S/W Tax Loans, Inc. formerly d/b/a Fast Refund Loans, Inc.; J Thomas Development of NM, Inc. formerly d/b/a H&R Block; Dennis R. Gonzales; and Jeffrey Scott Thomas
Documents in this case
- Complaint · · 24 p.
- Stipulation · · 15 p.
Case summary
CFPB together with the Navajo Nation, took action against companies and individuals who operated an illegal tax-refund scheme.
Complaint ()
PDF of this document (24 pages)
Page 2
IN THE UNITED STATES DISTRICT COURT DISTRICT OF NEW MEXICO
Consumer Financial Protection Bureau and Navajo Nation, Plaintiffs,
v.
S/W Tax Loans, Inc. formerly d/b/a Fast Refund Loans, Inc.; J Thomas Development of NM, Inc. formerly d/b/a H&R Block; Dennis R. Gonzales; and Jeffrey Scott Thomas, Defendants.
Civil Action No.
COMPLAINT
The Consumer Financial Protection Bureau and the Navajo Nation bring this action against S/W Tax Loans, Inc. formerly d/b/a Fast Refund Loans, Inc.; J Thomas Development of NM, Inc. formerly d/b/a H&R Block; Dennis R. Gonzales; and Jeffrey Scott Thomas (collectively, “Defendants”) and allege as follows:
INTRODUCTION 1.
Jeffrey Scott Thomas, through his company, J Thomas Development of NM, Inc., operated several H&R Block franchises in New Mexico and the territory of the Navajo Nation. Case 1:15-cv-00299 Document 1 Filed 04/14/15 Page 1 of 24
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2.
Around 1998, Thomas set up and financed S/W Tax Loans, Inc. (“Southwest”), a loan company created to offer Thomas’s tax clients short-term, triple-digit-APR loans secured by the consumer’s anticipated tax refund – also known as refund-anticipation loans (“RALs”). Thomas ordered his tax preparers to recommend only Southwest’s RALs and not to offer H&R Block’s more affordable alternative. Thomas paid his tax preparers bonuses based on the number of tax clients who received Southwest’s RALs, and concealed from consumers the financial interest he and his tax preparers had in each high-cost RAL they recommended. Additionally, Southwest failed to make other required disclosures about the high-cost products they were foisting on consumers. 3.
Plaintiffs bring this suit to secure relief for injured consumers, to stop the unlawful conduct by Defendants, and to obtain a penalty against them. JURISDICTION AND VENUE 4.
This Court has subject-matter jurisdiction over this action because it is brought under “Federal consumer financial law,” 12 U.S.C. § 5565(a)(1), presents a federal question, 28 U.S.C. § 1331, and is brought by an agency of the United States, 28 U.S.C. § 1345, and by an Indian tribe under federal law, 28 U.S.C. § 1362.
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5.
Venue is proper because Defendants resided, were located, and transacted business in this district, and a substantial part of the events or omissions giving rise to the claims occurred in this district. 28 U.S.C. §§ 111, 1391(b); 12 U.S.C. § 5564(f).
PARTIES 6.
Plaintiff Consumer Financial Protection Bureau is an agency of the United States charged with regulating the offering and providing of consumerfinancial products and services under Federal consumer financial laws, including the Truth in Lending Act (“TILA”), 12 U.S.C. § 1601 et seq., and its implementing regulations (“Regulation Z”), 12 C.F.R. pt. 1026; and the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5531, 5536(a)(1). See 12 U.S.C. § 5491(a); see also id. § 5481(12), (14). The Bureau’s regulatory authority extends to persons extending credit and service providers to those persons. 12 U.S.C. §§ 5531(a), 5481(5), (6), (15)(A)(i), (26). The Bureau has independent litigating authority to commence civil actions to address violations of Federal consumer financial laws, including TILA, Regulation Z, and the CFPA. 12 U.S.C. § 5564(a)- (b); 15 U.S.C. § 1607(a)(6).
7.
Plaintiff Navajo Nation is a sovereign Indian nation with over 300,000 citizens. Its sovereign lands include lands also within the boundaries of Case 1:15-cv-00299 Document 1 Filed 04/14/15 Page 3 of 24
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the State of New Mexico. Some of its citizens seek consumer-credit products such as those offered by Defendants, particularly in “border towns” surrounding the Nation’s territory. The Navajo Nation Department of Justice, the attorney general’s office for the Nation, explicitly has authority to enforce the CFPA. 12 U.S.C. §§ 5481(27) (including Indian tribes in definition of “State”); 5552(a)(1) (authorizing enforcement action by attorney general of “State”). 8.
Defendant Southwest is a New Mexico corporation with offices in Bloomfield, Farmington, North Gallup, South Gallup, and Shiprock. At times material to this Complaint, Southwest regularly extended consumer credit subject to finance charges and was the person to whom the debt arising from the consumer-credit transaction was initially payable on the face of the evidence of indebtedness. Southwest is therefore a “covered person” under the CFPA and a “creditor” under TILA and Regulation Z. 12 U.S.C. § 5481(6), (15)(A)(i); 15 U.S.C. § 1602(g); 12 C.F.R. § 1026.2(17).
9.
Defendant J Thomas Development of NM, Inc. formerly d/b/a H&R Block (the “Tax Franchise”) is a New Mexico corporation that owned and operated four H&R Block franchises. At times material to this Complaint, the Tax Franchise referred its clients to Southwest for RALs and collected and processed transactions and documentation related to those RAL applications. The Tax Case 1:15-cv-00299 Document 1 Filed 04/14/15 Page 4 of 24
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Franchise is therefore a “service provider” under the CFPA. 12 U.S.C. § 5481(26)(A).
10.
Defendant Jeffrey Scott Thomas is a New Mexico resident who served as the Tax Franchise’s president. Thomas participated in designing, operating, and maintaining the RALs that Southwest offered to Tax Franchise customers. At times material to this Complaint, Thomas directed the Tax Franchise to refer its clients to Southwest for RALs and to collect and process transactions and documentation in support of those RAL applications. Thomas is therefore a “service provider” to Southwest. 12 U.S.C. § 5481(26)(A). Additionally, at times material to this Complaint, Thomas materially participated in the affairs of Southwest. Thomas is therefore a “related person” to Southwest under the CFPA. 12 U.S.C. § 5481(25)(C)(ii). Because Thomas is a “related person,” he is deemed a “covered person” under the CFPA. 12 U.S.C. § 5481(25)(B).
11.
Defendant Dennis R. Gonzales is a New Mexico resident who owned Southwest and served as its president. Additionally, at times material to this Complaint, Gonzales had managerial responsibility for Southwest and materially participated in the conduct of its affairs. Gonzales is therefore a “related person” to Southwest under the CFPA. 12 U.S.C. § 5481(25)(C)(i), (ii). Case 1:15-cv-00299 Document 1 Filed 04/14/15 Page 5 of 24
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Because Gonzales is a “related person,” he is deemed a “covered person” under the CFPA. 12 U.S.C. § 5481(25)(B).
FACTS
A.
The Tax Franchise offered tax-preparation services within or near the Navajo Nation.
12.
In the late 1990s, the Tax Franchise began offering tax-preparation services in four locations within the territory of the Navajo Nation or in New Mexico near the Nation’s territory. Most of the Tax Franchise’s customers were low-income citizens of the Navajo Nation who qualified for and relied on the Earned Income Tax Credit. Many of those customers desired immediate access to cash for personal, family, or household needs and wanted to defer payment for tax-preparation services.
13.
The Tax Franchise could have offered H&R Block’s proprietary financial products to meet its clients’ short-term cash needs. These products included H&R Block’s line of credit, which provided cash advances on tax refunds and had a maximum 36% APR.
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B.
Thomas created Southwest to offer high-cost, short-term loans to the Tax Franchise’s clients.
14.
Around 1998, Thomas set up Southwest, a tax-loan company, to offer to the Tax Franchise’s clients RALs with APRs above 240%. 15.
Thomas installed Gonzales, a friend and employee in one of Thomas’s automobile dealerships, as the president and owner of Southwest. Southwest opened offices next door to each of the Tax Franchise’s locations. 16.
Thomas financed Southwest’s entire operation, providing everything from start-up capital to the funding for all of the RALs. Thomas kept close control over Southwest. Thomas installed staff, made the general manager of Southwest report directly to him, and set Gonzales’s salary; he approved loan rates, maximum loan limits, underwriting criteria, loan-volume targets, and the terms of the RAL agreements; he determined advertising and marketing copy; and he received daily-activity reports monitoring loan volume. Indeed, in various internal communications, Thomas referred to Southwest and the Tax Franchise as “sister companies” and the “tax/loan division” of his business enterprises.
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17.
Southwest‘s RALs were much more expensive than H&R Block’s line of credit. The APRs on the RALs ranged from approximately 240-310%, while the APR for the H&R Block line of credit did not exceed 36%. 18.
Thomas’s investment in Southwest was highly lucrative. Through various companies he owned and controlled, Thomas earned significant income from Southwest, including interest and origination fees and consulting fees for compliance, audit, and other services.
C.
Thomas and the Tax Franchise steered consumers to Southwest’s costly RALs
19.
Thomas and the Tax Franchise played critical and sustaining roles in the offering and provision of Southwest RALs. 20.
Each November and December, Southwest offered “holiday” RALs based on the Tax Franchise’s estimate of the consumer’s expected refund the following year. The estimate was typically based on pay stubs or the refund from the prior year. The Tax Franchise’s tax preparers presented holiday-loan applications and other associated forms to consumers, helped consumers complete the forms, and collected birth certificates and social-security cards of entire families to serve as collateral for the loans and to ensure the clients Case 1:15-cv-00299 Document 1 Filed 04/14/15 Page 8 of 24
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returned to the Tax Franchise to get their taxes done. Thomas approved and financed radio and print advertisements for the holiday RALs. 21.
Southwest also offered RALs during tax season. The Tax Franchise’s tax preparers provided many of these same support functions for those RALs, including presenting loan applications and other forms. 22.
Like the consumers seeking holiday loans, many of the Tax Franchise’s tax-preparation clients were low-income and had immediate cash needs. For Thomas, these cash-strapped consumers were a ready pool of customers for Southwest’s high-cost RALs. During tax season, Thomas instructed the Tax Franchise employees to refer tax clients to Southwest for RALs and gave the tax preparers a financial incentive to do so. Each season, the tax preparers received a bonus based on the number of RALs their customers received from Southwest.
23.
Neither Thomas nor the Tax Franchise disclosed to the tax clients that Thomas and his tax preparers had a financial interest in each and every RAL the clients took out from Southwest.
24.
From 2011 through 2013, Southwest provided RALs to about 7,000 consumers annually and, in total, issued more than 39,000 RALs with a face value of more than $36 million.
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D.
Southwest did not disclose that consumers’ tax refunds had been received and would soon be available but instead persuaded consumers to take out additional RALs.
25.
Southwest set forth the terms and conditions of its RALs in a “Loan Agreement and Disclosure Statement” and a “RAL Authorization/Certification Agreement” (collectively the “RAL Agreement”). 26.
Under the terms of the RAL Agreement, consumers had to cede control over their refunds to Southwest. The RAL Agreement authorized Southwest to receive consumers’ state and federal tax refunds, endorse their refund checks, use their tax refunds to pay off RALs and the tax-preparation services provided by the Tax Franchise, and contact the IRS to determine the status of their refunds. It also authorized Southwest to open bank accounts in consumers’ names for the deposit of their tax refund checks. 27.
Consumers had to rely on Southwest to learn when their tax refunds had arrived.
28.
During tax season, the process of reconciling tax-refund checks from the IRS took a few days. Southwest deducted the principal, interest, and fees for its RALs and the Tax Franchise’s tax-preparation fees from the tax refund. The remaining refund was remitted to the consumer. Case 1:15-cv-00299 Document 1 Filed 04/14/15 Page 10 of 24
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29.
Southwest did not disclose to more than 1,500 consumers that their tax refunds had been received from the IRS and were being processed. Instead, when these consumers inquired about the status of their refund, Southwest persuaded the consumers to take out a second RAL. 30.
Many consumers, had they know that their refunds had been received and would be available to them in a matter of days, would not have taken out another high-cost Southwest RAL. Because Southwest concealed this information from them, many consumers unwittingly paid significant fees to borrow funds that would have been available to them in only a few days. 31.
In January 2013, H&R Block notified Thomas that Southwest was issuing second and third RALs to consumers whose tax refunds had been received by the company. Thomas took no steps to stop or prevent this practice, even though he had authority to do so.
32.
Gonzales was the president and owner of Southwest, and had the authority to control Southwest’s operations and activities. He knew or should have known about Southwest’s practices of extending unnecessary RALs but took no steps to stop or prevent it.
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33.
From 2011 through 2014, Southwest extended RALs to more than 1,500 consumers whose refunds had already been received, charging more than $250,000 in interest and fees.
E.
Southwest’s RAL Agreement grossly understated the loans’ APR. 34.
Thomas played a key role in determining the APR disclosures for the RALs.
35.
Gonzales had the authority to control Southwest’s activities and operations, and knew or should have known about the company’s inaccurate RAL disclosures.
36.
The RAL Agreement required consumers to pay back RALs “on demand or when [their] anticipated refunds [were] received from the federal and state (if applicable) agencies.”
37.
From 2011 through 2012, Southwest’s RAL Agreement failed to disclose that the APR provided was based on a loan-term estimate. 38.
Southwest also understated the APRs on RALs it issued from January to May 2013 by using an inflated loan-term estimate to calculate the APR. Southwest used a 45-day loan-term estimate in calculating the APR even though its RAL Agreement stated that “the IRS normally makes an electronic deposit in an average of about 12 days.” Case 1:15-cv-00299 Document 1 Filed 04/14/15 Page 12 of 24
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39.
H&R Block terminated its relationship with the Tax Franchise in late 2014. As a result, both the Tax Franchise and Southwest ceased their operations. COUNT I by the Bureau and the Nation against the Tax Franchise and Thomas for abusive steering, in violation of the CFPA
40.
The Bureau and the Nation reallege and incorporate by reference paragraphs 1 through 39.
41.
Section 1036(a)(1)(B) of the CFPA prohibits abusive acts or practices in connection with the offering or provision of consumer financial products or services. 12 U.S.C. § 5536(a)(1)(B); see also id. § 5531(a). An act or practice is abusive if it takes unreasonable advantage of the inability of the consumer to protect her interests in selecting or using a consumer financial product or service. 12 U.S.C. § 5531(d)(2)(B).
42.
Although authorized to sell H&R Block financial products through the Tax Franchise, including a line of credit with a 36% APR, Thomas created and financed Southwest to sell high-cost RALs to the Tax Franchise’s clients. 43.
Thomas bankrolled Southwest’s entire business, including financing all its RALs, but presented Southwest to the public as a separate and independent firm.
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44.
The Tax Franchise’s clients were generally low-income consumers with immediate cash needs. Thomas and the Tax Franchise sought to capitalize on these cash-strapped and vulnerable consumers by steering them to Southwest for high-cost RALs.
45.
Thomas and the tax preparers had a financial interest in each Southwest RAL their tax clients took out. The Tax Franchise paid its tax preparers a seasonal bonus based on the number of Southwest RALs their clients took out. Thomas, through various entities he owned and controlled, earned significant income from Southwest, including interest and origination fees, and consulting fees for compliance, audit, and other services. 46.
Neither Thomas nor the Tax Franchise disclosed those financial interests to the tax clients they steered to Southwest’s RALs. The tax clients thus lacked important information in evaluating whether to choose a Southwest RAL or to seek an alternative financial product to meet their short-term cash needs. 47.
By failing to disclose their financial interests in the high-cost loan products to which they were steering their cash-strapped and vulnerable customers, Thomas and the Tax Franchise took unreasonable advantage of their tax clients’ inability to protect their own interests in selecting a Southwest RAL. Case 1:15-cv-00299 Document 1 Filed 04/14/15 Page 14 of 24
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48.
Thus, Thomas and the Tax Franchise engaged in abusive acts or practices in violation of § 1036(a)(1)(B) and § 1031(d)(2)(B) of the CFPA. 12 U.S.C. §§ 5536(a)(1)(B), 5531(d)(2)(B).
COUNT II by the Bureau and the Nation against Southwest, Thomas, and Gonzales for unfair extensions of credit, in violation of the CFPA
49.
The Bureau and the Nation reallege and incorporate by reference paragraphs 1 through 39.
50.
Section 1036(a)(1)(B) of the CFPA prohibits unfair acts or practices in connection with the offering or provision of consumer financial products or services. 12 U.S.C. § 5536(a)(1)(B); see also id. § 5531(a). 51.
An act or practice is unfair if it causes or is likely to cause consumers substantial injury that is not reasonably avoidable and is not outweighed by countervailing benefits to consumers or to competition. 12 U.S.C. § 5531(c)(1). 52.
Under the RAL Agreement, Southwest assumed control over consumers’ tax refunds, obtaining the power to receive and endorse the consumers’ refund checks and contact the IRS to learn the status of the refunds. As a result, Southwest knew or should have known when the consumers’ tax refunds had been received.
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53.
Southwest extended RALs to consumers whose refunds they knew or should have known had been received without disclosing this information to consumers.
54.
Southwest’s practice of extending RALs to consumers without disclosing that their tax refunds had been received was likely to cause substantial injury to consumers. Many consumers, had they known that their refunds had been received and would be available to them in a few days, likely would not have taken out additional RALs with triple-digit APRs. 55.
This injury was not reasonably avoidable by consumers because the refund checks were sent to Southwest, and the consumers, having ceded control over their refund to Southwest as a condition of the loan, had to rely on Southwest to learn whether their refund check had been received. 56.
The substantial injury caused by this practice of extending unnecessary high-cost RALs without disclosing critical information – that is, that the tax refund had been received – is not outweighed by any countervailing benefits to consumers or competition created by failing to inform consumers of information that was likely to impact their decision to take out a RAL. 57.
Thus, Southwest engaged in unfair acts and practices in violation of § 1036(a)(1)(B) and § 1031(c)(1) of the CFPA. 12 U.S.C. §§ 5536(a)(1)(B), 5531(c)(l). Case 1:15-cv-00299 Document 1 Filed 04/14/15 Page 16 of 24
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58.
Thomas knew Southwest was extending RALs to consumers whose refunds had been received but took no steps to stop or prevent the practice. 59.
Likewise, Gonzales was the owner and president of Southwest. He knew or should have known of these wrongful acts but took no steps to stop or prevent them.
60.
Because Thomas and Gonzales are “related persons” to Southwest, they are each deemed a “covered person” under the CFPA. 12 U.S.C. § 5481(25). Thomas and Gonzales are liable for violations of the CFPA. COUNT III by the Bureau and the Nation against Southwest, Thomas, and Gonzales for abusive extensions of credit, in violation of the CFPA
61.
The Bureau and the Nation reallege and incorporate by reference paragraphs 1 through 39.
62.
Section 1036(a)(1)(B) of the CFPA prohibits abusive acts or practices in connection with the offering or provision of consumer financial products or services. 12 U.S.C. § 5536(a)(1)(B); see also id. § 5531(a). 63.
An act or practice is abusive if it takes unreasonable advantage of the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service. 12 U.S.C. § 5531(d)(2)(B). Case 1:15-cv-00299 Document 1 Filed 04/14/15 Page 17 of 24
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64.
Because Southwest withheld crucial information from consumers about their tax refunds – i.e., that they had been received into accounts Southwest controlled and were being processed by Southwest, and would be available in days – consumers were unable to protect their interests in determining whether to take out an additional high-cost RAL. 65.
By extending an additional high-cost RAL without disclosing to consumers that their tax refunds had been received into accounts that Southwest controlled, Southwest took unreasonable advantage of consumers’ inability to protect their interests in selecting a Southwest RAL. 66.
Thus, Southwest engaged in abusive acts and practices in violation of § 1036(a)(1)(B) and § 1031(d)(2)(B) of the CFPA. 12 U.S.C. §§ 5536(a)(1)(B), 5531(d)(2)(B).
67.
Because Thomas and Gonzales are “related persons” to Southwest, they are each deemed a “covered person” under the CFPA. 12 U.S.C. § 5481(25). Thomas and Gonzales are liable for violations of the CFPA.
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COUNT IV by the Bureau and the Nation against Southwest, Thomas, and Gonzales for deceptive extensions of credit, in violation of the CFPA
68.
The Bureau and the Nation reallege and incorporate by reference paragraphs 1 through 39.
69.
Section 1036(a)(1)(B) of the CFPA prohibits deceptive acts or practices in connection with the offering or provision of consumer financial products or services. 12 U.S.C. § 5536(a)(1)(B); see also id. § 5531(a). 70.
An act or practice is deceptive if it is likely to mislead customers acting reasonably under the circumstances and the representation was material. 71.
Southwest, in urging consumers to take out new loans when consumers inquired about the status of their refunds, created the misleading impression that the refunds had not yet been received and that the consumers would need a new loan to obtain cash. Indeed, by extending new RALs to consumers inquiring whether their refunds had been received, Southwest implied that the consumers’ tax refunds had not yet arrived. 72.
Southwest failed to disclose that the consumers’ refunds had been received and would be available in a matter of days. Those facts would have been material to consumers in deciding whether to take out another high-cost RAL, incurring substantial fees and interest as a result. Case 1:15-cv-00299 Document 1 Filed 04/14/15 Page 19 of 24
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73.
As a result, Southwest’s extensions of RALs without disclosing that consumers’ tax refunds had been received constitute deceptive acts and practices in violation of § 1031(a) and § 1036(a)(1)(B) of the CFPA, 12 U.S.C. §§ 5531(a), 5536(a)(1)(B).
74.
Because Thomas and Gonzales are “related persons” to Southwest, they are each deemed a “covered person” under the CFPA. 12 U.S.C. § 5481(25). Thomas and Gonzales are liable for violations of the CFPA. COUNT V by the Bureau against Southwest for violations of Regulation Z
75.
The Bureau realleges and incorporates by reference paragraphs 1-39. 76.
Section 1026.17(c)(2)(i) of Regulation Z provides that if information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure based on the best information reasonably available at the time the disclosure is provided to the consumer, and shall state clearly that the disclosure is an estimate. 12 C.F.R. § 1026.17(c)(2)(i). 77.
From 2011 through 2012, Southwest failed to disclose in its RAL Agreement that its APR disclosure was based upon an estimate of the loan term for the RAL.
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78.
From January to May 2013, Southwest based its APR disclosures on a 45-day loan-term estimate even though the company’s RAL Agreements noted that the IRS generally processed refunds in about twelve days. 79.
Thus, Southwest violated Regulation Z in its disclosure of the APRs for its RALs.
COUNT VI by the Bureau and the Nation against Southwest for violations of the CFPA relating to Regulation Z
80.
The Bureau and the Nation reallege and incorporate by reference paragraphs 1 through 39.
81.
Section 1036(a)(1)(A) of the CFPA provides that is “unlawful for . . . any covered person or service provider . . . to offer or provide to a consumer any financial product or service not in conformity with Federal consumer financial law, or otherwise commit any act or omission in violation of a Federal consumer financial law.” 12 U.S.C. § 5536(a)(1)(A). 82.
Because Southwest violated Regulation Z in its disclosure of the APRs for its RALs, Southwest also violated § 1036(a)(1)(A) of the CFPA. 12 U.S.C. § 5536(a)(1)(A).
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COUNT VII by the Bureau and the Nation against Southwest, Thomas, and Gonzales for deceptive APR disclosures, in violation of the CFPA
83.
The Bureau and the Nation reallege and incorporate by reference paragraphs 1-39.
84.
Section 1036(a)(1)(B) of the CFPA prohibits deceptive acts or practices in connection with the offering or provision of consumer financial products or services. 12 U.S.C. § 5536(a)(1)(B); see also id. § 5531(a). 85.
An act or practice is deceptive if it is likely to mislead customers acting reasonably under the circumstances and the representation was material. 86.
Because Southwest failed to state that the APRs were based on estimates and used an inappropriate loan-term estimate, Southwest’s APR disclosures were substantially understated and therefore misleading as to the cost of credit.
87.
These representations about the cost of credit were material. 88.
As a result, Southwest’s misleading APR disclosures constitute deceptive acts or practices in violation of §1031(a) and § 1036(a)(1)(B) of the CFPA, 12 U.S.C. §§ 5531(a), 5536(a)(1)(B). 89.
Thomas played a key role in determining the APR disclosures for the RALs.
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90.
Gonzales had the authority to control Southwest’s activities and operations, and knew or should have known about the company’s RAL disclosures.
91.
Because Thomas and Gonzales are “related persons” to Southwest, they are each deemed a “covered person” under the CFPA. 12 U.S.C. § 5481(25). Thomas and Gonzales are liable for violations of the CFPA. DEMAND FOR RELIEF
The Bureau and the Nation request that the Court: a.
permanently enjoin Defendants from committing future violations of the CFPA and Regulation Z;
b.
award damages or other monetary relief against Defendants; c.
order Defendants to pay restitution to consumers harmed by their unlawful conduct;
d.
order disgorgement of ill-gotten revenues against Defendants; e.
impose civil money penalties against Defendants; f.
order Defendants to pay the Bureau’s and the Nation’s costs incurred in connection with prosecuting this action; and g.
award additional relief as the Court may determine to be just and proper.
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Respectfully Submitted,
ANTHONY ALEXIS Enforcement Director
JEFFREY PAUL EHRLICH Deputy Enforcement Director
NATALIE WILLIAMS Assistant Litigation Deputy
s/Genessa Stout
GENESSA STOUT (Federal Bar No. 15-85) LAWRENCE D. BROWN Enforcement Attorneys
Consumer Financial Protection Bureau 1700 G Street, NW Washington, DC 20552 Telephone: 202-435-7290 (Stout) Telephone: 202-435-7116 (Brown) Facsimile: 202-435-7722 e-mail: [email protected] e-mail: [email protected]
s/Paul Spruhan HARRISON TSOSIE, Attorney General PAUL SPRUHAN, Assistant Attorney General (NM Bar No. 12513) Navajo Nation Department of Justice P.O. Box 2010 Window Rock, AZ 86515 Telephone: 928-871-6937 Facsimile: 928-871-6177 e-mail: [email protected] Case 1:15-cv-00299 Document 1 Filed 04/14/15 Page 24 of 24
Stipulation ()
PDF of this document (15 pages)
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- Case 1:15-cv-00299-JB-WPL “Document 7 Filed 04/16/15 Page 1 of 15
FILED
| ATES DISTRICT COURT
IN THE UNITED STATES DISTRICT courNR 16 2015
DISTRICT OF NEW MEXICO MATTHEW J. DYKMAN -Consumer Financial Protection Bureau Civil Action No.@5&%0299
and Navajo Nation, Plaintiffs,
V.
S/W Tax Loans, Inc. formerly d/b/a Fast Refund Loans, Inc.; J Thomas Development of NM, Inc. formerly d/b/a H&R Block; Dennis R. Gonzales;
and Jeffrey Scott Thomas,
Defendants.
STIPULATED FINAL JUDGMENT AND ORDER
The Consumer Financial Protection Bureau (“Bureau”) and the Navajo Nation (“Nation”) commenced this civil action on April 14, 2015 to obtain injunctive relief, monetary relief, civil monetary penalties, and other relief from S/W Tax Loans, Inc. formerly d/b/a Fast Refund Loans, Inc.; J Thomas Development of NM, Inc. formerly d/b/a H&R Block; Dennis R. Gonzales; and Jeffrey Scott Thomas (collectively, “Defendants”). The Complaint alleges violations of the Truth In Lending Act (“TILA”) and its implementing regulations, 12 U.S.C. § 1601 et seq., 12 C.F.R. pt. 1026, and the Consumer
Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5531, 5536(a)(1), in
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;
Case 1:15-cv-00299-JB-WPL Document 7 Filed 04/16/15 Page 2 of 15
connection with Defendants’ offering, provision, and facilitation of loans issued to consumers based on the consumers’ anticipated tax refunds.
The Parties, by and through their respective counsel, request that the Court enter this Stipulated Final Judgment and Order (“Order”). Defendants have waived service of the Summons and Complaint.
The parties having requested the Court to enter this Order, it is therefore ORDERED, ADJUDGED, and DECREED as follows:
INTRODUCTION
1. The Court has jurisdiction over the parties and the subject matter of this action.
2. Venue in this District is proper.
3. The Complaint states claims upon which relief may be granted under 12 U.S.C. §§ 5531 and 5536 and the Truth in Lending Act, as implemented by 12 C.F.R. §1026.17. The relief provided in this order is appropriate and available under 12 U.S.C. §§ 5564 and 5565.
4. The Parties agree to the entry of this Order, without adjudication of any issue of fact or law, to settle and resolve all matters in this dispute arising
' from the conduct alleged in the Complaint to the date of entry of this Order.
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5. The Defendants neither admit nor deny any allegations in the Complaint, except as specifically stated in this Order. For purposes of this Order, the Defendants admit to the facts necessary to establish the Court's jurisdiction over the Defendants and the subject matter of this action.
6. The Defendants waive all rights to seek judicial review or otherwise challenge or contest the validity of this Order. The Defendants also waive any claim they may have under the Equal Access to Justice Act, 28 U.S.C. § 2412, concerning the prosecution of this action. Each party will bear its own costs and expenses, including without limitation attorneys’ fees.
7. Entry of this Order is in the public interest.
DEFINITIONS The following definitions apply to this Order:
8. “Affected Consumer” means any consumer who received a Refund Anticipation Loan from Southwest from January 1, 2011 through the Effective Date.
9. “Corporate Defendants” means, individually or collectively, Southwest, J Thomas Development of NM, Inc. formerly d/b/a H&R Block, and
their successors or assigns.
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10. “Defendants” means the Corporate Defendants and the Individual Defendants, individually, collectively, or in any combination.
11. “Effective Date” means the date that this Order is entered by this Court.
12. “Enforcement Director’ means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau, or his delegate.
13. “Individual Defendants” means, individually or collectively, Jeffrey Scott Thomas and Dennis R. Gonzales.
14. “Refund Anticipation Loan” means any loan product or extension of credit that is secured by or based upon a consumer's anticipated tax refund.
15. “Related Consumer Action” means a private action by or on behalf of one or more consumers or an enforcement action by another government agency brought against Defendants based on substantially the same facts as described in the Complaint.
16. “Relevant Period” means the period from January 1, 2011 through the Effective Date.
17. “Southwest” means S/W Tax Loans, Inc. formerly d/b/a Fast
Refund Loans, Inc., and its successors and assigns.
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A. Conduct Provision
18. For5 years from the Effective Date, the Individual Defendants are restrained and enjoined from (1) offering, marketing, selling, or providing any Refund Anticipation Loan, (2) assisting any person in offering, marketing, selling, or providing any Refund Anticipation Loan, and (3) receiving any monies or consideration from, financing, holding any ownership interest in, providing services to, or working in any capacity for any person engaged in the offering, marketing, selling, or provision of Refund Anticipation Loans.
19. The Corporate Defendants are permanently restrained and enjoined from (1) offering, marketing, selling, or providing any Refund Anticipation Loan, (2) assisting any person in offering, marketing, selling, or providing any Refund Anticipation Loan, and (3) receiving any monies or consideration from, financing, holding any ownership interest in, providing services to, or working in any capacity for any person engaged in the offering, marketing, selling, or provision of Refund Anticipation Loans.
20. Defendants will provide all birth certificates, social-security cards, and other identification documents of Affected Consumers that are in
Defendants’ possession, custody, or control to the Bureau or its delegate within
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15 days of the Effective Date so that the documents may be returned to the Affected Consumers. Defendants must certify to the Bureau that they have complied with this paragraph within 20 days of the Effective Date. B. Consumer Information
21. Defendants and their officers, agents, servants, employees, and attorneys who receive actual notice of this Order, whether acting directly or indirectly, may not disclose, use, or benefit from customer information, including the name, address, telephone number, email address, social-security number, other identifying information, or any data that enables access to a customer’s account (including a credit card, bank account, or other financial account), that the Defendants obtained before the Effective Date relating to a consumer who applied for or took out a Refund Anticipation Loan from Southwest. But consumer information may be disclosed if requested by the Bureau, the Nation, or the Court.
Cc. Redress
22. Ajudgment for equitable monetary relief is entered in favor of the Bureau and against Defendants, jointly and severally, in the amount of $254,267. This amount is in recognition of the fact that Defendants have already paid
$183,733 in remediation to Affected Consumers.
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23. Within 10 days of the Effective Date, Defendants must pay $254,267, by wire transfer, to the Bureau or the Bureau’s agent according to the Bureau’s wiring instructions, in full satisfaction of the judgment as set forth in § 22.
24. Any funds received by the Bureau in satisfaction of this judgment will be deposited into a fund or funds administered by the Bureau or to the Bureau's agent according to applicable statutes and regulations to be used for redress for Affected Consumers, including but not limited to refund of moneys, restitution, damages, or other monetary relief, and for any attendant expenses for the administration of any such redress.
25. If the Bureau determines, in its sole discretion, that redress to consumers is wholly or partially impracticable or if funds remain after redress is completed, the Bureau may apply any remaining funds for such other equitable relief (including consumer-information remedies) as it determines to be reasonably related to the violations described in the Complaint. Any funds not used for such equitable relief will be deposited in the U.S. Treasury as disgorgement. The Defendants will have no right to challenge any actions that the Bureau or its representatives may take under this paragraph. Redress
provided under this section does not limit consumers’ rights in any way.
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D. Civil Money Penalties
26. Under § 1055(c) of the CFPA, 12 U.S.C. § 5565(c), by reason of the violations of law alleged in the Complaint, Defendants, jointly and severally, must pay a civil money penalty of $438,000 to the Bureau.
27. Within 10 days of the Effective Date, the Defendants must pay the civil money penalty by wire transfer to the Bureau or to the Bureau’s agent in compliance with the Bureau's wiring instructions.
28. The civil money penalty paid under this Order will be deposited in the Civil Penalty Fund of the Bureau, as required by § 1017(d) of the CFPA, 12 U.S.C. § 5497(d).
29. The Defendants must treat the civil money penalty paid under this Order as a penalty paid to the government for all purposes. Regardless of how the Bureau ultimately uses those funds, the Defendants may not:
a. Claim, assert, or apply for a tax deduction, tax credit, or any other
tax benefit for any civil money penalty paid under this Order; or
b. Seek or accept, directly or indirectly, reimbursement or
indemnification from any source, including but not limited to payment made under any insurance policy, with regard to any civil
money penalty paid under this Order.
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30. To preserve the deterrent effect of the civil money penalty, in any Related Consumer Action, the Defendants may not argue that they are entitled to, nor may the Defendants benefit by, any offset or reduction of any compensatory monetary remedies imposed in the Related Consumer Action because of the civil money penalty paid in this action (“Penalty Offset”). If the court in any Related Consumer Action grants such a Penalty Offset, the Defendants must, within 30 days after entry of a final order granting the Penalty Offset, notify the Bureau, and pay the amount of the Penalty Offset to the U.S. Treasury. Such a payment will not be considered an additional civil money penalty and will not change the amount of the civil money penalty imposed in this action.
E. Additional Monetary Provisions
31. Inthe event of any default on the Defendants’ obligations to make payment under this Order, interest, computed under 28 U.S.C. § 1961, as amended, will accrue on any outstanding amounts not paid from the date of default to the date of payment, and will immediately become due and payable.
32. The Defendants must relinquish all dominion, control, and title to the funds paid to the fullest extent permitted by law and no part of the funds
may be returned to the Defendants.
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33. Under 31 U.S.C. § 7701, the Defendants, unless they already have done so, must furnish to the Bureau their respective taxpayer-identifying numbers, which may be used for purposes of collecting and reporting on any delinquent amount arising out of this Order.
34, Within 30 days of the entry of a final judgment, consent order, or settlement in a Related Consumer Action, the Defendants must notify the Enforcement Director of the final judgment, consent order, or settlement in writing. That notification must indicate the amount of redress, if any, that the Defendants paid or are required to pay to consumers and describe the consumers or classes of consumers to whom that redress has been or will be paid.
35. Under § 604(a)(1) of the Fair Credit Reporting Act, 15 U.S.C.
§ 1681b(a)(1), the Bureau may obtain from any consumer reporting agency a consumer report concerning any Defendant. The Bureau may use any such report to collect on and report any amount not paid as required by this Consent Order.
F, Reporting Requirements
36. For 5 years from the Effective Date, the Defendants must notify the Bureau of any development that may affect compliance obligations arising under
this Order, including but not limited to a dissolution, assignment, sale, merger,
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or other action that would result in the emergence of a successor company; the creation or dissolution of a subsidiary, parent, or affiliate that engages in any acts
or practices subject to this Order; the filing of any bankruptcy or insolvency
proceeding by or against any of the Defendants; or a change in the Defendants’ names or addresses. The Defendants must provide this notice at least 30 days before the development or as soon as practicable after the learning about the development, whichever is sooner.
37. Within 7 days of the Effective Date, the Defendants must:
a. Designate at least one telephone number and email, physical, and postal address as points of contact, which the Bureau may use to communicate with all of the Defendants; ,
b. Identify all businesses for which any of the Defendants are the majority owner, or that any of the Defendants directly or indirectly controls, by all of their names, telephone numbers, and physical, postal, email, and Internet addresses;
C. Describe the activities of each such business, including the products and services offered, and the means of advertising, marketing, and
sales.
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d. Identify the telephone numbers and all email, Internet, physical, and postal addresses, including all residences, of the Individual Defendants;
e. Describe in detail the Individual Defendants’ involvement in any business for which either Defendant performs services in any capacity or which he wholly or partially owns, including each Defendant's title, role, responsibilities, participation, authority, control, and ownership.
G. Recordkeeping
38. The Defendants must create and maintain for at least 5 years from the Effective Date all documents and records necessary to demonstrate full compliance with each provision of this Order, including all submissions to the Bureau or to the Nation.
H. Notices
39. Unless otherwise directed in writing by the Bureau, the Defendants must provide all submissions, requests, communications, or other documents relating to this Order in writing, with the subject line, “CFPB, Navajo Nation v.
S/W Tax Loans, Inc., J Thomas Development of NM, Inc., Jeffrey Scott Thomas,
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and Dennis Gonzales, Case No. [the number assigned to this matter by the U.S. District Court for the District of New Mexico]” and send them either:
By overnight courier (not the U.S. Postal Service), as follows:
Assistant Director for Enforcement Consumer Financial Protection Bureau ATTENTION: Office of Enforcement | 1625 Eye Street, N.W.
Washington DC 20006; or
By first-class mail to the below address and contemporaneously by
email to Enforcement [email protected]:
Assistant Director for Enforcement
Consumer Financial Protection Bureau
ATTENTION: Office of Enforcement
1700 G Street, N.W.
Washington DC 20552 I. Cooperation with the Bureau and the Nation
40. The Defendants must cooperate fully to help the Bureau or the
Nation determine the identity and location of, and the amount of injury sustained by, each Affected Consumer. The Defendants must provide such
information in its or its agents’ possession or control within 14 days of receiving
a written request from the Bureau or the Nation.
41. For 5 years from the Effective Date, the Defendants must cooperate
fully with the Bureau and the Nation in this matter and in any investigation
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related to or associated with the conduct described in the Complaint. The Defendants must provide truthful and complete information, evidence, and testimony. Defendants must appear for interviews, discovery, hearings, trials,
and any other proceedings that the Bureau or the Nation may reasonably request
upon reasonable notice, at such places and times as the Bureau or the Nation may designate, without the service of compulsory process. J. . Compliance Monitoring
42. Within 14 days of receipt of a written request from the Bureau or the Nation, the Defendants must submit compliance reports or other requested information, which must be made under penalty of perjury; provide sworn testimony; or produce documents.
43. For purposes of this section, the Bureau or the Nation may communicate directly with the Defendants, unless the Defendants retain counsel related to these communications.
44. The Defendants must permit Bureau or Nation representatives to interview any employee or other person affiliated with the Defendants who have agreed to such an interview. The person interviewed may have counsel present.
45. Nothing in this Order will limit the Bureau’s lawful use of civil
investigative demands under 12 C.F.R. § 1080.6 or other compulsory process.’
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K. Release
46. The Bureau and the Nation release and discharge the Defendants from all potential liability for law violations that the Bureau or the Nation has or might have asserted based on the practices described in the Complaint, to the extent such practices occurred before the Effective Date and the Bureau or the Nation knows about them as of the Effective Date. The Bureau may use the practices described in this Order in future enforcement actions against the Defendants and their affiliates, including without limitation to establish a pattern or practice of violations or the continuation of a pattern or practice of violations or to calculate the amount of any penalty. This release does not preclude or affect any right of the Bureau or the Nation to determine and ensure compliance with the Order, or to seek penalties for any violations of the Order. L. Retention of Jurisdiction
47. The Court will retain jurisdiction of this matter for purposes of construction, modification, and enforcement of this Order.
IT IS SO ORDERED.
Dated this ck, of Me ‘| , 201
(6) { HY) d States Distric} Cowt Judge