Republic Bancorp, which is providing the bulk of refund loans during the current tax season, is seeking a hearing on an opinion from the Federal Deposit Insurance Corp., that its providing refund anticipations without the availability of the debt indicator is unsafe and unsound. Republic said it has already issued about 75 percent of its projected RAL volume. The FDIC move apparently could not halt the program until a hearing is held, which is described as being 60 days from the time the bank received the notice. However, if upheld, it would end RALs for 2012.
Republic Bancorp is one of three banks remaining in the refund loan business, but is the largest. The others are River City Bank and Ohio Valley Bank. Republic is providing loans to Liberty Tax and Jackson Hewitt, as well as to customers of several tax software companies.
The Internal Revenue Service on August 5 said it would no longer provide the debt indictor, which signaled whether a taxpayer would have any portion of a refund offset for delinquent taxes or debts such as unpaid child support of delinquent student loans. Banks used the debt indicator to reduce risk in making loans. With the end of the indicator, Republic tightened is underwriting criteria and reduced the maximum amount of the loan to $1,500.
However, on February 10, Republic received a Notice of Charges about the soundness of loans from the FDIC. Republic said the notice did not address the refund transfer programs. It also said that the FDIC position is contrary to an evaluation by the Kentucky Department of Financial Institutions.
Ironically, that notice came just as lenders loosened some restrictions on Jackson Hewitt's borrowing. The banks removed a requirement that cash on hand above a maximum balance would be applied to reducing loan amounts. Instead, the new agreement stipulates that Jackson Hewitt will deposit these funds in a cash collateral account. While the chain will maintain ownership of the cash, the account will be maintained by Wells Fargo, which is the adminstrative agent for all lenders. The banks also reduced the amount of cash that is likely to end up in that account by temporarily increasing the threshhold from $5 million to $12 millon on February 23. That cap will decrease in stages to $5 million on April 23.
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards. Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that. A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
