Last week’s announcement that Republic Bank settled with the FDIC and agreed to stop offering RALs after April 30, 2012 may signal the end of the traditional RAL product but it does not solve the financial situation of many unbanked and working class taxpayers. Despite the ongoing recession and high unemployment rate, unbanked taxpayers will find fewer credit options available.
Fewer Options & Higher Prices
For over 20 years taxpayers have used the Refund Anticipation Loan (RAL) to receive their refund amount faster than the IRS can release it. Besides the benefit of having a tax return prepared by a tax professional with no money up-front, the RAL also provides relief by helping taxpayers meet urgent financial needs that may be either expected or unexpected.
“We found, in summary, that most RAL and RAC recipients use these products to pay for pressing financial obligations, both expected and unexpected, and for their tax preparation.”
“Characteristics of Users of RALs and RACs” US Dept. of Treasury, 2010
Although TPG has not offered Refund Anticipation Loans we understand the RAL provides a low-cost loan product to many consumers that are not credit worthy and do not have the financial safety net that is available to many banked and credit-worthy consumers. Without a RAL many of these consumers will turn to high-priced short-term loans following the holiday season.
Working class consumers face daily financial burdens with even fewer credit options available. Whether overdue utility bills, rent or costly medical expenses, many consumers are financially stretched and they depend on receiving their tax refund amount as soon as possible.
While we believe Republic demonstrated that a RAL could be offered with safety and soundness in an environment without the IRS debt indicator, their settlement with the FDIC confirms their focus on providing refund-related products in an environment that complies with best practices. In cooperation with our banking partners, TPG will continue to maintain the highest standards for complying with best practices.
Validation of the Refund Transfer
The settlement also continues to confirm that the Refund Transfer is not a loan. While Refund Transfers have been offered under the oversight of Federal regulators for over 20 years as non-loan fee settlement products, consumer groups have recently labeled these products as loans. The FDIC’s acceptance of Republic’s program as submitted in their plan supports the OCC’s position that the RT is not a loan but rather a fee payment product meeting the needs of millions consumers nationwide.
As an industry leader you can expect that TPG will pursue a program that provides value and affordability while equipping our tax professional partners with the resources to serve our mutual clients with products that meets their needs. Although the 2012 season is still another month off, we are already looking toward 2013 and evaluating enhancements that will benefit consumers and help to grow your business. Stay tuned next year for more details on our 2013 program.