One of the more abusive practices banks and tax preparation firms engage in is the Refund Anticipation Loan (RAL). These loans are made to taxpayers in anticipation of their receipt of a tax refund. Years ago when refunds could take months to arrive, RAL’s made a certain amount of sense – for cash-strapped taxpayers, it might be worth paying an exorbitant fee to receive a refund that might be the largest single payment a taxpayer might receive in a given year. However, the IRS now provides for direct deposits that result in much more rapid refunds, making RAL’s less useful.
Indeed, most consumer advocates believe that RALs are fraught with abuse, provide no useful economic function, and should be banned. Indeed, only one bank, Republic Bank & Trust Co. of Louisville, Ky., still offers RAL’s. Republic Bank is the RAL lender for Jackson Hewitt and Liberty Tax. Apparently, Republic Bank’s RAL program is no different than its abusive predecessors. In fact, the Federal Deposit Insurance Corporation (FDIC) is seeking a $2 million fine against Republic Bank for numerous violations of consumer protection laws by tax preparers working for the bank. The FDIC alleges that Republic Bank has “inadequate management, monitoring and controlling [preparers] and third-party risk include a deficient training program; inadequate security for customer information and cash equivalents, including debit cards, inadequate computer safeguards, and [preparers’] failure to comply with law and regulation.”
Republic Bank’s RAL’s are incredibly expensive to consumers. Indeed, the bank is charging $61.22 for a RAL of $1,500, which is equivalent to an interest rate 149%. Most worrisome is the fact that RALs target low-income taxpayers, especially recipients of the Earned Income Tax Credit. In 2009, fees for RALs were over $600 million, all taken from the refunds of 7.2 million taxpayers.
The FDIC alleges that Republic Bank violated the Truth-in-Lending Act by failing to comply with regulations intended to ensure that consumers receive adequate disclosure of the risk and fees involved in RAL’s. The FDIC also found that the tax preparers failed to properly protect confidential consumer information. The FDIC even alleged that Republic Bank tax preparers engaged in unfair and deceptive practices, including making false representations concerning whether consumers would receive the full amount of their refunds minus fees, despite the fact that the RAL amounts were limited to $1,500. Finally, the FDIC claimed that tax preparers wrongfully declined RAL application when only one spouse applied for the loan, which is a violation of the Equal Credit Opportunity Act. The FDIC’s investigation ultimately concluded that Republic Bank failed to properly train tax preparers to comply with consumer protection laws.
Many consumers also complain that Republic Bank refuses to promptly transfer funds it receives from the IRS to consumers, often holding on to the refund for as long as a week. During this time, of course, Republic Bank reaps unjust interest profits at the direct expense of its customers.
If you or someone you know has taken out a Refund Anticipation Loan from Republic Bank or any other tax preparation company and you would like to discuss your legal options, please contact us.