The Federal Deposit Insurance Corporation (FDIC) continues its campaign against refund anticipation loans (RALs). The agency recently took action against Republic Bank & Trust of Kentucky (Republic) for violating numerous consumer protection laws. Republic, which is the last RAL lender in the country, partners with Liberty Tax and Jackson Hewitt to provide the short-term, high interest loans.
In the midst of the 2011 tax season, FDIC examiners visited 250 tax preparation sites offering Republic backed RALS in 36 different states and found almost half of preparers to be in violation of at least three different consumer protection laws. According to the FDIC, Republic has violated the Truth-in-Lending Act, Gramm-Leach Bliley Act, Federal Trade Commission Act and the Equal Credit Opportunity Act. Specifically the investigation revealed that Republic failed to meet basic lending standards such as properly disclosing the terms of loans and having safeguards in place to protect consumers’ confidential information. Additionally, Republic is being charged with engaging in deceptive and discriminatory practices.
These charges, along with a fine of $2 million in civil penalties, comes after a previous cease and desist order that was filed against Republic by the FDIC earlier this year. This order was filed because the FDIC found RALs to be unsafe and unsound given the Internal Revenue Service’s elimination of the Debt Indicator, a tool lenders used to estimate whether or not a tax filer would receive a refund or have their returns directed toward outstanding debt.
RALs are very profitable for lenders, so Republic is sure to put up a fight. It is our hope that this latest action by the FDIC will be the final nail in the coffin of refund anticipation loans and eliminate these predatory products altogether.
To read more about RALs visit the Shriver Center’s blog, the Shriver Brief.
This blog post was coauthored by Kelly Ward.