Today’s announcement by the IRS that it is canceling the debt indicator is very significant.

The debt indicator is what made the refund anticipation loan possible. Without it, banks would never have been able to tell if a tax filer had outstanding tax liens. Now that the IRS is ceasing to provide the debt indicator, the future of refund anticipation loans seems dim.

RALs were a big business. More than 470,000 North Carolina households spent almost $50 million on RAL fees in 2006 (according to research we did with the IRS’ SPEC data).

The IRS’ complicit involvement in the RAL business was undermining (more…)

This hour, the IRS has announced that it intends to cease to provide tax refund companies with the debt indicator. This is a ground-breaking change for the tax refund anticipation loan market.

From the IRS press release:

“As we prepare for tax season every year, we look at past practices and consider whether they still make sense. We no longer see a need for the debt indicator in a world where we can process a tax return and deliver a refund in 10 days,” IRS Commissioner Doug Shulman said. “We encourage taxpayers to use e-file with direct deposit so they can get their refunds in just a few days.”

The IRS has been willing to check for outstanding tax liens as a service to (more…)

Cash America (CSH) reported a strong (indeed, a “blow-out!”) quarter this morning, and although their stock is down this morning, their success would indicate more activity for payday and pawn lending. Their volume is up, which certainly contrasts with the lamentations about low loan demand that we have heard from the big banks, and they are growing their customer base is expanding.

This is really not a great sign for our economy. It points to the poor alternatives that people face once they move out of the banking system. More people are making that move, unfortunately.

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NetSpend intend to sell its shares in an initial public offering, according to documents filed by the Austin, Texas marketer of prepaid cards. Their plans follow the path laid out earlier in the year by Green Dot. Green Dot’s IPO is this week, and early indications suggest that there is a lot of demand for their shares.

There are some risks for investors that want to consider these shares. I’ll divide them into two categories…purely financial, and other.

Purely Financial

There sure is a lot of dilution going on here.  NetSpend is going to have about 84 million shares on the market. Plus, there is significant overhang: insiders have another 12.5 million options that would be in the money at prices between $1.29 and $3.78. Most of the shares are in the money at $3.51.

I don’t understand the logic of using proceeds to pay debt. NetSpend should save about $4 million per year in interest expenses by paying down its debts, as it will probably do with at least some of the money from the IPO. However, their current cost on that debt is low. The weighted cost is just 6 percent. When ROE is at least 11 percent, what sense does it make to pay down cheap debt?

Other Issues

MetaBank: There is the issue of MetaBank’s ongoing status. NetSpend acknowledges the problem, albeit in just one sentence (more…)

Business fundamentals aside, it is easy to see why John Hewitt would want to team up with Thomas Bloch.

Hewitt is old school. He began his career at Block, then started his own store.  Fifteen years later, Jackson Hewitt was the second largest chain in the country. Hewitt started over at Liberty in 1997. Hewitt seems to have a “keep it simple” approach to running a tax business. That is at least part of the reason why he has been laughing at H&R Block for a few years.  Hewitt is supposed to have (more…)