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The Refund Anticipation Loan business can't stand too much more bad news without being on the edge of extinction. As it is, the health of the lending programs centered on income tax refunds isn't in very good shape after two developments less than a week apart brought very bad news.

The other bad news a few days earlier was the announcement by Meta Financial Group, parent to Meta Bank, that it has been told it cannot extend its refund loan or assisted transfer programs without written approval from the Office of Thrift Supervision.

Increased funding from Meta has been one of the hopes from the RAL business since it backed the assisted transfer programs offered this year by the Santa Barbara Tax Products Group and was presumably going to be the source funding for the Santa Barbara RAL program.

Meanwhile, Jackson Hewitt Tax Services, which got only 50 percent of its RAL program funded by Republic Bank in the 2010 tax season, has gotten the same 50 percent coverage promised for 2011. However, Jackson Hewitt, which suffered because of its inability to provide RALs at all locations, must provide its lenders with written commitments for the other half of the business by November 19.

The decision by the Internal Revenue Service not to provide the debt indicator this year is part of the problem. The debt indicator reduced risk because banks were informed if applicants had any federal obligations that would be taken from refunds. But it's only part of the problem. The other is suggested by a footnote on the Santa Barbara web site which notes "Product availability pending securitization of funding."

You remember securitization? It was a big problem in the subprime mortgage mess. Lenders packaged loans and sold them to investors, and much of the business soured. It is important to the banks because securitizing the loans removes them from the bank's balance sheets. When Santa Barbara Bank and Trust could not securitize at the desired levels for the 2009 tax season, it was forced into borrowing which was on the balance sheet and which weakened its financial ratios, leading regulators to force it from the RAL business.

It doesn't take a big leap to think that if Meta can't securitize enough loan volume, it's not going to get OTS approval to fund a RAL program, or at least not to the level it might like.  And there aren't too many choices left for funding, especially if Block has to feed from the same limited lender pool.

For the members of the anti-RAL crowd, many of whom have no interest in serving these kinds of taxpayers to begin with, this may be good news. But I think it's not for the customers or the economy. I think we will see an uptick in real loan-sharking as desperate taxpayers turn to less-savory lenders. Whether that is as great as rate of self-righteous pontificating from RAL opponents remains to be seen.

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