Magic Johnson Shills for Predatory Loans


You’d think by now anybody with sense would feel ridiculous promising fast cash through easy loans. Alas, not Magic Johnson. It’s tax season, and he’s shaking his enchanted moneymaker for one of the oldest, most predatory lending scams in the business: high-priced payday loans.

“It’s money like Magic,” Johnson beams in TV and web ads for Jackson Hewitt, which has been sued by both the state of California and the feds for its deceptive lending practices.


The ad (Racewire has a video) shows Magic hanging out at a park hoops court, palling around with young black and brown ballers. As he speaks, with the wisdom of champions ringing in his voice, a mournful piano riff chimes in the background. He describes how he felt after getting hurt in his second season, his certainty that the team would never make the playoffs as a result. But he was wrong; his teammates rallied and won without him. “Just then I realized,” Magic tells us, “I didn’t have to do it by myself.”

And neither do you. “Sooner or later we all need help,” he says. “If you need cash quickly, Jackson Hewitt has the Money Now Loan.” Predatory lending—it’s teamwork at its best.

Here’s the thing: tax “refund anticipation” loans are the original subprime product. If you live in a majority-black urban neighborhood, you’re probably dreadfully familiar with the storefront shops that do brisk business this time of year. It works like this: You’re poor enough to qualify for the Earned Income Tax Credit—and thus you’re guaranteed a refund, if you file. So Jackson Hewitt and others—for a fee—will file your taxes and pay out your refund immediately, as a loan secured by the expected IRS check.

The fee, of course, is the rub. Interest rates on the fee can run from 50 percent to 500 percent; Jackson Hewitt’s rate ranges from 134 percent to 140 percent, according to consumer advocates who have long criticized the practice. Kimberly Jones of the lending watchdog group California Reinvestment Coalition writes in Afro-Netizen:

Based on IRS data, consumer advocates estimate that about $523 million was drained from the EITC program by refund anticipation loan fees in 2007. Jackson Hewitt, the second largest commercial preparation chain in the country, has been the target of several government lawsuits for its abusive practices.

In 2007, the California attorney general won a $5 million settlement from the company for violating state and federal laws in marketing its tax refund loans to low-income customers. That same year, the Department of Justice sued five Jackson Hewitt franchises for preparing fraudulent tax returns that falsely claimed $70 million in refunds. When preparers inflate refunds, or if the IRS denies or delays the refund, the consumer still has to pay back the loan.

Magic announced a contract in November to promote these and other Jackson Hewitt products and to help the company find more franchise opportunities in “key markets.” Give you one guess what a key market looks like.

Magic Johnson Enterprises was founded in 1987 to create development opportunities in otherwise written-off neighborhoods, and has been largely praised for its successes in doing so. Until now. According to Jones’ Afro-Netizen piece, Magic has also signed a sponsorship deal with Rent-A-Center, another long-criticized lender doing lots of business in poor neighborhoods.


The Root has asked Magic to comment on all this, and we’ll let you know if he takes us up on the offer.