The news that customers will be able to get free tax preparation service has prompted an intense and varied reaction among consumer advocates.

It is the variation in those reactions, from groups that often speak in lockstep with eachother, that seems so unusual. Some groups appear to acknowledge the value of (more…)

Liberty Tax has a new radio and internet promotion that prompts a bit of a chuckle.  Here is a link: You have to cue up the radio by clicking on the “go” triangle.

The promotion gives any person with the name “Johnson” a free federal e-file (a $9.95 value) at Liberty Tax.  The Basic E-file is Liberty’s basic tax prep service. It serves people who don’t itemize, don’t have a mortgage or children, and want to use a short form.  The basic service also “features” an opportunity to get a nifty refund anticipation loan.

I have to wonder why they would pick “Johnson.”  Why?  Granted, there are a lot of Johnsons – more than 2 million, according to Liberty’s own reference from Census.

I know one Johnson out there that might not want Liberty’s free promotion. Magic Johnson has been shamelessly promoted Jackson Hewitt’s products for a few years.

Jackson Hewitt has their own promos.  If you have access to a computer, you can download a $20 coupon here.

Liberty’s most persuasive promo has been the Send a Friend program. If you convince your “friend” to take their tax work to Liberty, they will send you $20 good toward your return.

What a bunch of Johnsons.

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.

While Jackson Hewitt and Republic Bank have both announced a new agreement for the funding of refund anticipation loans, there are miles to go before that relationship bears fruit. Republic still needs to get the go-ahead from the FDIC, and there is little time for Jackson Hewitt to respond if the FDIC wants to intervene.

The new agreement runs through 2012. Of note, it increases the number of locations where Republic will provide funding support for Jackson Hewitt franchisees.  It covers funding both for Jackson Hewitt’s refund anticipation loans and their assisted refund products.

Republic submitted a second 8-K on December 30th that indicated that it would be in talks with the FDIC about this new agreement.  The statement is simple, but it is hard to imagine that there isn’t something lurking behind (more…)

Jackson Hewitt will be able to get the money it needs to make refund anticipation loans during the upcoming tax season.  JTX, which has received some funding for its RALs from a small savings and loan in Kentucky, renewed its agreement with the likely intent of scaling up its relationship.  Republic Bank (Kentucky) has helped to fund a portion of JTX’s RALs since 2007.  Now it will grow, as JTX is no longer working with Pacific Capital Bancorp.  Both institutions made this announcement (see JTX 8-k) (see RBCAA 8-k) through 8-K filings on December 30th. The arrangement preserves Jackson Hewitt’s ability to offer refund anticipation loans during the 2010 tax season.  JTX had been under some pressure, after its main RAL partner was forced to shut down their RAL funding business.

The Office of the Comptroller of the Currency (the “OCC”) told Pacific Capital Bancorp to cease its tax refund solutions business last week.  Pacific Capital had been, and continues to be, under severe regulatory capital constraints.  Some of their regulatory ratios were far below minimums established by the FDIC. Pacific Capital has not been able to make dividend payments on their $187 million TARP investment. They have extensive exposure to California’s commercial real estate markets. In short, Pacific Capital was a wounded bank. Handing out RAL money, where fraud has been high and losses are steep, made no sense from a safety and soundness perspective.

Republic is an old hand at the refund anticipation loan business.  Republic is a small bank and would seem to be unable to provide the liquidity to disburse hundreds of thousands of refund anticipation loans in just a few weeks. To help with that endeavor, Republic relies on brokered deposits. During the 2008 tax season, Republic paid 5.09 percent interest to access more than $640 million in deposits.  Upon making the loans, Republic securitizes the debt. Republic securitized $1.1 billion in RALs in 2008. Republic could not securitize its RALs in 2009, owing to the unique market constraints.  That didn’t stop the business. Republic just (more…)