- Parent Category: ROOT
- Wednesday, 11 May 2011
- Published Date
- Written by Bob Scott
There's no doubt that Refund Anticipation Loans - which are on the endangered species list - have been subject to abuses. But the governmental action aimed at Republic Bank looks like a sledgehammer. And it looks like action that is part of a cross-agency effort to crush RALs at all costs.
Before tax season, the IRS decided not to issue the direct deposit indicator, which showed if a applicant for a RAL had a any federal debt obligations that would be subtracted from a refund. Banks used this in underwriting to reduce risk. But after Republic Bank said it was going ahead anyway, the Federal Deposit Insurance Corp. said that providing the loans without the indicator was an unsafe banking practice. As I said, it looks like someone at a higher level decided to use every tool to shut down RALs and it would be nice for someone to admit that.
Republic had already been subject to a cease and desist order from 2009. But it looks like the FDIC sat out to crush the RAL program after Republic reduced the amount of money available for loans and limited the size of the individual loans. Republic said as of May 5 that 1.61 percent of its RALs remain unpaid. The FDIC, however, went after Republic with about every charge it could find and wants a $2 million monetary penalty.
A lot of the charges could be legitimate -- at least it's easy to imagine a case for them. But one stands out as mean-spiritied and nasty, a "we're going to get you no matter what you do" kind of offense. And that was the claim that a Frequently Asked Question webpage that Republic provided to its electronic return originators represented interference with the bank examiners that the FDIC sent out in droves. Republic provided access to the site via a link.
The FDIC complaint charges that if Republic had provided adequate training to EROs, it wouldn't have needed for provided answers to FAQs. This charge reeks of arrogance and it undercuts everything else in the complaint. It looks like a "how dare you defy us, we'll crush you" approach. It smacks of the health inspector that flags every technical violation at a restaurant that might otherwise be operating quite safely.
There's no indication that Republic sent individual emails to EROs to coach them. And most of us want guidance from companies we work for or vendors who provide us with goods or services. Unless Republic instructed EROs to stonewall or lie , to have that construed as interference is a flagrant abuse of power. Someone ought to take whoever issued this to task.
I am generally a defender of government and believe that the current anti-government climate is both off the mark and dangerous. But in this case, there is a clear misuse of power.