I  visited Mo’ Money Taxes twice over the weekend.  My conclusion is that Mo’ Money is exactly what it claims to be.  Mo’ Money costs more money.

Indeed, when I went into the Mo’ Money in a strip mall on one of Raleigh’s outer suburbs, the staff was more than able to give me an estimate.  Their estimate was simple and straightforward. Although it was based upon several moving parts (the amount of my refund, the projected cost for the tax prep, and my RAL fees), the preparer seemed both certain and giddy that I’d be better off in short order.

I am not sure why he was so certain.  Indeed, all I had done was bring in a pay-stub from August. That was all they told me that I would need when I called on the phone.  Maybe he was certain because we were in a real office, and he was using a real computer.  He was definitely giddy. He seemed so thrilled to be a part of my sudden fortune.

I could feel the rush. Money was coming my way fast. He made a few mouse clicks, sent a page to his printer, and gave me the good news: Mo’ Money would have a check for me (once I brought in my W-2s) of $2992.85 in no more than 48 hours. It was a bit odd, because this rush of fortune was such a contrast to the placelessness of this office. There were two desks, each with a flat top screen, a few folding chairs, and not much else.  There was only one item adorning the wall: an 8 by 11 sheet of paper with a list of tax prep fees.  The office had a back room. I could see that there was a half gallon of milk sitting out on a shelf, next to a box of envelopes and some Glade.

He pulled the sheet out of the printer and handed it to me.  My one page estimate, which was actually IRS Form 8879 (for IRS E-File Signature Authorization) said that I would get a refund of $3415.  The difference, according to my tax preparer, was ‘fees’?”

“Could you break that down for me,” I asked. “Am I getting a loan? Is that part of those ‘fees’?”

“Yes, he said. “It’s all in there.”

Since “it” was not really an answer that satisfied my need for clarity, I had to push back. That was as close as he could come to explaining my cost structure. I wanted more of answer. He called his co-worker over.  She knew a bit more about how to operate the computers, and it seemed as if she had some experience.  She began to work through some screens. In the silence, my tax prep helper ventured to offer his insight on how I might maximize my situation.

“Let me offer you some advice,” he said. “Don’t file jointly. File on your own.  Jointly is costing you a lot.”

He relaxed in his chair, smiled, and leaned toward me, held his hands together wish his thumb and pinkie extended but his other fingers rolled up against his palms. It was sort of a horizontal “hook-em horns” kind of expression.

“That is my advice.”

Indeed, he pointed out that if I filed on my own, claiming my children and leaving my spouse to cover her income without the benefit of any dependents, then I could walk out with $5021.06! Oh yeah! I could hardly wait! I was going to get Mo’ Money!

Then I realized that this would be incredibly wrong.

It was at that moment when his co-worker summoned us back to the computer screen. She had the answers for me, and although neither one knew how to make the printer print this page, she could show me the specific elements of the costs that would be taken out against my refund. It turned out that my fees for tax prep came to $315. The RAL fee would be $103.  The RAL came with four parts:

• technology fee ($15)
• e-file fee ($29)
• Bank fee ($32)
• Federal Bank Product Application Fee ($27).

The other costs would be made up by the interest on my RAL.

My intent, I said, was to see where I could get the best deal. Getting price clarity had not been easy.  I find it hard to believe that anyone would go to the trouble to find out how much they paid, especially if they were in a room with twenty other people waiting in line for a chance to work with their tax “advisor.” It took me an hour.

“Tell me about your training,” I asked.

“We finished our training on Dec. 27th,” he said. “I had to get it in before school started.”

Turns out my preparer is a first semester student at a local for-profit technology training institute.  He has a high school degree, four months at a for-profit school, and some over-the-break training session at Mo’ Money.  Gee…if I went to a VITA, couldn’t I get better advice, and for free?

The rest of the cost came from the short-term interest on my loan product. That loan, incidentally, came from Chase.

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I can’t make this stuff up.  If you wonder why the IRS  says that it needs to make sure that tax preparers need to meet some kind of professional standard, then look no further.

Mo’ Money Taxes is a medium-sized tax preparation company. They have over 100 locations in the Mid-South. Most of their firms are in Tennessee and Mississippi.  They have 10 locations in North Carolina.  I called an office to see if I could get my money fast. They said it was no problem.  “Bring in your paycheck, we’ll get you an estimate.”

The staffer in Raleigh indicated that they partner with Chase for their tax refund anticipation loans.

I saw a reference to the Household hotline for loans. That would suggest Household Finance, a division of HSBC. In 2007, the Commercial-Appeal said the same thing: “Mo’ Money’s is HSBC.”  HSBC is the partner with H&R Block for Block’s refund anticipation lending. Block has kept its RAL prices relatively low. This year, they are charging a handling fee of $29.95 for each RAL.

That is not the case with Mo’ Money, where RALs cost more money. HSBC says that a $3,000 RAL would come with a $62 fee.  NOTE: Chase is the partner for Mo’ Money. HSBC could have been the partner in 2007, as the Commercial-Appeal suggests, but they are no longer providing funds for RALs offered at Mo’ Money. Just to be sure, I went to a second Mo’ Money Store on Saturday. It was Chase there, as well.

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Hard to believe.  These ads should provoke some problems. Guess what? They are winning awards. Indeed, the Memphis Commercial-Appeal reports that Mo Money Taxes have won awards for their advertising. In 2004, they won a Telly (like Oscars, but for television advertisement) for their Dukes of Hazard-themed ad.

It would be hard to ignore how this makes a statement on race.

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In these advertisements, there is no claim to the quality of the tax prep. The main reason to go to Mo’ Money is to get your cash in 24 hours.

Mainstream tax prep customers will be less likely to use a refund anticipation loan this year, an outcome that reflects a new awareness by regulators at the Office of the Comptroller of the Currency. Perhaps it was meant to stay under the public radar, or maybe it was just a gift to the consumer advocates that have fought this battle, but PCBC announced the OCC’s instruction on Christmas Eve in a short 8-K.

This is very good news.  Pacific Capital, a Santa Barbara bank that operates Santa Barbara Bank & Trust, announced in a filing on December 24th that the OCC had asked it to cease its tax refund business. I get a kick out of how the people at Pacific Capital tried to spin this event:

• “It will help return Pacific Capital Bancorp to its roots of being a pure community bank….” George Leis, CEO
• “The tax refund loan business is a sort of niche business that falls outside of what would be considered core banking operations…” Tony Rossi, spokesman, PCBC

This spells big trouble for Jackson Hewitt, a national tax prep chain that was counting on Pacific Capital to fund at least part of its RAL activity in the upcoming tax season. Jackson Hewitt shares immediately fell by 25 percent. JTX has made some plans for alternative partnerships with Iowa’s MetaBank.  However, MetaBank is a small institution. It can fund RALs, and it will provide a loan product in tandem with any RALs that Jackson Hewitt offers, but it cannot replace Pacific Capital.

The OCC had meetings with advocates in December about the ongoing RAL program at PCBC.

Not all good news

This would be a great victory for consumers, except that it is not. Pacific Capital is going to sell its tax refund business. A few stories indicate that the new owner will be a private equity firm.  Pacific Capital released an announcement to that effect, promising that the sale would go through within one week.  This is incredibly problematic. Moving to a private equity framework will mean that there is even less supervision of this activity.  The OCC had an ability to put a stop to RALs at PCBC. No one except the private equity firm’s investors will have a say about what happens to the business if this sale goes through.

I made a map that compares the number of tax filers who used a refund anticipation loan with the number of tax filers who made an IRA contribution, on a county level, for North Carolina in 2006.

It is possible that a filer might do both.  I cannot account for a double counting. I do not think that there were many instances of double counting, though.  That is due to the nature of who gets a RAL.  RALs (refund anticipation loans) generally go to filers who have very little in the way of liquid assets.  They are not the kind of people who can afford to put money away for forty years.  Heck, their decision to use a RAL tells us that they can’t even wait 9 days to use their money.

The two smaller maps, in the insets, show the distribution of poverty and wage income.  Poverty is on the left, wage income on the right.  The poverty map counts the percent of households in poverty.  The wage income map shows the percentage of households with wage income.

A glance at the maps would seem to say that there is a much closer correlation between poverty and RAL use than between wage income and RAL use. That makes sense, although it is not a slam dunk – most RAL filers do have jobs because most RAL filers are getting the earned income tax credit.  In North Carolina, about 40 percent of EITC recipients get a RAL, and another 20 percent get a refund anticipation check (RAC).  There are fees for both, although the RAL fees are much higher.

This map shows the dynamics of our economy.  In a large section of eastern North Carolina, many people are living on the margins. They are not saving for the future.  They can’t save for 9 days.  The rest of the state is hardly better. Most of this map is pink or red – meaning that fewer people are getting ahead than are trying to catch up.  The grey areas show were family finances in order.  These, for the most part, are the growth areas in the new North Carolina along I-85.  There is also a concentration of wealth building in some of the areas that have attracted many retirees.

Just listening to Tuesday’s investor call with Pacific Capital Bancorp’s (PCBC), following on their quarterly filing.

• Bad loan to deposit ratio is 97 percent
• $200 million in new brokered deposits.
• tier one – below 9 percent
• total risk-based capital ratio is below regulator requirements
• $8.9 million impairment on investments on lihtc projects, or sometimes referred to as CRA investments. $2.7 million in fdic insurance.
• net interest margin drops 60 basis points.  Invested in low-yielding assets in order to get liquidity, according to CFO Stephen Masterson.  Pacific Capital CEO George Leis says that liquidity is good, but of course, it is thwarting net interest margin.

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