More about MetaBank

Jackson Hewitt’s expanded partnership with MetaBank, a small thrift in Storm Lake, Iowa, adds one name to the short list of banks that provide liquidity to national tax prep chains for their refund anticipation loans. But, what or who is MetaBank?

• MetaBank has $652 million in deposits, with 13 branches, in two states (Iowa and South Dakota)
• MetaBank has faced two enforcement orders since 2001 from its primary regulator, the Office of Thrift Supervision. The most recent, in June of 2009, involved an employee who absconded with $4 million in deposits.
• MetaBank received a satisfactory for its last Community Reinvestment Act exam in 2007.
• MetaBank has less than $1 billion in assets. As an intermediate small institution, it will not have another exam until 2011.
• MetaBank made two mortgage loans to low-income borrowers in 2007, and only 5 to moderate income borrowers.
• The bank made three loans to borrowers in low-income census tracts in 2007. In the period from 2005 to 2007, MetaBank made a total of 5 mortgage loans to borrowers in low-income census tracts.
• Low-and-moderate income census tracts make up 25.2 percent of census tracts (with 20.8 percent of housing units) in the four MSAs where the OTS examines MetaBank. Only 7.5 percent of mortgage loans made by MetaBank went to borrowers in low-and-moderate income census tracts. Median family incomes for census tracts in those MSAs are such that a moderate income is less than $54,160.
• MetaBank made two qualified Community Development investments, both in bonds to Urbandale, Iowa for economic development. Each bond was for $95,000.  The bank made about $31,000 in donations to local community organizations.
• The bank claimed that a fair amount of small business lending should qualify as a community development loan – with 87 small business loans and 330 small farm loans in low and moderate income census tracts. The bank did not report any community development activity in three of its four assessment areas.  The OTS said that it had a “good record,” of community development lending, but “poor responsiveness” to community development needs.  Odd.

This information is relevant for groups that want to work with MetaBank.  The institution is going to be providing lots of credit through its new relationship with Jackson Hewitt.  Much of that lending will go to low-and-moderate income borrowers.  This is a population segment that the bank has largely ignored for mortgage loans.  They will be offering high-interest, short-term loans to low and moderate income borrowers going forward.  The problem is that this lending, while it might provide a high quantity of capital, will also provide a low quality of capital.

The existing CRA law is not sensitive to this distinction.  It measures performance by the quantity of lending. It has little ability to mark a bank or thrift down for providing poor (or even usurious) credit.  This is a problem, not just with respect to MetaBank or other RAL groups, but more largely to purveyors of subprime credit.

This flaw has been a part of the CRA reform, and it was within the initial draft of the CRA Modernization Act.  That bill has floundered, but Sen. Dodd included space for CRA in the new version of the Consumer Financial Protection Agency Act.  Hopefully, the new bill will draw upon the lessons of subprime lending to make sure that banks are penalized when they provide bad credit.