NEWARK – The State Attorney General and Division of Consumer Affairs filed suit today, claiming that a New Jersey tax preparation firm lured consumers into purchasing loans with extremely high interest rates by deceptively advertising that these products were fast tax refunds.

The state’s complaint, filed in State Superior Court in Jersey City, alleges that defendants The Malqui Corporation, Malqui Financial Service Corporation and Malqui Financial Group (“Malqui”) violated the state’s Consumer Fraud Act and telemarketing regulations.

“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,” Attorney General Rabner said. “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.”

Refund anticipation loans (RALs) have been touted as providing fast cash to taxpayers or as a short cut to obtaining a refund. In reality, they are extremely high interest short-term loans secured by taxpayer’s expected refunds which must be repaid regardless of the amount of money a taxpayer actually gets back from the government.

A 2007 study by the Consumer Federation of America and National Consumer Law Center found that U.S. consumers paid more than $1 billion in loan charges and fees for refund anticipation loans. The study also found that refund anticipation loans are targeted at the working poor, especially taxpayers eligible for the Earned Income Tax Credit, the largest federal anti-poverty program.

“Malqui bilked consumers, many of modest financial means, out of their full tax refunds,’’ Acting Director Nolan said. “Money that should have ended up in the consumer’s pocket went to Malqui through fees and charges. Consumers were not given all the facts and some may not have signed up for these loans if there had been full disclosure as our laws require.”

Malqui allegedly violated the state’s Consumer Fraud Act by using unconscionable commercial practices in connection with the sale and advertisement of its services, making misrepresentation in the sale and advertisement of its services, and by knowingly concealing, suppressing or omitting material facts. These alleged violations include:

Marketing and brokering RALs and similar financial products in a manner likely to confuse taxpayers into believing that such products are a way to quickly receive tax refunds from the IRS;

Marketing and brokering RALs and similar financial products as “fast” without providing consumers any point of reference with which to judge the relative speed of such products;

Using its position to gain the trust of consumers in connection with preparation of federal and state tax returns and then deceptively marketing and brokering RALs and similar financial products that enriched Malqui while being contrary to the best financial interest of consumers;

Misrepresenting RALs and similar financial products as income tax refunds; Misrepresenting RALs and similar financial products to consumers as “your money”; Misrepresenting the amount of time a consumer could expect to wait for their refund from the IRS;

Concealing that RALs and similar financial products were in fact interest bearing loans; Concealing fees associated with RALs and similar financial products;

Concealing that consumers would be liable for fees and interest on RALs and similar financial products regardless of whether a consumer received his or her tax refund in the time and/or amount the consumer expected the refund;

Concealing Malqui’s earned income on the brokerage of RALs and similar financial products in addition to fees paid for tax return preparation services; Omitting the fact that all fees associated with RALs and similar financial products are taken from a consumer’s tax refund;

Concealing terms and conditions associated with the purchase of an RAL or similar financial product; and Concealing that RALs and similar financial products contain cross-collection agreements whereby a consumer’s debts to certain creditors are paid to those creditors directly from the consumer’s tax refund regardless of whether such payments leave the consumer with any remaining refund.

Malqui also allegedly violated the state law by conducting an unregistered telemarketing operation.

Deputy Attorney General Jody A. Carbone is representing the state in this matter.

Consumers who believe they may be victims can contact Consumer Affairs to file a complaint. Consumer Affairs can be contacted at 800-242-5846 (toll free within New Jersey) or at 973-504-6200.

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