Bank Notes
January 24th, 2011
- Ohio Valley Bancorp, the FDIC-regulated institution behind Loan Central, had $37 million in advances, promissory notes, and FRB notes from the FRB of Cincinnati on Sept. 30, 2010. In addition, the FHLB has provided them with a $75 million line of credit. Those advances are secured by about $350,000 in loans. OVBC borrows the money at a weighted-average cost of 3.92 percent. Ohio Valley earned $655,000 in fee income from its refund anticipation loans during the nine months ending September 30th, 2010.
- Interesting…The SEC allowed Republic Bank (RBCAA) to not disclose the terms of a court order that the bank received recently. The SEC said that the bank’s order was shielded from the Freedom of Information Act. Republic will have to disclose the order in 2015.
- Republic said that 2010 was a “record year” for its Tax Refund Solutions division. The bank recorded $44.2 million in net income on more than $10 billion in transactions. In all, the bank partnered with tax preparers that sold 2.8 million RACs or RALs. That would mean that the average advance was about $3,500.
- Republic has a different means of sourcing funds for its RALs. Republic buys brokered deposits. Tellingly, Republic borrowed less than in 2009. Given that they don’t expect to offer RALs in excess of $1,500, they told investors that gross RAL dollar volume may drop by half, even with the lack of competition in the space.
John Galt
January 25, 2011
Thank you Adam, for pointing out these informative bullet points. We had no idea that there were such significant costs associated with providing a much needed service to these underserved people. All this time we were under the impression that the banking institutions involved in this space simply sat back and sucked hard earned dollars out of the system without much effort. But your bullet point analysis certainly shows that there are real costs and risks for the banks involved in the fulfillment products that are in high demand by taxpayers. I am relieved to see that regulated institutions are involved with providing these much needed financial products to the financially underserved population. Without them, the demand would still be high, but the needs would be met by those UNREGULATED entities that permeated the tax business 20 years ago.
Thank you for the enlightenment. I am encouraged that the financial sector continues to reach out and provide products to people that most banks ignore.
Dale Marshall
February 1, 2011
It does not appear to be too risky..if Jackson Hewitt and Liberty Tax are giving the bank $61 for an 8-15 day loan of $1,500 (APR 100%-185%) using money borrowed at 3.92%, seems like a pretty good return on investment, even given the high number of defaults they are going to experience.