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Jackson Hewitt and Liberty Tax Service PDF Print E-mail

Latest news on Jackson Hewitt and Liberty Tax Services, another reason why you should hire a Certified Public Accountant. Published by Michael Cohn in accountingtoday.com (WASHINGTON, D.C. (FEBRUARY 11, 2011)

 

FDIC Shuts Down Republic RALs for Jackson Hewitt and Liberty

The Federal Deposit Insurance Corp. has told Republic Bancorp, the main refund anticipation loan provider for Jackson Hewitt and Liberty Tax Service, that the bank's RALs are "unsafe and unsound" without a debt indicator from the Internal Revenue Service.

Last August, the IRS said it would no longer provide the debt indicator, which indicates when a taxpayer owes outstanding debt to the federal government or for student loans or child support. The bank plans to appeal the FDIC's ruling before an administrative law judge. The hearing won't take effect until April 18, after tax season, so any changes in the RAL program for Jackson Hewittt, Liberty and Republic won't occur until next tax season. The bank can also appeal the judge's decision.

Consumer advocates applauded the FDIC's announcement. "With the FDIC's decision, RAL lending may be effectively over," said National Consumer Law Center staff attorney Chi Chi Wu. "The FDIC-regulated banks were the 'last man standing' in making RALs. Now the FDIC has signaled that it too is forcing these last few banks out of the RAL business."

The FDIC's action follows on the heels of a similar action by the Office of Comptroller of Currency, which issued a regulatory directive on Christmas Eve against HSBC (H&R Block's RAL partner bank) prohibiting that bank from making RALs. Consumer advocates also had applauded that action.

In April 2010, JPMorgan Chase voluntarily exited the RAL market, leaving only Republic and two other FDIC-regulated banks as the last RAL lenders. Republic is the RAL lender for Jackson Hewitt and Liberty Tax Service, the second and third largest tax preparation chains in the country.

"The combination of the IRS' elimination of the debt indicator and yesterday's FDIC action means the days of predatory refund anticipation loans are numbered, which is great news for the millions of Americans who deserve every penny of their tax refunds," said New York City Department of Consumer Affairs Commissioner Jonathan Mintz in a statement. "The IRS can deliver refunds in about a week, which is why costly RAL's are unnecessary and, as we find in New York, tax preparers often have to lie about these high interest loans to sell them."

I, too believe the RAL is a good product. For clients who are desparate for their money - a day away from being evicted or having their heat turned off. I would like to see the interest rate lower, but there is risk to the lender. The interest rate means nothing - it's the total fee to the client. I can tell them more by telling them it will cost you $XX for tax prep and another $xxx if you take the RAL and giving them all the other options for filing. Telling them it is 150% interest doesn't say anything. It is the actual out of pocket cost. Where else can you get a short term signature loan for $1500 for a little more than $100 in fees? My bank charged me more than that for a 30 day loan and my credit is good. I know some firms charge more but they didn't have to. I guess the only place left now for the unbanked and poor is the payday loan places. I don't believe the government has the right to tell people how they should spend their money.

8 Comments

I, too believe the RAL is a good product. For clients who are desparate for their money - a day away from being evicted or having their heat turned off. I would like to see the interest rate lower, but there is risk to the lender. The interest rate means nothing - it's the total fee to the client. I can tell them more by telling them it will cost you $XX for tax prep and another $xxx if you take the RAL and giving them all the other options for filing. Telling them it is 150% interest doesn't say anything. It is the actual out of pocket cost. Where else can you get a short term signature loan for $1500 for a little more than $100 in fees? My bank charged me more than that for a 30 day loan and my credit is good. I know some firms charge more but they didn't have to. I guess the only place left now for the unbanked and poor is the payday loan places. I don't believe the government has the right to tell people how they should spend their money.

Posted by: Unknown | February 14, 2011 8:42 AM

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People are leaving HR BLock becasue of their pricing. I know as I have been with that company now for over ten years.

Posted by: BWEILL | February 14, 2011 8:32 AM

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I agree that the fees for these transactions are bordering on usury. That people continue to seek these loans out is no more counter-intuitive than the widespread use of the IRS as a savings account. Some people are in love with their refund check; no matter how many times you point out that it is the return of an interest-free loan they arrange for over-withholding year after year.

Posted by: pkslayton | February 14, 2011 8:10 AM

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Regarding the tax lady's comments, I believe what many tax preparation firms were doing to their clients was criminal. Some firms were charging hundreds of dollars to prepare and file a relatively simple return with a RAL. This was in addition to the RAL fees. The IRS is moving toward modernized eFile which could get a taxpayer's refund in a matter of days. This without the 'convenience fees' of a RAL which is really usury fees (in my opinion). As far as the testing, a preparer is not going to be required to take the EA exam, but rather a far less comprehensive exam to prepare individual returns. I believe a taxpayer has a right to know the preparer doing his or her taxes is competent enough to pass a test. And, if you have been in the tax preparation business for a number of years, then with a bit of effort on your part, you can pass the EA test. I did, so can you!

Posted by: mikew56 | February 14, 2011 7:40 AM

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I agree that RALS were not the best option to receive a refund. However, it is also the consumers choice to do a RAL if they wish. I explain the high per centage & they still go for them. I actually had clients that would do an RAL when they could pay for the return because I would make more money. Many people can not afford or don't wish to pay for there tax preparation upfront. They chose to do a Refund Transfer {RT} to have there fees taken from their refund. I print the check in my office or direct deposit to their bank account if they have one. There is a problem cashing refund checks. Also, more expense to the client but most don't mind. Even with DD banks will hold the funds for 2-3 days. I don't understand this as it is really a cashier's check. I think the IRS dropping the debt indicator is not a good idea. Many clients are not aware they have a debt. taxman39531

Posted by: taxman39531 | February 12, 2011 9:54 PM

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I APPLAUD THE DECISION TO STAMP OUT RALS. IT WAS HIGHWAY ROBBERY TO POOR TAXPAYERS WHO WERE TAKEN IN BY THE INSTANT REFUNDS. THEY WERE UNAWARE OF THE EXTREMELY HIGH INTEREST THAT THEY WERE PAYING FOR THESE LOANS.

Posted by: CHAMP | February 12, 2011 3:42 PM

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I believe what the government is doing to the tax preparation industry is criminal. First of all people should be free to decide how their refund is delivered. This is really an attempt to take away the business from the smaller firms. Yes the big firms like H&R block will be hurting in the short run. However, they have significant investments in online software and also, their software is used by alot of the free government and non-profit sites that process returns for free. These returns are really not free because the government is underwriting large corporations while putting small mom and pops out of business. And with the forcing of the licensing if you are unable to take and pass the enrolled agency exam or become an accountant their is no way a person can make a living in the tax business. The only thing you can do is sell or go to a higher level of return. by Joyce Little

Posted by: thetaxladyllc | February 12, 2011 5:09 AM

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Regarding Johnathan Mintz' comments. I advise my clients against any of the bank products if the don't need them but they still want them. A week is nothing to someone who is financially healthy but it seems to mean an awful lot to those people who are always a week behind.

The IRS says it takes 8 to 15 days to deliver a refund if it's a direct deposit but a lot of people I see don't have bank accounts. I believe the IRS takes longer to deliver checks.

I am a first year preparer at HR Block and I've seen clients leave our office when we couldn't offer them a Refund andticipation loan.

Posted by: jeffbellamy | February 11, 2011 5:19 PM

 

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