There are four important votes coming before shareholders of banks and financial services firms during the upcoming annual meetings.

Calvert will ask shareholders of BB&T and Capitol One to evalute “overdraft policies and practices and the impacts these practices have on borrowers.”

Christian Brothers Investment Services will ask shareholders of Cash America, a large payday lender, to adopt a policy that ends payday lending.

The Community Reinvestment Association of North Carolina is asking shareholders of JP Morgan Chase to “cease its current practice of issuing Refund Anticipation Loans.”

I am thrilled to see the socially responsible investment community acting to address these issues. This movement has been very active in pursuing important causes for environmental health and human rights.  There has been less attention to financial issues. That day has come. Perhaps this reflects how even the well-off have been hurt by the subprime lending crisis. My only lament is that there are not more than four ballot initiatives.

The FDIC is shutting down refund anticipation loans and refund anticipation checks.

I just spoke to a source at River City Bank in their tax group. I asked him if could confirm that the FDIC told River City that they had to stop making refund anticipation loans.

“Yes,” he said, “it is true.”

Why?

“As far as we know, they are acting against the third party relationships.  They are concerned with tax preparers, as opposed to bank personnel.”

He was clear that the timing was not specific, and that RALs could very possibly remain available through next tax season.

“It is unofficial”, he said. “We’re hoping that they will let us go one more year, but after that, that is how it is looking at this point.”

I pressed him to say if this would be the case for other banks.  Would it be the case for Republic?

“Yes,” he said, “unofficially, that is the case.”

Sheila Bair's FDIC Comes Through for the People!

The FDIC has had concern in the past about the ability of bank partners to monitor their tax preparer partners. That was the basis for their cease-and-desist order against Republic Bank, issued last year. Republic is one of the tax prep partners for Jackson Hewitt. It makes sense that the underlying justification for this new directive would spring from the same anxiety over the lack of oversight.  It is hard to make sure that scores of tax franchisees are following the law. It has been hard for the FDIC to even get the bank partners to agree to take responsibility for their staffing and training.

As an advocate, I have to say that this is very exciting.  This means that the day that we’ve been working towards for at least four years is now here.

RALs are not done.  JP Morgan Chase and HSBC will not be touched by this decision. Moreover, the source at River City emphasized that this might not be something that shuts down their participation for at least one year.

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I spoke to a source at Republic’s tax products group.  He could not confirm that Republic had received this letter.  In fact, he was somewhat upbeat.  He said that with the OCC’s release of a guidance last month, it seemed plausible that there would be a long-term future for refund loans products.

“Now that we have an official statement on how do this and be in compliance,” he said, “its much better.”

“I think it is good,” he added. “It would not be fair for the government to say that Chase and HSBC can do this, but Republic and other state-regulated banks cannot.”

He added that the FDIC had said that they would be speaking with Republic, but that action had been delayed.

It has been quite a year for regulatory attention on this market.  First, the IRS established new training standards for tax preparers.  Then, the OCC issued guidelines for refund anticipation loans. Now, it seems that the FDIC is stepping in to close the door on bank participation in RALs.

The FDIC did the same thing a few years back with payday lending. They did not make payday lending illegal, but they refused to allow their banks to fund it.  That alone impacted the payday market. Given the liquidity demands of funding RALs, a lack of bank participation would cripple the RAL market. It seems possible that without scale, that preparers would not even be able to have enough access to RALs to make them a standard offering in their stores. That situation would be predicated on Chase and HSBC exiting as well (and no new banks entering!), though.

No kidding.  I spent about 40 minutes on the phone this morning, and I think I understand it.  Last night I spent about 40 minutes learning how to apply a buffer around a vector, then create a new layer, in order to analyze geospatial data.  The Block Emerald Advance is roughly as difficult.

My review of this card is that affords a low-cost line of credit, when evaluated from a long-term perspective. At the same time, it is hard to spend your money.  This account is best for someone who wants to establish a line of credit and then make minimal payments to it over time, without actually spending any money. There are people who would gain utility from such an account. Anyone who wants to embark on an effort to restore their credit would be able to find a satisfactory option, given the alternatives, through the Emerald Advance.  At the same time, the account has a complex fee structure. If you are late on your payments, you will incur a lot of additional fees. Its an account that you want to maintain in good standing.

The card’s structure is actually split into three different elements. There is a line of credit, a spending account (the “Spend”, and a savings account. The savings account pays interest, and the line of credit costs interest.

Consumers can open the account with an initial deposit. The account opening fee is $45. That fee is characterized as (more…)

Republic Bank (RBCAA) is an example of a bank that works hard to make its customers work hard.

Some observers naively examine the low rates of loan defaults on Republic’s home mortgage loan operations and assume that it a conservative small-town community bank. Hoover’s, a web site operated by Dunn & Bradstreet, makes this comment:

“…perhaps you bank at Republic Bancorp. It’s the largest Kentucky-based bank holding company, and parent to Republic Bank & Trust, which has about 40 branches in central Kentucky and southern Indiana. In 2006 the company entered Florida, where it has four branches, via its purchase of Tampa’s GulfStream Bank, since renamed Republic Bank. The banks offer checking and savings accounts, investment management, and trust services. Their lending activities mainly consist of residential mortgages (about half of the company’s loan portfolio) and commercial real estate loans (almost 30%).”

A closer look shows that Republic’s community banking is driven by fee income on overdrafts. Outside of its (more…)

It is a bad day at Instant Tax.  A news report out says that there was an “angry mob” outside of Instant Tax offices at 39th and Main in Kansas City.

Instant Tax (call them here) had promised refund loans to its clients. Those clients that came by the office this morning to get their proceeds were informed that they would have to wait instead.  People got pretty steamed, given that they had paid high fees and interest for those refund loans.

In all likelihood, the problems that took place this morning in Kansas City are being repeated through the Instant franchise. Maybe it is just that people in Kansas City are particularly impatient about being stiffed.

Instant Tax’s problem is the same one that had plagued Jackson Hewitt, and that may plague Mo’ Money in the near future.  Their bank partner dropped their line of credit.

Business Model

Instant Tax seems to have the same playbook as Jackson Hewitt, Mo’ Money, and the rest of the retail tax prep chains.  Locate in a neighborhood that fits your customer demo, lead with your refund loan products, and provide plenty of word-of-mouth referral programs.Here is some of the language from the web site: “Don’t Wait!” “Do the Fast Cash Victory Dance!”

Instant Tax isn’t doing RALs or checks (RACs) at all this year.  The office in Kansas City must have not gotten that point across.  That seems like some pretty basic information, especially if the main point of your advertising is that you can get your cash fast.

Other stores do have the message.  I called a store in the Triangle.

“We aren’t doing those (RALs) this year.  We’ll start back up next year.  We’re dealing with Santa Barbara, and the bank was having some trouble with a lot of people,” she said. “You know, its not the IRS that gives you the money. It is the bank, and what was happening is, a lot of people were owing the IRS money, and so the IRS wasn’t paying the bank. But, we’ll be back next year.”

Then again, the website clearly hasn’t gotten the update.  The title page is headered with the following statement:

“Fast Income Tax Preparation: Federal Taxes, State Taxes, e-file, Refund Anticipation Loans, and general income tax preparation.”

Maybe the webmaster worked for Pacific Capital.