It’s “Tax Time” again. And while doing your taxes each year is certainly taxing enough, what if you had to deal with an unethical tax preparer on top of it?

For Native Americans, the impact of predatory lending is devastating. It destroys the potential for asset building that is needed to bring economic security to Indian families and communities. One of First Nations Development Institute’s efforts in financial and investor education is combating these predatory lending practices near reservations and in other Native communities.

As part of this effort, First Nations, with support from the Annie E. Casey Foundation and the W.K. Kellogg Foundation, conducted some “mystery shopping” in 2011 with tax preparers in New Mexico, including the towns of Gallup, Grants, Bernalillo, Farmington and Albuquerque. Our goal was, first, to assess the quality of tax-preparation services and, second, to test the hypothesis that tax-preparation firms may be steering people toward expensive products, such as refund anticipation checks.

“Every year Americans file their taxes and often forget that some people unknowingly deal with unethical and unprofessional tax preparers,” said Michael Roberts, president of First Nations. “Some of our work in this area mirrored what other studies have found, namely deceptive practices when working with low-income and minority populations. This highlights the need for greater oversight of tax preparers so that Native populations and other minority and low-income groups can hold on to their hard-earned tax refunds and avoid expensive, predatory products like refund anticipation loans.”

By far the biggest problem documented during our mystery shopping trips was that the majority of taxpayers received poor quality tax preparation from the paid preparers they visited. In seven cases, the tax-preparation process was stopped or changed to avoid having the paid preparer file an inaccurate tax return. In our small sample of 12 mystery shoppers, 10 of the taxpayers encountered problems with inaccurate, illegal or unprofessional behavior. Illegal activities on the part of tax preparers included operating without an IRS Preparer Tax Identification Number, a tax preparer using her own bank account number for the taxpayer’s e-file and direct deposit, and encouraging fraud by making up frivolous expenses. The study also found a troubling lack of disclosure of fees and a refusal to provide detailed estimates of costs before the tax service was provided.

First Nations has an online publication that provides much more detail about our tax-preparation shopping. Find it under “Tax Time Troubles” here. And you can help First Nations in its mission. Please give generously online or through the mail.

First Nations Development Institute has joined a national effort to actively oppose “bank payday lending” by established banks and financial institutions. First Nations believes this new practice by large, respected companies will undermine the hard-fought gains made in Native American and military communities and others to curb predatory lending practices that particularly prey on low-income people.

According to Diane Standaert of the Center for Responsible Lending, five large banks are now making unaffordable, high-cost payday loans, typically calling them “direct deposit advances” or “checking account advances."  The banks are Wells Fargo, Regions, US Bank, Guaranty Bank, and Fifth Third.  She said that with their high fees and a single balloon-payment taken out of a customer’s next direct deposit, these loans create the same debt trap as expensive payday loans made from strip-mall storefront lenders.  They may also trigger additional charges such as overdraft fees, and can contribute to the increased likelihood of bankruptcy, late credit card and bill payments, delayed medical care, and even loss of basic banking privileges because of repeated overdrafts.

First Nations has joined the Center for Responsible Lending and a wide range of 250 national, state and local organizations – including consumer advocates, civil rights organizations, faith-based groups and social service agencies – to oppose the practice.  They are asking U.S. bank regulators in Washington, D.C., including the Federal Reserve, Federal Deposit Insurance Corporation, the Comptroller of the Currency, and the Consumer Financial Protection Bureau, to take immediate action to stop banks from making such loans.

"The very structure of a bank payday loan makes it likely to trap customers in long-term debt even while the bank claims that the loans are meant for short-term use," noted Rebecca Borne, senior policy analyst at the center.

"We recognize the need for emergency credit," Director Richard Cordray of the Consumer Financial Protection Bureau said recently. "At the same time, it is important that these products actually help consumers, rather than harm them."

Combating predatory lending has long been part of the mission of First Nations because it has a tremendously negative impact on Native communities. It is devastating because it destroys the potential for asset building that is critically needed to bring economic security to Indian families and communities. First Nations’ research has shown that predatory lending is stripping money from low-income tribal citizens, especially those who are unbanked or underbanked.

You can support this effort by signing on as an individual, company or organization by contacting Diane at the Center for Responsible Lending at dianes@responsiblelending.org.  And you can support First Nations in its mission by giving generously online or by mail.

First Nations Development Institute has produced a model tribal consumer protection code. With funding from the Annie E. Casey Foundation, First Nations worked with staff at DNA People’s Legal Services, Inc. to produce a model tribal code that can be adopted to regulate a variety of activities on reservations. The code provides a legal framework for tribes to regulate economic transactions on their reservations, including a range of credit products such as payday loans. The model tribal code also includes the following chapters:

Chapter 1 – Fair Debt Collection Practice
Chapter 2 – Privacy Protection
Chapter 3 – Motor Vehicle Warranty
Chapter 4 – Rental Purchase Agreement
Chapter 5 – Repossession of Personal Property
Chapter 6 – Repossession of Manufactured Homes
Chapter 7 – Motor Vehicle Deficiency Charges
Chapter 8 – False Advertising
Chapter 9 – Pawn Transactions/Pawn Brokers
Chapter 10 – Pyramid or Multilevel Sales

For more information about the model tribal code, or to receive copies of the draft code, please email Sarah Dewees at Model Tribal Code. To read about consumer protection in Native communities, visit our knowledge center.

In an effort to combat predatory lending and effect change at the federal, state and tribal policy level, First Nations has conducted two groundbreaking studies of predatory lending in Native American communities. The results show that predatory lending is a growing problem for Indians, who generally lack access to lending institutions for a variety of reasons. Based on our studies, First Nations has recommended that tribal nations act to combat predatory lending by:

1. Providing financial and consumer education programs,
2. Developing credit programs and borrowing opportunities that reduce the demand for predatory loans and help to repair credit, and
3. Adopting interest rate caps and other consumer protection laws.

In 2008, First Nations Development Institute released "Borrowing Trouble: Predatory Lending in Native American Communities," a report detailing the predatory practices of lenders that target Native American communities. This landmark report is the result of a research study conducted by First Nations and funded by the Annie E. Casey Foundation. First Nations presented testimony on "Predatory Lending and its Impact on Native American Communities" at a hearing before the Senate Committee on Indian Affairs on June 5, 2008. The testimony is available in our Knowledge Center.

To learn more about predatory lending, visit our knowledge center.

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Building Trust: Consumer Protection in Native Communities
Building Trust: Consumer Protection in Native Communities is the first attempt to explore the complex legal dynamics related to tribal consumer protection legislation and to discuss what tribal nations are already doing to combat predatory lending through the use of tribal legislation. This report also highlights issues that tribal leaders should consider in developing legal and regulatory tools to combat predatory lending.

To learn more about Consumer Protection in Native Communities, visit our knowledge center

With funding from the W.K. Kellogg Foundation, First Nations is conducting research on successful Volunteer Income Tax Assistance (VITA) sites serving reservation communities, and we are producing a practitioner's guide and providing assistance to pilot VITA site implementation. VITA sites are critical to helping Native communities because they provide a safe alternative to high-fee tax preparation and predatory lending. Research is also being conducted to help policy makers looking to legally limit the impact of predatory lenders.

Laguna Pueblo VITA Site Serves the Community
Native Community Finance, a community development financial institution serving the Laguna Pueblo and surrounding community, has run a successful Volunteer Income Tax Assistance (VITA) site for many years. A VITA site provides free tax preparation for individuals and can help people save money on preparing their tax returns.

Native Community Finance works closely with Tax Help New Mexico and other referring agencies, such as the local senior center and social service departments. Tax preparation fees have been reported as high as $450 in the area, so Native Community Finance helps people avoid high cost services. By providing tax services free of charge, the Native Community Finance VITA site saved local community members an estimated total of $96,000 in 2009 that would have otherwise been paid to commercial tax preparers.