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Friday, September 10, 2004 - Page updated at 12:00 A.M.

City Council panel advances tax-loan disclosure measure

By Peter Lewis
Seattle Times consumer-affairs reporter

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Seattle is poised to become the second city in the nation to require tax preparers and others who arrange fast "refund-anticipation loans" to fully disclose their costs and tell borrowers about other, less expensive options.

The legislation passed out of a key Seattle City Council committee yesterday on a 3-1 vote, and backers are confident the full council will approve it Sept. 20.

Its chief sponsor, Councilman Tom Rasmussen, withstood a substantial effort by professional lobbyists who urged the council to wait and give the Legislature a chance to adopt a statewide measure this coming session.

After the hearing, Rasmussen said the council would be "happy to help our state legislators if they want to work on something at the state level. But that could take a year or two or more to pass and I think it's important for us ... to enact some consumer-protection measures now on these loans for the people of Seattle."

The law would allow citizens who think they did not receive full disclosure to file with the city hearing examiner to seek redress. It also calls for periodic inspections by city agents to ensure compliance. New York is the only city that regulates the loans.

Consumer-advocacy groups such as ACORN (Association of Community Organizations for Reform Now) contend that low-income people who can ill afford such loans are often the ones who take them out. The loans, which are tied to a taxpayer's expected refund, typically carry three-digit annual interest rates.

Nationwide in 2002, consumers took out 12.7 million refund-anticipation loans, and paid $1.14 billion in associated fees, according to a recent report by the National Consumer Law Center and the Consumer Federation of America, two consumer-advocate groups critical of the loans. As many as 10,000 to 30,000 Seattle tax filers have taken out the loans, according to expert testimony presented to the city.

Representatives of the tax-preparation industry, including H&R Block, and banking lobbyists opposed the bill. They said they already adequately disclose terms to borrowers. And, they said, the state Legislature — not the Seattle City Council — is best suited to adopt such a measure to avoid confusion by consumers or put unnecessary burdens on tax preparers forced to comply with inconsistent standards.

The lobbying effort against the legislation, which included a letter from state Sen. Margarita Prentice, D-Renton, netted a "no" vote from Councilwoman Jan Drago. Beside Rasmussen, Councilmen David Della and Richard McIver supported the measure.

At least three other council members have expressed their support for it, which means it should easily achieve a majority on the nine-member body, according to city staffers.
Gary Gardner, a lobbyist representing financial institutions, said the city is moving forward based on the "erroneous assumption that there's an urgent need for this [legislation]." He also said it would make passage in Olympia more difficult, because a state measure would likely include language trumping local laws — a scenario that automatically angers municipal lobbyists.

But some testifying at a public hearing last month pressed the city for reform, contending that some low-income citizens needlessly lose money because of the refund-anticipation loans' interest and fees. Some H&R Block managers and owners countered that many taxpayers, fully informed about the terms, still insist on refund-anticipation loans.

Rasmussen noted that the proposal is a "very mild" form of regulation, requiring only full disclosure of costs as well as options to avoid costly loans. Rasmussen said he understands the loans are the only option for some people, and that he isn't looking to outlaw them.

Over the past several weeks, he added, the legislation was amended to accommodate the industry's requests, including a "safe-harbor" provision that allows tax preparers to substitute their disclosure procedures when they are substantially similar to those required by the ordinance. It also broadened the definition of who is covered by the measure to include anyone who facilitates such loans, including car dealers.

Peter Lewis: 206-464-2217 or

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