February has seen more banks pulling out of the refund anticipation loan (RAL) business. Two FDIC–regulated banks will exit the business after the 2011 filing season; a third, Republic Bank, has chosen to fight a cease-and-desist order issued by the FDIC.

The cease-and-desist order was part of a “Notice of Charges” issued to Republic on February 10. In the Notice, the FDIC states that it considers Republic’s RAL program “unsafe and unsound” without the presence of the debt indicator.

Republic quickly published a statement that it finds the FDIC’s charges “without merit” and that it intends “to vigorously defend the Bank’s right to offer a legal product to those who wish to purchase the product.”

The FDIC’s filing opens the door to a possible administrative hearing. Republic has 60 days (from the date of the filing) to contest the Notice; clearly it intends to.

A day after the Republic’s response, on February 11, Ohio Valley Banc Corp (another FDIC-regulated bank) announced that it would be closing down its RAL business at the end of the 2011 filing season [link: ]. It cited an FDIC “recommendation … to discontinue offering refund anticipation loans…”

On the heels of Ohio Valley’s announcement, River City Bank posted on its website that, “following extensive conversations with its primary regulator, the FDIC, regarding FDIC’s concerns about RALs,” it, too would be exiting the RAL business at the end of the 2011 season.

These exits aren’t the first; OCC–regulated banks JPMorgan Chase and HSBC stepped off the RAL stage in 2010—Chase in April, and HSBC in December. The HSBC action, prompted by a regulatory directive by the OCC, was particularly high-profile, as HSBC was the RAL source for H&R Block, the country’s largest tax-preparation firm.

Republic funds RALs for both Jackson Hewitt and Liberty Tax Service—the second- and third-largest tax-preparation firms in the U.S., respectively. Jackson Hewitt’s shares dropped markedly following FDIC’s Notice of Intent to Republic, and are still down as of this writing. Liberty is not a publicly traded entity.

With Chase and HSBC gone, River City, and Ohio Valley on their way out, and Republic making what might be its last stand, it looks like February has seen the pounding of just two more nails in the coffin of the RAL industry.

Nina Rogers, Technical Writer
Federal Tax Development, Drake Software


  1. Because of all the changes within the IRS, I think everybody should wait the 14 days. This would save the taxpayer some of there refund monies.The RAL was a way too scoure ERO fees. Not anymore. Just wait!!

    • Ero fees can be source with 8-15 days refund process. Without any funding source the tax business as we know it will be over. Taxpapers will go to free tax preparation places.

  2. I am glad that the FDIC has finally figured out what a scam RALs are. It makes middle and lower class PAY big for their own money. Two weeks is not that long for 100% of your own money. It is a practitioners responsibility to advise clients on how to take more home during the year and take advantage of IRS programs such as advanced earned income credit.

    I have never offered RALs, because I am in the business of saving clients money. It helps me sleep at night knowing I do not prey on the desperate.

  3. Read the info from the IRS site concerning CADE. or did anybody notice the 7 day direct deposit by the irs this year? No need for RAL. Last year one major firm had no ral bank but deceived their customers by taking their W2 any way.

  4. As a tax preparer for a major company, we are instructed by the bank, to explain all of our offerings objectively without guiding the client to any one product. I have been asked by clients which one I would recommend, and I respond by telling them I cannot, by law recommend any one option. RALs would not exist if there were not a market for them. The bank fee for a RAL is a whopping 61.22. With MeF I have seen checks delivered to our clients in as little as 45 minutes.

    • “RALs would not exist if there were not a market for them”

      I guess you would have this same stance for cocaine either.

      At some point,people need to realize that they should just do the right thing. That means, not working for the large companies that take advantage of others. It is one thing to prepare taxes, it is another to charge high fees and offer high interest loan products to pay the high fees.

      …and people wonder why our country is headed in the wrong direction.

  5. I worked for the company that brought the First RAL’s to the industry. I worried about the cost of RAL’s also. I decided to ask the client why they would want an RAL.. The response was: “We have been getting a loan from a business about 90 miles away, that gives us a loan at 50% of the refund.” What a surprise! What I have found this year is that clients are willing to wait the 8-15 days for the refund, they just want the tax prep taken out of the refund. Most people that want the RAL want a professional to prepare the tax return and the refund to pay the professional.

  6. Debra your comment on the 50% of the refund is what has caused the RAL to be so disliked by the IRS. Yes there are scum that feed on those in need. However I also know that people need their money and rely on the RAL to provide help.. With out lthis product it will be hard on some. Can’t wait until MEF is fully functional. It will help but not for all.

  7. it’s about time that the ral loans were stop because people were being taken advantage of from multimillion dollar companies./

  8. Tell that to the person whose power was being turned off in just hours, or the eviction notice has been received, or the car repossessed, or 3 months behind on the house payment, et actual client dilemmas I have seen over the years.

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