Pacific Capital: Reaping with TARP at Taxpayer's Expense

Pacific Capital Bancorp is explicitly mentioned in today’s Wall Street Journal (“Bailed out Banks Face Probes Over Hikes“, p. A1, 12)  for its simultaneous receipt of $180.6 million in TARP funds and its activity in funding refund anticipation loans.

Housers blogged on this story on January 9, and followed it up on January 12th and February 7th.  Pacific Capital continues to deny the link, although the evidence is clear that the majority of their income comes from their seasonal funding of dollars to RAL providers like Jackson Hewitt.

The article attributes concern to advocacy groups, including the Consumer Federation of America and Consumers Union.  The actions of PCBC are consistent with the theme of the article, which is to underscore the application of high fees and interest rates at a time when the public is being asked to capitalize a private industry.  WSJ rightly calculates the high interest rates associated with RALs, describing them as often exceeding an annual interest rate of 100 percent.

It appears that there is a race to the bottom going on.  Capital One, for instance, is raising interest rates in general and adding a 29.4 percent interest rate on late payments.  Some might wonder if this policy only extends to risky borrowers with shady payment habits.  In fact, that is not the case: WSJ quoted the experience of a card user who works for State Street and has never missed a payment. One person suggests that this is an opportunity for Capital One to book expected revenue on these cards as income, without taking into account the likelihood of achieving collections on those new interest-rate bearing balances.

Reuters has noticed the same trend.

PCBC and Capital One are not alone: Citi is sending out mail offers that encourage consumers to take out advances of up to $5,000.  Those loans carry interest rates of as high as 30 percent!  B of A is doubling interest rates on its credit cards.