pushed out. (The Cendant Corporation, a conglomerate that already owned Avis, Century 21, and several hotel chains, including Ramada and Days Inn, paid $483 million for Jackson Hewitt at the start of 1998. That translated into a return of $400,000 for every $1,000 invested, Hewitt said.) Hewitt thought about a business that specialized in cleaning carpets; he talked wistfully with a reporter about his desire to spend time feeding the hungry. But a year after leaving Jackson Hewitt, he founded Liberty, which Hewitt is always sure to describe as the “fastest growing retail tax preparation company in the industry’s history.”
Our goal, he told me, “is nothing short of being the biggest tax service in the universe.” Hewitt’s successors at Jackson Hewitt seemed no less intent on growth than he was—maybe more so given the steep price Cendant had paid. Jackson Hewitt needed to “find ways of attacking entire metropolitan areas,” Keith Alessi, the company’s CEO, said shortly after its sale to Cendant. In 1999, that meant knocking on the door of a twenty-five-year-old who owned more than two dozen stores in working-class communities scattered around the great Cincinnati metro area. Ogbazion declined $2 million but couldn’t resist when Jackson Hewitt upped its offer to $3 million. Saying yes meant wiping out several hundred thousand dollars in credit card debt and still walking away with nearly $2 million in the bank after taxes.
After the sale, Ogbazion applied to Harvard Business School and was surprised to be denied admission, despite his success and his grades. He hadn’t applied to any other schools and, not knowing what else to do with himself, he decided to get back into the tax game. The terms of his contract prohibited him from opening new stores within ten miles of Cincinnati, so he moved to Dayton, which allowed him to avoid any legal troubles but remain close enough so that he was only an hour’s drive from his family. He thought about buying a house but concluded that any money committed to a down payment was cash he wouldn’t have to open stores. He opened the first Instant Tax Service office in 2001.
It was much harder this time than it had been in Cincinnati seven years earlier. All the best spots in Dayton had been taken and so Ogbazion needed to focus on the less obvious ones. He opened the downtown store but otherwise focused on white working-class neighborhoods and the area’s less prosperous suburbs. Instant Tax Service was up to seven hundred storefronts by the time of my visit but Ogbazion had opened only seven in the Dayton area. With the exception of the downtown locale, all are in white working-class neighborhoods; several are located fifteen or more miles from downtown. “I moved to where opportunities were still available,” Ogbazion said with a shrug. He owned some stores himself, and he co-owned stores with friends and relatives he set up in the business (a cousin in D.C., a buddy who moved to Chicago, a friend living in Indianapolis eager to get in on the business), but mainly he has grown through franchise agreements.
“These are people who have less than $50,000 in the bank and they want to get into business,” Ogbazion says of his franchisees. “They know a Subway franchise costs a quarter of a million dollars. They know a McDonald’s costs $1 million.” He requires a $14,000 down payment on the $34,000 he charges as a franchise fee; leasing and outfitting an office and hiring a part-time staff requires roughly another $10,000. All told, he has sold Instant Tax Service franchises to three hundred people. The average age of a new franchisee is thirty-six and more than a quarter are from Ethiopia or Eritrea. “What would you do with a nine-month vacation?” the company asks in an ad campaign it ran in
Tax preparers who cater to the professional classes typically don’t start feeling around- the-clock stressed-out until late February or March. In Ogbazion’s world, the tax season starts in mid-January. By mid-February, when many in the middle and upper classes are only starting to think about their taxes, Ogbazion has filled out more than 80 percent of his client’s tax returns. “People basically start bombarding us with calls at the end of December,” Ogbazion said. “Can I do my taxes with my pay stubs? Do I have to wait for the W-2? It’s nuts. Basically come the first of the year, people want their money.”
Or sooner. In 2006, Jackson Hewitt started offering something it called the pay-stub loan. These are loans made in December based on the promise of next year’s refunds after an examination of a person’s pay stubs. “It was a bad idea,” John Hewitt said, but the paystub loans were proving popular with Jackson Hewitt’s customers and he felt he has no choice but to follow suit. “Jackson Hewitt had a one-year monopoly on paystub loans but the next year the banks let us and Block and the mom and pops do it.” The consumer advocates were apoplectic about this new product costing the working poor even more money, but it was a moot point. “The banks lost tens of millions of dollars doing these things,” Hewitt said. “They all basically said, ‘Never again.’”
There have been other controversies. Mainly the authorities have been concerned with nomenclature rather than the nature of these loans. Over the years the attorneys general in several states, including California and New York, have rebuked the tax preparers over the language they use to advertise the service. “You can’t say you’ll get your refund back in a day or two,” Ogbazion said. “They’re very big on that: ‘It’s not a refund; it’s a loan.’” These cases have cost the Big Three millions in fines as they’ve stretched the boundaries of what’s permissible but Ogbazion finds the whole thing ridiculous. “Our customers know exactly what’s going on,” he said. “They know it’s a loan.” To him the authorities fine them over wording because they can’t do anything about what really troubles them, which is that his customers choose to use his product. Over the years, Ogbazion watches H&R Block and learns from them. “We basically follow their lead,” he says.
Ogbazion also has little use for critics of the refund anticipation loan. In their study of the 2006 tax season, the product’s two most prominent critics, Chi Chi Wu at the National Consumer Law Center and Jean Ann Fox at the Consumer Federation of America, found that more than 12 million Americans spent a collective $1.24 billion in interest and fees because they were either too desperate or too impatient to wait a few weeks for their refunds. The study went on to advocate a “RAL Reform Agenda” that called for greater regulation of commercial tax preparers, better funding for free tax preparation programs—and a ban on tax loans made against the earned income tax credit.
Ogbazion didn’t know the names of either woman but he thinks he knows the type. “They look at our customers and say, ‘Why don’t they just borrow the money from an uncle?’ ‘Why don’t they just wait two or three weeks?’” he said. “But they don’t get it. These are people who can’t wait. Gas and electric is off at home. They’re facing an eviction notice. They’ve been putting off all these bills.”
Another thing they don’t appreciate, Ogbazion said: He’s more than just an emergency banker to the working poor. As he views it, he’s a positive force for economic development in communities desperate for commerce. Instant Tax provides part-time jobs for six thousand people. He occupies storefronts that would otherwise be dark. “Look at where our stores are,” he said. “There’s no Gap. There’s no Nordstroms. We employ people from the neighborhood. We’re paying rents in those neighborhoods.
“People want to close us down,” he continued, “but that would mean more boarded-up businesses and more boarded-up homes.” When I mentioned that I had peeked into his store across the street, Ogbazion flinched. The place, he said, was in dire need of an overhaul. He tapped on his keyboard and then swiveled around his computer screen. He wanted me to see pictures of stores that had recently had a makeover. There were shops with wood floors and ficus trees and handsome hardwood desks and stylish couches—the sort of environment you’d happily visit again next year if necessary.
“Basically our deal is we tell our customers we know a bank that is willing to loan them money on their refund when no one else will do it,” he said. “And if we can make them feel a little better about the experience, then I think that’s a good thing.” Ogbazion said he hoped to add one hundred new locations during 2009. Hard economic times would make it more difficult for potential franchisees to raise the start-up capital but low-cost storefronts, especially in the hard-pressed communities in which his industry flourishes, would no doubt be plentiful, and people desperate for money only increases the demand for rapid refunds.
Ogbazion initially deflected questions about the interest rates the banks that underwrite his refund anticipation loans charge his customers. “What’s the fair rate to charge?” he asked me. “We don’t really care what that is. We get our tax preparation fees and we get a little more if they want an instant refund.” When pressed, he defended his partners. “They’ve burned the banks,” he said of his customers. “They’ve bounced too many checks. They’ve mismanaged their finances. Their credit is poor.” Still, the rates the banks charged seemed excessive given the risks. People owe money for back taxes or for child support but the banks tell Ogbazion that they default on maybe one in every one hundred customers. Yet Wu and Fox found that banks charge an APR between 83 percent and 194 percent for a RAL. JPMorgan Chase would boast that it had lowered its RAL rate, but, including fees, the
