Timeline on Tax Refund Loans

Let’s review the time line of recent events in the tax refund world:

• November 9th: Pacific Capital releases its quarterly earnings report.  The company does not meet FDIC expectations that it will increase its regulatory capital ratios to the stated minimum.
• December 10th: MetaBank announces that it will increase the scale of its relationship to Jackson Hewitt. They will provide more funding for refund anticipation loans. They will offer a short-term, high-fee line of credit (“the i-advance”) to Jackson Hewitt customers via the i-power card.
• December 20th: Pacific Capital acknowledges that they will not be able to provide RAL funding for Jackson Hewitt. Jackson Hewitt reveals that PCBC had been expected to be the source of 75 percent of its tax refund capital for the 2010 tax season.
• December 24th: The OCC releases news of its decision that Pacific Capital must exit the tax refund business.
• December 30th: Jackson Hewitt and Republic announce a new agreement that will link Republic Bank’s capital to additional franchises.
• December 30th: Republic reports that it will have a meeting with the FDIC to discuss the status of their refund anticipation loan business beyond the 2010 tax season.  The meeting is scheduled for sometime during February.
• December 30th: Pacific Capital releases an internal memo to tax preparers and transmitters. In the letter, they indicate that they will reorganize their RAL business to a private LLC – Santa Barbara Tax Products Group (SB). SB will have the same employees, the same facility, the same “hardware and processes.”  SB reports that it is making arrangements to get funding with a “new bank.”
• January 4th, 2010:  H&R Block announces that the IRS will allow tax filers to access W-2s by January 15th, provided that they utilize an online system.  In previous years, employers had until Feb. 1 to release W-2s.  Accordingly, tax prep season did not get underway in full until the end of January.

The news that Pacific Capital is trying to stage a run around of the OCC’s directive should stir up some attention. Indeed, it was less than a week prior that the OCC ordered PCBC to exit tax refund loans.  The bank had indicated that they would sell the tax division to a private equity firm.

Upon announcing the OCC directive, the folks at PCBC appeared to be contrite. George Leis comments that the new rule will allow PCBC to focus on its roots of “being a pure community bank.”

Huh? If they wanted to be a community bank, why did they wait until the OCC stepped in?  Ah, but when a banker talks, check it out: in reality, Pacific Capital is using chicanery to preserve its participation in RALs.