The tax-preparation firm Jackson-Hewitt, based right up the road here in Parsippany, filed for bankruptcy on Tuesday. The firm's business had catered to lower-income Americans; they were a staple at Wal-Marts around the country. One of Jackson-Hewitt's selling points was that if offered instant loans against taxpayer refunds, so that someone could walk into a J-H office, fill out their tax return, and walk out with a check.
Many of its clients weren't savvy enough to realize that those loans came with hugely inflated interest rates, in some cases as much as 100 percent. The profits from those loans had come to represent a significant portion of Jackson-Hewitt's income, but the landscape around these loans changed in the past few years. The FDIC officially announced last year that banks who made tax-return loans were acting in an unsound manner. And it didn't take long for customers to realize that the interest rates they were forced to pay made the loans a bad deal.
Whatever its other faults, the IRS is generally good about paying you your tax refund promptly. Eventually, people realized - as prudent investors know- that it makes more sense to be patient rather than act rashly and forfeit your hard-earned dollars. That growing realization ended up costing Jackson-Hewitt dearly.
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