Here is what we know: This year, a Liberty Tax customer with a very basic return who elects to receive a portion of their refund via an Instant Cash Advance will pay at least $200 before they walk out of the door. As well, Liberty is going to give fifty dollars (“Cash in a Flash“) to people who file at their stores prior to February 15th.
But there is a lot that we don’t know.
I called around to some Liberty stores because I wanted to understand more about how the Cash in the Flash program would actually work. My assumption, which did prove to be correct, was that the only way to really walk out with Cash In a Flash would be to use a bank product as a means of putting off the need to pay for tax prep upfront.
Thus, to be sure I decided to call a preparer in a state where Liberty was not offering its Instant Cash advance refund anticipation loan. This preparer was blunt:
“We don’t do cash,” he said. “I won’t work with that much kind of cash in my office.”
“Someone who sits in on the eighth or tenth floor of a corporate office tower somewhere thought that one up,” he said. “But they don’t live in the world that I live in, at least they don’t live in a world like the one around here. I would have to keep at least $500 in cash in my office every day, and that’s not going to work, not with the people in this neighborhood.”
He did offer that he could offer the fifty dollars on a prepaid card, “like a debit card preloaded with that amount. But to access it, perhaps if you want to go to an ATM, you will have to pay a fee.”
Then I decided to call a preparer in a state that did have refund anticipation loans. Her answer was much more complex.
Yes, she said, it was possible to walk out your store with a fifty dollar bill in your hand. However, that would only really be possible if you decided to use a product that would allow you to put off your tax prep fee.
She said that they had three options:
a) Apply prep fees to your refund: keep the $50 but allow Liberty to collect their prep fees, along with two other fees, against your refund. Thus, for the filer due a refund of $2,000 would ultimately receive $1,759.05: ($2,000 refund + $50 Cash in a Flash – $252 – $29.95 bank product fee – $9 transmission fee)
b) take out an Instant Cash advance. This year, the ICA includes a bank fee of $49.90 as well as an interest charge. Preparers say that any person with expecting a refund of at least $1,500 can qualify for an ICA. The ICA itself can be for as much as $2,500 and is returned to the filer in 24 to 48 hours. Given that no one could tell me the rate of interest that accompanies the ICA, I will have to estimated based on a loan at 36 percent APR. In this case, a filer due $2,000 would receive $1706.68. ($2000 + $50 – $252 – $49.90 ICA fee – $41. 42 ICA interest charge for 21 day advance).
c) work with their partner in-house payday lender. At this particular store, filers can get a PayDay Today loan in the store. The key differentiation point here is that the PayDay Today loan is available right now. It is not going to be possible to get an ICA until at least 24 hours, and possibly 48 hours, after the IRS accepts a return. The Payday Today loan has a fairly typical cost of $15 per every $100 borrowed. So, going back to the case of the filer due $2,000, the amount returned to the filer is $11.98: ($2,000 + $50 – $252 – $600). That calculation needs to be checked, though. First, a typical payday loan would not last for the time between today and Feb. 21, when its likely that any refund due a filer would finally come back from the IRS. It also assumes that the borrow chooses to take a payday loan for the entirety of their refund. That is probably unlikely, though, because such a consumer would need to have a fairly high paycheck due in the next two weeks. Let’s then recalculate for two two-week terms and only a $500 advance: With that, the filer/borrower nets $1,498.
At a third store, there were few surprises because there was so little in the way of price disclosure. The basic message was this: come into the store and we can tell you how much it costs. For a filer with dependents who seeks to get the Earned Income Tax credit, the costs for federal and state preparation will be “at least $300.”
Three stores with three very different ways of running a business.
I think this goes back to the philosophy at Liberty. John Hewitt believes in franchising. It is one way that he differentiates his company from his rivals.
“In every franchise organization in this country, franchisees do a better job than company employees because franchisees act like owners, and while you can get some employees to act like owners, a few percent. [cq] Most owners act like owners. The vast majority — 80%, 90% of owners act like owners. So our strategic advantage at Liberty is that we’re 98% franchised.”
I think there is a lot of merit to that idea. But at the same time, it also means that a company is not managed to the same extent by common standards of doing business. A less centralized model leads to more variation. That’s what is seen here in these three stores: one that ignores the company’s leading promotional device, one that creates an under-the-radar partnership with a payday lender, and one that seems to have no interest in disclosing the real costs of their services to consumers.