The Federal Deposit Insurance Corp. has told Republic Bancorp, the main refund anticipation loan provider for Jackson Hewitt and Liberty Tax Service, that the bank’s RALs are “unsafe and unsound” without a debt indicator from the Internal Revenue Service.
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Last August, the IRS said it would no longer provide the debt indicator, which indicates when a taxpayer owes outstanding debt to the federal government or for student loans or child support. The bank plans to appeal the FDIC’s ruling before an administrative law judge. The hearing won't take effect until April 18, after tax season, so any changes in the RAL program for Jackson Hewittt, Liberty and Republic won't occur until next tax season. The bank can also appeal the judge's decision.
Consumer advocates applauded the FDIC’s announcement. "With the FDIC's decision, RAL lending may be effectively over," said National Consumer Law Center staff attorney Chi Chi Wu. "The FDIC-regulated banks were the 'last man standing' in making RALs. Now the FDIC has signaled that it too is forcing these last few banks out of the RAL business."
The FDIC's action follows on the heels of a similar action by the Office of Comptroller of Currency, which issued a regulatory directive on Christmas Eve against HSBC (H&R Block's RAL partner bank) prohibiting that bank from making RALs. Consumer advocates also had applauded that action.
In April 2010, JPMorgan Chase voluntarily exited the RAL market, leaving only Republic and two other FDIC-regulated banks as the last RAL lenders. Republic is the RAL lender for Jackson Hewitt and Liberty Tax Service, the second and third largest tax preparation chains in the country.
“The combination of the IRS’ elimination of the debt indicator and yesterday’s FDIC action means the days of predatory refund anticipation loans are numbered, which is great news for the millions of Americans who deserve every penny of their tax refunds,” said New York City Department of Consumer Affairs Commissioner Jonathan Mintz in a statement. “The IRS can deliver refunds in about a week, which is why costly RAL’s are unnecessary and, as we find in New York, tax preparers often have to lie about these high interest loans to sell them.”