AN ORDINANCE requiring posting and disclosure of certain information related to income tax refund anticipation loans, refund anticipation checks, and similar refund-related bank products; prohibiting certain practices related to income tax refund anticipation loans, refund anticipation checks, and other similar refund-related bank products; adding a new chapter to Title 7 of the Seattle Municipal Code; and amending Chapter 3.02 of the Seattle Municipal Code.

WHEREAS, a number of paid commercial tax preparers and other businesses, working with banks, offer their customers "refund anticipation loans," which are short-term loans secured by expected tax refunds that taxpayers sometimes use to get fast access to money they expect to receive from the IRS, "refund anticipation checks," which involve setting up a temporary bank account for a consumer without an account and issuing a check from the temporary account after the IRS has direct deposited the consumer's tax refund, "assisted direct deposit," which involves setting up a temporary account for deposit of a tax refund before transferring the refund to the taxpayer, and other similar products related to income tax refunds; and

WHEREAS, the Seattle City Council has received complaints from citizens and advocates that some tax preparers and other businesses exploit low-income citizens, particularly those entitled to receive the federal Earned Income Tax Credit, by aggressively and sometimes deceptively marketing refund anticipation loans and checks, charging excessive fees and interest (e.g., effective interest rates as high as 700%), and creating a coercive environment that leads taxpayers to apply for refund anticipation loans, refund anticipation checks, and similar products without being fully informed; and

WHEREAS, the City Council invited a panel of representatives to join the Housing, Human Services & Health Committee and discuss current practices relating to refund anticipation loans and checks on April 20, 2004, and those representatives told of abusive practices and serious misrepresentations by some tax preparers and other businesses that offer refund anticipation loans and checks; and

WHEREAS, published reports by consumer groups and governmental agencies echo the complaints the Council has received, and reports by consumer and low-income advocates reveal that the City's most vulnerable citizens are using refund anticipation loans and checks, assisted direct deposit, and other similar products, often without being fully informed about the nature of the products, and in the case of refund anticipation loans, without being given sufficient information to understand that they are taking out a loan that they will have to repay even if the Internal Revenue Service delays or denies their anticipated refunds or rejects a tax credit; and

WHEREAS, several states, counties, and cities have been sufficiently concerned about refund anticipation loans and checks and related practices that they have adopted regulations or issued warnings about such loans and checks, and federal legislation regarding refund anticipation loans and checks has been introduced, but has not yet been enacted; and

WHEREAS, although refund anticipation loans are loans against anticipated income tax refunds, the Internal Revenue Service takes the position that it has only limited responsibility for regulating refund anticipation loans; and

WHEREAS, federal banking regulations prohibit local governments from regulating banks and the effective rates of interest they charge; and

WHEREAS, refund anticipation loans and checks may serve a useful purpose when fully informed consumers who understand the true nature and cost of such products knowingly choose to take out such loans, despite their high cost, based on complete and accurate information; and

WHEREAS, on August 12, 2004, the City Council held a public hearing on the subject of refund anticipation loans, at which citizens and consumer advocates testified in favor of legislation requiring disclosures about refund anticipation loans, while paid tax preparers testified that they did not oppose disclosures but preferred federal legislation imposing uniform national disclosure standards to efforts by individual states and cities to impose disclosure requirements; and

WHEREAS, requiring paid tax preparers and other businesses to post and disclose to taxpayers relevant information about refund anticipation loans and checks, assisted directed deposit, and other similar products will help taxpayers be more fully and accurately informed about such products and knowingly choose such loans and checks after considering all applicable costs and terms; and

WHEREAS, the Seattle City Council in coordination with the Office of Intergovernmental Relations will work with other local governments within Washington State and the Washington state legislature to enact similar statewide tax refund anticipation loan legislation and will require inclusion of this work item in its legislative agenda for 2005; NOW, THEREFORE,

BE IT ORDAINED BY THE CITY OF SEATTLE AS FOLLOWS:

Section 1. Effective January 1, 2005, the following new chapter is added to Seattle Municipal Code Title 7:

Chapter 7.26

REFUND ANTICIPATION LOAN REGULATION

7.26.010 Short title and purpose.

A. This chapter may be known and be cited as "Refund Anticipation Loan Regulation." This entire chapter shall be deemed an exercise of the police power of the City for the protection of the public economic and social welfare, health, peace and morals, and for the protection of consumers who are offered and/or enter into refund anticipation loan, refund anticipation check, assisted direct deposit, and other similar transactions facilitated in the City of Seattle, and shall be liberally construed to effectuate its purpose.

B. Nothing in this chapter shall be construed to regulate the practices of lending institutions governed by federal and/or state banking laws.

C. Nothing in this chapter shall be construed to relieve a facilitator as defined herein of complying with any legal or regulatory obligation(s) that may apply to it under federal, Washington state, or other local law, including but not limited to the federal Truth-in-Lending Act.

7.26.020 Definitions.

As used in this chapter

A. "Assisted direct deposit" or "ADD" means a mechanism or agreement through which a taxpayer's refund is deposited in a bank account other than the taxpayer's, and then the remaining portion of the refund, minus fees to the facilitator and the lender, is deposited in the taxpayer's own account.

B. "Bank Product" means a RAL, RAC, ADD, or other similar mechanism, agreement, or transaction that allows a taxpayer to receive an income tax refund or a loan against an anticipated refund from an entity other than the IRS, and/or allows the facilitator to collect fees for its non-Bank Product services or products, Bank Product Fees, and other similar fees from the proceeds of the taxpayer's income tax refund.

C. "Bank Product Fee" means all charges, fees, or other consideration charged or imposed by the facilitator and the lender for the making of or in connection with a Bank Product, and includes (i) any charge, fee, or other consideration for a deposit account used for receipt of the taxpayer's tax refund; (ii) processing or administrative fees for Bank Products that are not charged to taxpayers who receive their refunds directly from the IRS via mail or direct deposit to the taxpayer's bank account; and (iii) in the case of a RAL, the charges, fees or other consideration charged or imposed by the lender for making the loan. This term does not include any charge, fee, or other consideration usually charged or imposed by the facilitator in the ordinary course of business, such as fees for tax return preparation and fees for electronic filing of tax returns, if the same fees in the same amount are charged to the facilitator's customers who do not use Bank Products.

D. "Disclosure" means complete and accurate information, presented in a clear, concise, and understandable manner in all written and oral notices, documents, and explanations required under this chapter.

E. "Facilitator" means a person, partnership, corporation or other business entity that, for compensation from a taxpayer or any other person, assists the taxpayer in applying for or obtaining a Bank Product. The term does not include a lender that provides a Bank Product, a servicer for the lender that operates under the lender's name or any person who does not have direct contact with a borrower in connection with applying for or obtaining a Bank Product.

F. "Refund anticipation loan" or "RAL" means any loan a taxpayer may receive against his or her anticipated income tax refund.

G. "Refund anticipation check" or "RAC" means a check or other payment mechanism: (i) representing proceeds of the taxpayer's tax refund; (ii) which was issued by a depository institution or other person that received a direct deposit of the taxpayer's tax refund; and (iii) for which the taxpayer has paid a fee or other consideration.

H. "RAL Annual Percentage Rate" or "APR" is the annualized interest rate for the RAL as determined in accordance with the federal Truth in Lending Act.

I. "Taxpayer" means any natural person who, singly or jointly with another natural person, is solicited for, receives information about, applies for, and/or receives the proceeds of a Bank Product.

7.26.030 Prohibited practices.

A facilitator shall not:

A. Offer or facilitate a Bank Product except as expressly provided in this chapter;

B. Require a client to use a Bank Product in order to receive nonBank Product services or products from the facilitator;

C. Obtain the signature of a taxpayer on a disclosure required under this chapter that contains blank spaces to be filled in after the taxpayer has signed the disclosure;

D. For any Bank Product application that has been approved under the facilitator's usual and customary approval procedures, fail to arrange for a Bank Product promptly after the taxpayer applies for the Bank Product and approval is granted; or

E Facilitate a Bank Product for which the Bank Product Fee, is greater than the fee stated in the disclosure, or facilitate a RAL for which the APR is greater than the interest rate stated in the disclosure, provided, however, that an increase in an APR on a RAL above the interest stated in the disclosure brought about by a lender's decision to fund a RAL at an amount less than the taxpayer's anticipated refund shall not constitute a violation of this subsection.

7.26.040 Required disclosures and practices.

A. As set forth more specifically in subsections B through F of this section, if a facilitator offers to make or facilitate a Bank Product for the taxpayer, the facilitator must explain that the taxpayer has a choice of methods for receiving a tax refund, must first disclose the availability and timing of receiving a refund directly from the IRS without using a Bank Product before describing any available Bank Products, and must provide clear, complete, and accurate information about each available option, including receiving a refund directly from the IRS.

B. Before or at the same time that the facilitator first mentions or offers a Bank Product to the taxpayer, the facilitator must provide (i) the following disclosures, or disclosures substantially similar in form, content, and scope, for receiving a refund directly from the IRS without incurring fees (other than tax preparation and filing fees); (ii) for each Bank Product offered, the following specific disclosures, or disclosures substantially similar in form, content, and scope, and (iii) if RALs are offered, examples of the APR for RALs of five hundred dollars ($500.00), one thousand dollars ($1,000.00), two thousand dollars ($2,000.00), and five thousand dollars ($5,000.00) (or at least four other representative loan amounts) as if those loans were made on the same terms as the loan offered to the taxpayer. The required disclosures must be made in writing, separate from any other document or writing, double-spaced, in at least 14point type, with the heading "Options for Receiving your Refund" or a substantially similar heading. The facilitator must offer the taxpayer the choice of English and Spanish language written versions of the disclosures; and must simultaneously provide a point-by-point oral explanation of the disclosures in English or Spanish as appropriate, or in a language understood by the taxpayer in the event that the taxpayer does not understand the disclosures in English or Spanish (which may be provided using a translator provided by the taxpayer).

IF YOU ARE ELIGIBLE FOR AN INCOME TAX REFUND, YOU MAY CHOOSE HOW YOU FILE YOUR RETURN AND RECEIVE YOUR REFUND.

IF YOU FILE YOUR TAX RETURN ELECTRONICALLY AND THE IRS APPROVES YOUR REFUND, THE IRS WILL USUALLY DIRECT DEPOSIT YOUR REFUND INTO YOUR BANK ACCOUNT WITHIN ABOUT TWO WEEKS [or such other time as the IRS may announce for a direct deposited refund from an e-filed return], OR WILL SEND YOU A CHECK THROUGH THE MAIL WITHIN ABOUT THREE WEEKS [or such other time as the IRS may announce for a mailed refund from an efiled return].

IF YOU MAIL YOUR TAX RETURN TO THE IRS AND THE IRS APPROVES YOUR REFUND, THE IRS WILL USUALLY DIRECT DEPOSIT YOUR REFUND INTO YOUR BANK ACCOUNT WITHIN ABOUT FIVE TO SEVEN WEEKS [or such other time as the IRS may announce for direct deposited refund from an e-filed return], OR WILL SEND YOU A CHECK THROUGH THE MAIL WITHIN ABOUT SIX TO EIGHT WEEKS [or such other time as the IRS may announce for a mailed refund from an e-filed return].

[if RACs are offered]

IF YOU DON'T HAVE A BANK ACCOUNT TO RECEIVE A DIRECT DEPOSIT, YOU MAY WANT TO CONSIDER OPENING ONE. WE CAN OPEN A TEMPORARY BANK ACCOUNT FOR YOU AND HELP YOU GET A "REFUND ANTICIPATION CHECK" IN ABOUT TWO WEEKS AFTER YOU FILE ELECTRONICALLY IF THE IRS APPROVES YOUR REFUND, BUT YOU WILL HAVE TO QUALIFY AND YOU WILL HAVE TO PAY A FEE OF [$$] TO US AND [$$] TO THE BANK.

[if RALs are offered]

YOU MAY ALSO BE ELIGIBLE FOR A "REFUND ANTICIPATION LOAN," BUT YOU WILL HAVE TO QUALIFY AND YOU WILL HAVE TO PAY A FEE OF [$$] TO US AND [$$] TO THE BANK. IF YOU ARE APPROVED AND YOU DECIDE TO PROCEED, YOU WILL BE TAKING OUT A LOAN THAT MUST BE PAID BACK WITH INTEREST. YOU WILL BE RESPONSIBLE FOR REPAYING THE ENTIRE LOAN AMOUNT AND ALL RELATED COSTS, FEES, AND INTEREST, REGARDLESS OF HOW MUCH MONEY YOU ACTUALLY RECEIVE FROM THE IRS IN YOUR TAX REFUND. THIS MEANS THAT IF THE IRS REDUCES OR DENIES YOUR REFUND, YOU WILL STILL BE RESPONSIBLE FOR REPAYING THE ENTIRE LOAN AMOUNT AND ALL RELATED COSTS AND FEES.

C. In addition to the disclosures required under Subsection B, at the time that the taxpayer asks to apply for a Bank Product (or, in the case of Bank Products facilitated by a tax preparer, the sooner of (i) the time the taxpayer asks to apply or (ii) the time the tax preparer determines that the taxpayer may be eligible for a refund and offers the taxpayer a Bank Product), the facilitator must provide the following disclosures, or disclosures substantially similar in form, content, and scope for all Bank Products offered. The foregoing disclosures must be made in writing, separate from any other document or writing, double-spaced, in at least 14-point type. The facilitator must offer the taxpayer the choice of English and Spanish language written versions of the disclosures; and must simultaneously provide a point-by-point oral explanation of the disclosures in English or Spanish as appropriate, or in a language understood by the taxpayer in the event that the taxpayer does not understand the disclosures in English or Spanish (which may be provided using a translator provided by the taxpayer).

[for RALs]

YOU ARE NOT REQUIRED TO ENTER INTO THIS REFUND ANTICIPATION LOAN AGREEMENT MERELY BECAUSE YOU HAVE RECEIVED THIS INFORMATION. YOU CAN STILL OBTAIN OUR SERVICES AND/OR PRODUCTS EVEN IF YOU DECIDE NOT TO ENTER INTO THIS REFUND ANTICIPATION LOAN AGREEMENT, OR IF YOUR APPLICATION IS DENIED.

IF YOU DO APPLY FOR A REFUND ANTICIPATION LOAN AND YOUR LOAN IS APPROVED, YOU WILL BE TAKING OUT A LOAN THAT MUST BE PAID BACK WITH INTEREST. YOU WILL BE RESPONSIBLE FOR REPAYING THE ENTIRE LOAN AMOUNT AND ALL RELATED COSTS, FEES, AND INTEREST, REGARDLESS OF HOW MUCH MONEY YOU ACTUALLY RECEIVE IN YOUR TAX REFUND. THIS MEANS THAT IF THE IRS REDUCES OR DENIES YOUR REFUND, YOU WILL STILL BE RESPONSIBLE FOR REPAYING THE ENTIRE LOAN AMOUNT AND ALL RELATED COSTS AND FEES.

IF YOUR REFUND ANTICIPATION LOAN IS APPROVED, YOU WILL BE RESPONSIBLE TO PAY $[insert itemized amount] IN FEES, INTEREST, AND OTHER CHARGES FOR THE LOAN, WHICH WE WILL AUTOMATICALY DEDUCT. AFTER WE DEDUCT THESE FEES, INTEREST, AND OTHER CHARGES FROM YOUR LOAN, YOU WILL RECEIVE APPROXIMATELY $ [insert amount].

THE INTEREST RATE ("APR") OF YOUR REFUND ANTICIPATION LOAN IS [insert percentage as defined in Subsection 7.26.020(H)]. THIS IS BASED ON THE ESTIMATED AMOUNT OF TIME YOU WILL BE LENT MONEY THROUGH THIS REFUND ANTICIPATION LOAN. IF THE IRS DELAYS YOUR REFUND, YOU MAY HAVE TO PAY ADDITIONAL INTEREST.

IF YOU DO TAKE OUT THIS REFUND ANTICIPATION LOAN, YOU CAN EXPECT TO RECEIVE YOUR LOAN WITHIN APPROXIMATELY TWO DAYS OF ELECTRONICALLY FILING YOUR RETURN, AND YOU WILL BEGIN OWING INTEREST AS OF THAT DATE.

[for RACs]

YOU ARE PAYING [insert Bank Product Fee for RAC as defined in Section 7.26.020(C)] TO GET YOUR REFUND VIA A BANK CHECK FROM [insert name of RAC issuer]. YOU CAN AVOID THIS FEE AND STILL RECEIVE YOUR REFUND WITHIN APPROXIMATELY TWO WEEKS BY HAVING THE IRS DIRECT DEPOSIT YOUR REFUND INTO YOUR OWN BANK ACCOUNT, OR WITHIN ABOUT THREE WEEKS IF THE IRS MAILS YOU A CHECK.

[for ADD]

YOU ARE BEING OFFERED "ASSISTED DIRECT DEPOSIT," WHICH MEANS THAT YOUR REFUND WILL BE DEPOSITED IN AN ACCOUNT CREATED BY (insert name of Lender). FEES FOR OUR SERVICES AND PRODUCTS AND FOR THE ASSISTED DIRECT DEPOSIT WILL BE DEDUCTED AND THE REMAINING BALANCE WILL THEN BE TRANSFERRED TO YOUR ACCOUNT. THE TOTAL FEES FOR THIS SERVICE ARE [insert Bank Product Fee as defined in Section 7.26.020(C)] IN ADDITION TO THE FEES FOR OTHER SERVICES AND PRODUCTS THAT WE ARE CHARGING YOU.

D. Before the facilitator allows the taxpayer to enter into a Bank Product arrangement, the facilitator must (i) complete the disclosures required under Subsection C accurately with all relevant information for each taxpayer, (ii) provide the required point-by-point oral explanation in English, Spanish, or other language understood by the taxpayer (which may be provided using a translator provided by the taxpayer), and (iii) complete all blanks in the disclosure form and, only after all blanks are filled, have the form signed and dated by the taxpayer and the facilitator. The facilitator must provide the taxpayer with a copy of the signed disclosures, and must keep a copy of the signed disclosures on file with the taxpayer's records (e.g., tax return or other records of service) in accordance with the facilitator's usual retention procedures.

E. At the conclusion of providing services or products, a facilitator must provide an itemized statement of the charges for services, at least separately stating the fees and charges for any of the following charged to the taxpayer: (1) preparing the return; (2) filing the return; (3) providing other services (which services shall be separately itemized); and (4) providing or facilitating a Bank Product, which shall be broken down by provider fees and, where applicable, lender fees. The itemized statement should also clearly indicate that these are charges for services rendered and do not include interest owed or to be owed on the Bank Product.

F. The disclosures and practices required in this Section apply to all facilitators that offer to provide or facilitate Bank Products in the City of Seattle, regardless of (i) the medium or means by which they communicate that offer, (ii) the medium or means by which they provide or facilitate the Bank Products, and (iii) whether the facilitator offers to provide or facilitate Bank Products from its own office or premises, or at the taxpayer's office, premises, or residence, provided, however, that nothing in this subsection shall be construed to regulate offers or facilitation conducted solely over the Internet.

7.26.050 Required posting.

A. Every facilitator shall post, in a prominent location on its premises, a written schedule showing separately its current fees for each service or product offered such as preparing the tax return, Bank Products offered or facilitated by the facilitator, the electronic filing of the taxpayer's tax return, and any other service or product.

B. Every facilitator shall post, in a prominent location on the its premises, the written disclosures required under Subsection 7.26.040(B) and the first two disclosures required under Subsection 7.26.040(C), all of which shall contain the following or a substantially similar legend, centered at the top of the page, in bold, capitalized, one-inch high letters, stating: NOTICE CONCERNING REFUND ANTICIPATION LOANS, REFUND ANTICIPATION CHECKS, AND OTHER BANK PRODUCTS.

C. The postings required by this section shall be made in no less than 28-point type and, in the case of a paper disclosure, on a document measuring no less than 16 inches by 20 inches. The postings required in this section shall be displayed in a prominent location at each office, premise, or location where the facilitator is offering or facilitating Bank Products.

D. No facilitator may offer or facilitate a Bank Product unless the notices required by this section are displayed, and the interest rate and fees (as applicable) actually charged for the Bank Product are the same as or less than the interest rate or fees displayed in the notices.

7.26.060 Administration and Enforcement.

The Director of the Department of Executive Administration ("Director") shall enforce and administer this chapter, and is hereby authorized to adopt procedures for its implementation. The Director and the Director's duly authorized agents are authorized to enter the premises of any facilitator and inspect all disclosures, postings, and other relevant documents for the purpose of determining compliance with this chapter. The Director and the Director's duly authorized agents are authorized to issue citations for violations of this chapter.

7.26.070 Remedies.

A. A facilitator's failure to comply with any provision of this chapter shall be a Class 1 civil infraction under RCW 7.80.120(1)(a), and shall subject the violator to a maximum monetary penalty and a default amount of Two Hundred Fifty Dollars ($250.00) for each infraction plus statutory assessments. For purposes of Section 7.26.050, each day of noncompliance shall be a separate violation and the monetary penalties shall accumulate.

B. If a taxpayer believes that he or she has been subjected to any practices that violate any provision set forth in this chapter, the taxpayer may file a complaint against the facilitator with the Office of the Hearing Examiner. The Office of the Hearing Examiner is authorized to hear and decide taxpayer complaints against facilitators regarding violations of this chapter in accordance with rules and procedures then in force governing contested cases, and to order the facilitator to pay damages and penalties to the taxpayer as appropriate as described in this Section. The filing fee for such a case shall be set at five dollars ($5.00).

1. Upon finding a violation of this chapter, the Hearing Examiner shall award actual damages (including but not limited to the refund of all fees or charges paid by the taxpayer for the Bank Product), the costs of pursuing the complaint, and a penalty of up to Five Hundred Dollars ($500.00). If the Hearing Examiner determines that the facilitator engaged in prohibited practices in willful violation of this chapter, the penalty mentioned in the preceding sentence shall be Seven Hundred Fifty Dollars ($750.00), and the Hearing Examiner shall also award attorneys' fees to the taxpayer.

2. The facilitator or taxpayer may obtain judicial review of the decision of the Hearing Examiner by applying for a Writ of Review in the King County Superior Court within fourteen (14) days from the date of the Hearing Examiner's decision in accordance with the procedure set forth in RCW Ch. 7.16. The decision of the Hearing Examiner shall be final and conclusive unless review is sought in compliance with this subsection.

Section 2. Effective January 1, 2005, a new subsection is added to Section 3.02.125A of the Seattle Municipal Code as follows:

3.02.125 Hearing Examiner filing fees.

A. Filing Fees for hearings before the City Hearing Examiner are as follows:

Basis for hearing Fee

* * *

Refund Anticipation Loan (Ch. 7.26) . . . . . . . . . . . . . .5

* * *

Section 3. The Housing, Human Services & Health Committee or a successor committee shall review this ordinance after April 15, 2007 and shall report to the Council by September 1, 2007 on the industry's compliance with the ordinance, the City's enforcement of the ordinance, the regulation of income tax refund anticipation loans and related products by the federal and Washington state governments, and the need for any amendments to the code sections enacted by the ordinance.

Section 4. This ordinance shall take effect and be in force thirty (30) days from and after its approval by the Mayor, but if not approved and returned by the Mayor within ten (10) days after presentation, it shall take effect as provided by Municipal Code Section 1.04.020.

Passed by the City Council the ____ day of _________, 20__, and signed by me in open session in authentication of its passage this _____ day of __________, 20__. _________________________________ President __________of the City Council

Approved by me this ____ day of _________, 20__. _________________________________ Gregory J. Nickels, Mayor

Filed by me this ____ day of _________, 20__. ____________________________________ City Clerk

09/10/04 (Ver. 12) t