The Refund Anticipation Loan business isn't going away but it will become lot tougher on tax preparers as banks implement policy standards set by theIt was the OCC that forced Santa Barbara Bank & Trust Co. out of the RAL market and December and for a while; it looked as though regulators, including the Federal Deposit Insurance would use their powers over banks to shut down the RAL business. The FDIC summoned Republic Bank & Trust, which picked up all the RAL lending for Liberty Tax Services and half of that of Jackson Hewitt Tax Services, to a meeting in February and many figured Republic would be forced to exit. But instead, the OCC introduced a new policy in February that, while guaranteeing RALs will survive, makes doing so harder on tax preparers and banks.
According to John Hewitt, CEO of Liberty Tax Services " the OCC regulation trumps the FDIC". Hewitt further speculates that the new rules favor the large chains over the mom-and-pop preparers. And some of the policies certainly look as though it takes more resources to comply.
Among them are the mystery-shopper program has several specific goals as outlined by the OCC policy statement:
*Sampling tax preparers identified as high risk because factors such as as length of experience, lack of resources devoted to compliance oversight, complaints, and/or other red flags identified through exception reports;
* Ensuring that undue pressure is not brought to bear on the customer to select a tax refund-related product;
•Making sure preparers give clients information needed to make an informed decision before applying for a tax refund-related product or paying a nonrefundable fee; and
• Monitoring statements made by tax preparation personnel to customers regarding the product to make sure they do not contradict or dissuade a customer from considering such information.
The OCC also suggested banks develop applications that can track third-party originators by tax preparer location. Include volume, profitability (show incentive fees paid), and quality information by product type. And it said most reporting should be done daily or weekly.
At no point did the OCC policy used the word required. But it came close in talking about the relationships between banks and preparers. "The OCC expects that national banks will incorporate these terms into any new, renewed, or revised contracts as appropriate."
Those terms described a process that includes oversight of tax preparers and data aggregators. The OCC called for internal controls that included due diligence with background checks on tax preparers that also involve assessing general competence, business practices and operations and evaluating risk along with accessing litigation, enforcement action and consumer complaints against preparers.
The banks and preparers were also told to enter written agreements describing the lenders' products and services and prohibiting third parties from imposing higher fees on those tax payers who obtain RALs or who utilize the Earned Income Tax Credit. Preparers would also face an audit process with banks testing transactions, monitoring all aspect of product delivery.
Training was viewed as extremely important for both bank and tax preparer staff. The OCC said that should incorporate instruction about regulatory requirements, such as consumer and BSA laws, regulation, and guidance) and the bank’s internal policies, procedures, and processes. The OCC called for an annual certification process for both bank and tax preparer staffs and said all parties should document their programs by maintaining training and testing materials, calendars of training sessions, and attendance records and making them available for examiner review.
The policy also applies to marketing with the OCC calling for language that tells the customer that RAL is a loan, and not the refund itself. The agency pointed to statements such as the following as being misleading: “Instant tax money”, “Get your refund fast”, and "Rapid Refund" because they disguise the nature of the RAL.
National banks also face the need to develop "timely and accurate MIS for tax refund-related products." The report suggest such management information systems could produce reports and analysis of production and portfolio, exception tracking, reason for denial by loan and originator channel, and delinquency and loss distribution trends by product and channel, among other factors.
