complaint, which was filed in a federal court in New Mexico, Thomas set up and financed S/W Tax Loans, which offered short-term, high-interest loans that consumers could secure using their anticipated tax refunds.

The CFPB claims that Thomas told tax preparers to offer consumers only these types of loans, and not more affordable loans offered through H&R Block.

Tax preparers who worked for Thomas received bonuses based on the number of clients who took advantage of loans offered by S/W Tax Loans, also called Southwest Tax Loans, and consumers did not know the preparers had incentives to offer them, the CFPB said. The CFPB also accused the defendants of “illegally and grossly” understating the loans’ annual percentage rates.

The CFPB said Gonzalez, who served as S/W Tax Loan’s president and was a friend of Thomas, had managerial responsibility in the business and, therefore, “materially participated” in the scheme.

Paul Spruhan, an assistant attorney general for the Navajo Nation, said Tuesday’s case marks the first time the Navajo Nation has sued a border town tax-lending service.

The CFPB is seeking to ban Thomas and Gonzalez from offering financial products associated with tax refunds for five years. It is also seeking an additional $254,267 in redress for consumers, which is on top of $184,000 in refunds already paid by Southwest.

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