Magic Johnson and the Tax Refund Rip-off
Try, try, try to understand
He's a magic man
-Heart
If you watched the NCAA basketball Final Four, you couldn't miss former Michigan State star Earvin "Magic" Johnson. He was constantly being interviewed or shown on camera.
There is another place you can find Magic Johnson: doing commercials for Jackson Hewitt's "Money Now." "Money Now" is a tax refund loan operation.
Tax refund loans (also called refund anticipation loans) are in a class of financial products marketed primarily to poor people.
Someone described tax refund loans as a payday loan guaranteed by your tax return.
That hits the nail on the head.
Like payday loans, the fees and interest rates on tax refund loans are outrageous.
According to the San Francisco Chronicle, the annualized interest rate for tax loans is 40% to 500%.
According to IRS data, 8.7 million people took out a tax refund loan in 2007. Of those 8.7 million who got the loans, 67% received an Earned Income Tax Credit.
The Earned Income Tax Credit is a program aimed to help the working poor. Only 17% of all taxpayers get it.
When 2/3 of the borrowers come from less than 1/5 of the population, it doesn't take a genius to see the business model. Tax refund loan vendors must view the working poor as easy pickings.
They are probably right.
In the modern era, with electronic transfers, it only takes a week or two to get a tax refund from the IRS.
People getting loans are those who won't wait two weeks for their money.
Tax refunds come in once a year. It is not money people are living on week to week.
There is something seriously wrong about a society where 8.7 million Americans will pay $1 billion in fees and interest rather than wait two weeks for a check.
It's a mindset of immediate gratification that companies like Jackson Hewitt are able to exploit.
And able to get Magic Johnson to be their front man.
It's hard to find a better spokesperson than Magic Johnson.
He is one of the best, and best known, basketball players of all time. He is personable and charismatic.
During a halftime interview at the NCAA championship game, an announcer noted that the basketball's popularity grew dramatically in the 1980's when the college rivalry of Johnson and Larry Bird carried into professional basketball.
When Johnson tested positive for HIV in 1991, he became an inspiration for others with the disease and an advocate for prevention and cures. He has given generously to charitable causes.
Which begs the question: Why is Johnson using his considerable fame and influence to peddle tax anticipation loans to poor people?
Several groups and other journalists have asked Johnson that question. Johnson and the Magic Johnson Foundation have all declined comment.
My guess is that he is trying to work under the radar. The commercials run heavily in urban and poorer neighborhoods. I suspect they are not running many of those commercials in the part of town where Magic lives.
Johnson is a bright guy, surrounded by advisers. If any had done their homework, they would have seen that refund loans are a sordid and ugly business.
Jackson Hewitt has been the target of several government lawsuits. The California Attorney General got a $5 million settlement from Jackson Hewitt for violating laws in the way it marketed loans to poor people.
Republic Bank of Louisville, Kentucky, had previously been in the payday lending business. It shifted business models and processed $6 billion in tax anticipation loans in 2007. Louisville's Business First publication wrote that "the lucrative RAL business accounts for half of Republic's profits in 2008." Business First said that Jackson Hewitt was Republic's biggest client.
On February 27, the Federal Deposit Insurance Corporation (FDIC) issued a cease and desist order against Republic Bank, related to its refund loan anticipation (RAL) program.
Based on the information and evidence, you would think that Magic Johnson would have ceased and desisted long before becoming the public face of the industry.
I'm sure Jackson Hewitt is shelling out big money to Johnson. But there is a point where reputation is more valuable than money.
I've seen no public evidence of Johnson having the types of financial problems that have driven Ed McMahon and M.C. Hammer to become pitchmen for unusual products.
There is no reason for tax refund anticipation loans to exist. The industry targets a poor audience, charges high fees and provides a "service" that is not really a service. People wait all year for a tax refund. They can wait another two weeks or so.
Senator Richard Durbin of Illinois has proposed a bill limiting all loans to 36% interest. It is a great idea and one that would wipe out the tax refund anticipation loan business.
It's easy to eliminate an industry with a dubious business model and a laundry list of regulatory violations.
It's harder to eliminate a business where Magic Johnson is its public face.
Because of Johnson, the tax refund business might stick around, luring in more millions of Americans.
Although I admire his place in basketball history, it's now hard for me to think of Johnson as a magic man.
Don McNay, CLU, ChFC, MSFS, CSSC is the founder of McNay Settlement Group in Richmond, Kentucky.
He is the author of Son of a Son of a Gambler: Winners, Losers and What to Do When You When The Lottery. You can write to Don at don@donmcnay.com or read his award winning, syndicated column at www.donmcnay.com.
McNay is Treasurer for the National Society of Newspaper Columnists and a lifetime member of the Million Dollar Round Table.
Television commercial for Money Now starring Magic Johnson
http://video.aol.com/video-detail/teamworkmoney-now-loan/2949177173/?icid=VIDURVBUS06
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Say it ain't so, Magic! Sick, sick, sick. Where will the greed end?
Shame on him! My father taught me to be humble and not to ever forger "where I came from." If Earvin Sr. tried, Jr. didn't get it. His commercials portray him as needing a helping hand and then he leads others in need to loan sharks.
Try looking at our own US Treasury. After hurricane Rita I was told I made too much money for ANY kind of assitance and that I needed to apply SBA for a Disaster Assistance Loan. It took 8mo to finalize the loan. After recieving two-thirds of the monies alloted with contractors still working on the house SBA said they made a mistake on the amount of the loan and NO MORE MONIES would be forthcoming. I asked about the lein amount they had placed on my home and was told not to worry about it they would fix it. Long story short I got 180 days behind and the Treasury GAVE my account to a collection agency who informed me that I now owed a $7,000 one time processing fee on a $23,000 note and could I pay in full buy the end of the month. I dont know which disaster was worse, the hurricane or the loan.
Absolutely despicable Magic.
I worked at H & R Block for one tax season many years ago when the refund anticipation loan was new.
Customers could not be talked out of this rip off due to the massive advertising campaign.
Of course the bosses were not happy that I tried. These loans are usury pure and simple.
Oh yeah - so are credit cards - ever get the feeling that they sit in their offices on the upper floors just laughing at us?
This reminds me of the black actor who does the Allstate insurance commercials despite the fact that Allstate stiffed its customers during Hurricane Katrina (Allstate actually has a long history of doing that). I guess anything for a paycheck.
This partnership, and his recent partnership with RentACenter, have really disappointed me. Both are no good for the community, which is a complete contradiction to what I thought Magic stood for. He seems to be willing to partner with whoever pays and will put his face all over the place. Maybe the economy is getting to him and he needs the money or maybe he misses the fame? I can't help to wonder why companies still go to him for endorsements--he's over exposed, partnering with Best Buy one day, and RentACenter the next, Washington Mutual one day, then Jackson Hewitt, Abbott one day, then Aetna the next. From what I've heard, Magic Johnson ultimately does what he wants to do, regardless of his advisors and regardless of what it might mean to his reputation, so for me, the buck stops with him. I hope he will take responsibility for these bad business decisions and bring the Magic back.
Although it's positive news that "Senator Richard Durbin of Illinois has proposed a bill limiting all loans to 36% interest." the fact this is something to feel hopeful about shows how quickly and far we've fallen from the protections previously provided by state usury laws. Before the Federal government pre-empted state interest rate controls in 1980, most of them had maximums well below 36%.
The present financial crisis has been building for quite some time, while we haven't been paying attention to legislation that makes it easier than ever to exploit the poor.
Now we're WAKING UP to the fact we can't trust our Congress and Federal agencies to protect the financial interests of ordinary working people any more than we can trust them to protect the environment. In both instances, we need strong grass roots organizations to counter the influence of powerful lobbyists. Otherwise, they will continue to sell us down the river.
Excellent point, SingingTortoise. While I don't have the information in front of me, I believe the old usury law in Illinois limited interest to something like 20%. That seems like enough interest for anyone. The repeal of usury laws has reduced purchasing power by transferring too much money away from goods and services(and the manufacturers and service providers) to the gree dy clutches of bankers and other lenders.
I agree, particularly the comment about Congress protecting the financial interests of working people.
Once again the Gramm Leach Bliley Act (which ultimately passed with bipartisan conference support in 1999) rears its ugly head. Section 731 of said act essentially rendered all state usury limits ineffective.
Just Sayin
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