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.
Jonathan Mintz
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.”
18 Comments
We have been in business for 10+ years and have offered RAL's during that time. We used to use HSBC and were not dissapointed when they lost their capability to do RAL's. We have always explained the details to our clients and have only had the desperate clients ever do the RAL's. Since the loss of RAL's we haven't truly lost any clients. As the CPA's have commented, the fees the "big guys" charge are outrageous. Our clients leave with their taxes filed electronically, DD within 14 days (usually within 8) for less than $60.
Posted by: amigotax | March 2, 2011 4:44 PM
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I do offer RALs but require that all of my preparers fully disclose every fee and detail as well as alternative options for the client. Most of my clients opt for a product where the fees are witheld from the anticipated refund. The RAL program has seen an 80% drop this year which I atribute to the full disclosure of terms and costs. Some clients insist on RALs but I am sure that they know the exact costs involved before I agree to continue processing their request. For some people the short term RAL is much less expensive than the payday loan they otherwise would have purchased. For most others it is non essential and a thing of the past.
Posted by: flacracker | February 15, 2011 8:20 PM
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Wow, I had no idea my comment would touch off so many responses, however, let me say regarding EITC. There is nothing inheritantly wrong with RAL's I stand behind my comments if the client chooses a RAL they should be entitled to a RAL. After all, it is all government money. Most people who receive EITC aren't paying any taxes. I personally stopped doing RAL's in 2008, not because they were inheritantly bad, but because the clients were a headache. And, I stand behind the comment that the large chains like H&R Block will survive because the government is supplementing these chains with lucrative contracts through the guise of non-profit. There is one non-profit name Bee-Hive that are preparing taxes for so called low income clients where the maximum income is 57K. Now I don't know where you live, but I live in Washington, DC and even in DC 57K is not considered low income.
Posted by: thetaxladyllc | February 14, 2011 11:58 PM
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I am so glad to hear this. I too worked for Block for a short time and couldn't stand the RAL fees. I also disliked that the approach was to get the clients in and out the door as fast as you can. I am a CPA and have my own practice in a rural area. I work to help people understand what they can do with their tax situations. They are amazed that someone cares, they say "no one ever explained that to me in all these years". I have several that we have helped to set up on Advanced EIC and they are so happy to get more $$ throughout the year. It's so nice to hear praises and thank yous unlike when I worked a Block.
Posted by: successworks | February 14, 2011 9:50 PM
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I am a former Block employee. I was with them for 16yrs, worked year round, was an office manager, class instructor and proofreader for the course material. I left to start my own business 8 years ago because I could no longer give my clients any kind of discounts or coupons and the prices without the RAL fee's are "wrong". Very few of my clients used the bank products, but it took me some time to build a clientel like that. The people who use those think they need it today, but if they havn't had it up until now a few more days will not matter, but the few hundred dollars it cost to get it faster will...that's a lot of groceries or a bill. Thank God they're doing away with those things...they are just ripping people off.
Posted by: Lighthouse | February 14, 2011 7:40 PM
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Hooray!
I believe it is only fair to level the playing field. I too charge $135/hr and have an average of approx $95. People tell me they are paying an average of $350 for these RALS.
I know people need their money. I know they deserve it timely. But I can't believe they HAVE to have it at such a cost. I too tell clients - it is not a good savings account - interest free.
I have had several people come in without an account. TD Bank offers a Christmas savings account that can be opened for $2. I have given this bank MANY clients this year.
I have had two that needed to wait for checks - I know it is early in the season but they received them in 8 business days!!!
I also feel like the IRS is wanting to get rid of as many preparers as possible and take over the filing industry. I am a mom and pop - so are most of my corporate accounts - I personally care and feel I give better service because I care about them and they care about me.
Little nervous about testing but am 100% for getting the idiots out of our profession. Then again, aren't there idiots in every profession? Can think of many that even control us!
Posted by: Lenore | February 14, 2011 6:15 PM
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Some how this article touched off a lot of comments about fees, so here's my take. What these types of preparers charge is criminal. I am a CPA and I am getting tried of seeing $280 fees (no RAL) for 3 W-2s. I do a direct deposit for the refund and manually file. At $125/hr they are walking out of here with a fee of $100 or less.
Posted by: MR BILL | February 14, 2011 12:09 PM
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I have worked for H&R Block in the past, and I have always been against RACs and RALs. One the high interest rates, and fees charged for these products.
One thing I noticed the people most likely to use these products were those receiving the "Earned Income Credit" and received more money back than they paid in because they were below poverty level income. I do not have a problem with this, as we should help our fellow American citizens, but only if they are citizens.
I tried to persuade them not to take the product and wait for their check to come in, however, I also noticed that these were also the people less likely to have a bank account for direct deposit. So H&R Block came up with their "Green Card" (debit Card), if you did not want the debit card then there was an additional fee if you wanted a check instead.
The reason the people did not care about the interest rate or additional fees was becauce one they needed the money and two it was not their money they were spending. Most commmented that this is not my money but money the government is giving me so I do not care about the cost as long as I get my money now.
My feeling is the tax services like H&R Block, Liberty, and Jackson Hewitt, and I am sure Roni Deutch does the same thing and are just taking advantage of lower income earners. If this were better regulated then I feel that the program could benefit lower income wage earners, or I believe the IRS is offering a debit card this year. The problem with the debit card is once you have made a certain number of transactions you pay for each additional transaction on the card. The lower income wage earner cannot get a break even from the government.
Posted by: mg.meyer@earthlink.net | February 14, 2011 11:32 AM
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thetaxladyllc- So 2 years ago we jump all over the FDIC and the banksters regarding bad lending practices and now today it's ok?
Posted by: MR BILL | February 14, 2011 11:21 AM
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I am also a Block tax preparer, and I applaud the decision to shut down the RAL providers.
I used to make the arguments that jeffbellamy and taxman39531 make above (consumers' choice, etc.), but I've found that most clients are willing to take the RAC option once I take a few minutes to explain to them what they are actually getting with a RAL. We've had an increase in traffic this year, and I've had exactly one client leave because we didn't have RALs. Almost all of the prior-year RAL clients I've had took the RAC this year, rather than hunting elsewhere for a RAL. Basically, it's a product they took because it was available - not because they really needed it.
Posted by: MWEinNC | February 14, 2011 9:50 AM
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I, too believe the RAL is a good product. For clients who are desparate for their money - a day away from being evicted or having their heat turned off. I would like to see the interest rate lower, but there is risk to the lender. The interest rate means nothing - it's the total fee to the client. I can tell them more by telling them it will cost you $XX for tax prep and another $xxx if you take the RAL and giving them all the other options for filing. Telling them it is 150% interest doesn't say anything. It is the actual out of pocket cost. Where else can you get a short term signature loan for $1500 for a little more than $100 in fees? My bank charged me more than that for a 30 day loan and my credit is good. I know some firms charge more but they didn't have to. I guess the only place left now for the unbanked and poor is the payday loan places. I don't believe the government has the right to tell people how they should spend their money.
Posted by: Unknown | February 14, 2011 8:42 AM
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People are leaving HR BLock becasue of their pricing. I know as I have been with that company now for over ten years.
Posted by: BWEILL | February 14, 2011 8:32 AM
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I agree that the fees for these transactions are bordering on usury. That people continue to seek these loans out is no more counter-intuitive than the widespread use of the IRS as a savings account. Some people are in love with their refund check; no matter how many times you point out that it is the return of an interest-free loan they arrange for over-withholding year after year.
Posted by: pkslayton | February 14, 2011 8:10 AM
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Regarding the tax lady's comments, I believe what many tax preparation firms were doing to their clients was criminal. Some firms were charging hundreds of dollars to prepare and file a relatively simple return with a RAL. This was in addition to the RAL fees. The IRS is moving toward modernized eFile which could get a taxpayer's refund in a matter of days. This without the 'convenience fees' of a RAL which is really usury fees (in my opinion). As far as the testing, a preparer is not going to be required to take the EA exam, but rather a far less comprehensive exam to prepare individual returns. I believe a taxpayer has a right to know the preparer doing his or her taxes is competent enough to pass a test. And, if you have been in the tax preparation business for a number of years, then with a bit of effort on your part, you can pass the EA test. I did, so can you!
Posted by: mikewEA | February 14, 2011 7:40 AM
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I agree that RALS were not the best option to receive a refund. However, it is also the consumers choice to do a RAL if they wish. I explain the high per centage & they still go for them. I actually had clients that would do an RAL when they could pay for the return because I would make more money. Many people can not afford or don't wish to pay for there tax preparation upfront. They chose to do a Refund Transfer {RT} to have there fees taken from their refund. I print the check in my office or direct deposit to their bank account if they have one. There is a problem cashing refund checks. Also, more expense to the client but most don't mind. Even with DD banks will hold the funds for 2-3 days. I don't understand this as it is really a cashier's check. I think the IRS dropping the debt indicator is not a good idea. Many clients are not aware they have a debt. taxman39531
Posted by: taxman39531 | February 12, 2011 9:54 PM
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I APPLAUD THE DECISION TO STAMP OUT RALS. IT WAS HIGHWAY ROBBERY TO POOR TAXPAYERS WHO WERE TAKEN IN BY THE INSTANT REFUNDS. THEY WERE UNAWARE OF THE EXTREMELY HIGH INTEREST THAT THEY WERE PAYING FOR THESE LOANS.
Posted by: CHAMP | February 12, 2011 3:42 PM
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I believe what the government is doing to the tax preparation industry is criminal. First of all people should be free to decide how their refund is delivered. This is really an attempt to take away the business from the smaller firms. Yes the big firms like H&R block will be hurting in the short run. However, they have significant investments in online software and also, their software is used by alot of the free government and non-profit sites that process returns for free. These returns are really not free because the government is underwriting large corporations while putting small mom and pops out of business. And with the forcing of the licensing if you are unable to take and pass the enrolled agency exam or become an accountant their is no way a person can make a living in the tax business. The only thing you can do is sell or go to a higher level of return. by Joyce Little
Posted by: thetaxladyllc | February 12, 2011 5:09 AM
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Regarding Johnathan Mintz' comments. I advise my clients against any of the bank products if the don't need them but they still want them. A week is nothing to someone who is financially healthy but it seems to mean an awful lot to those people who are always a week behind.
The IRS says it takes 8 to 15 days to deliver a refund if it's a direct deposit but a lot of people I see don't have bank accounts. I believe the IRS takes longer to deliver checks.
I am a first year preparer at HR Block and I've seen clients leave our office when we couldn't offer them a Refund andticipation loan.
Posted by: jeffbellamy | February 11, 2011 5:19 PM
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