TRENTON (CN) - A new state law that bans tax preparers from using Income Tax Refund Anticipation Loans to collect fees for their services faces its first test in Federal Court. Pacific Capital Bank of California claims the statute, which takes effect April 1, is unconstitutional, violates federal banking rules and should not apply to a national bank.
Pacific claims "the New Jersey RAL Statute is preempted by the National Bank Act and pursuant to the Supremacy Clause found within Article VI of the United States Constitution."
Gov. Jon Corzine signed the bill into law on Jan. 11. It also imposes caps on interest rates for rapid refund loans and imposes a $1,000 fine for each violation.
At the heart of the argument are the fees that taxpayers are charged to get their refunds within 24 hours, as opposed to waiting 10 to 14 days for a check from the Internal Revenue Service.
The law was passed in response to the state's crackdown on RALs. The state attorney general released a statement in March 2007, stating, "New Jersey is cracking down on deceptive advertising used by companies that take advantage of hardworking people by misrepresenting refund anticipation loans as straight tax refunds. ... In brokering these products, firms like Malqui must clearly tell consumers about these loan's high interest and fees, which shrink refunds that taxpayers could get quickly from the IRS for free. We have brought this action to stop Malqui's practices and to seek restitution for consumers."
Pacific claims that it never charges more than $95 on any RAL, and the service allows taxpayers without bank accounts to have access to direct deposits through specialized accounts set up by the bank.