Jaskson Hewitt–the 2nd largest tax preparation business behind H&R Block–has lost over 50% of their Refund Anticipation Loan (RAL) funding for the 2010 tax season. Due to regulatory crackdowns, the bank that funded Jackson Hewitt’s RAL program–Pacific Capital Bankcorp Inc.–was blocked by the Office of the Comptroller, and ordered to leave the RAL business.
“It’s potentially disastrous for Jackson Hewitt,” said Vishnu Lekraj, an analyst at Morningstar Inc. “If they lose the ability to provide RALs … they also lose the ability to service taxpayers, who would go to competitors.”
RALs and other refund bank products are geared toward lower-income taxpayers; usually those without bank accounts. They offer customers a fast way to receive their refund (sometimes in as little as 1 day) while simultaneously debiting the tax preparation fee from their refund check so the taxpayer incurs no out-of-pocket expenses.
Jackson Hewitt has basically relented to the fact that over half of their offices will not be able to offer RALs:
“The company does not expect to have a RAL program in place by the beginning of the 2010 tax season on January 15, 2010 for the remainder of the RAL program,” the filing said. “The company is continuing all efforts to assist in securing RAL funding … for the 2010 tax season,” but “no assurances can be given.”
Translation: Jackson Hewitt is screwed. Also, Liberty Tax processed a portion of their RAL program through Pacific Capital (though not nearly on the scale of Hewitt). Nevertheless, a significant portion of both Liberty Tax’s & Jackson Hewitt’s revenue is generated by the ability to offer and fund these bank products. The inability to offer these products is set to cause a major shift in early season bank product business…with lasting consequences.
R&G Brenner currently has a relationship with up an accredited bank, and is authorized to offer Refund Anticipation Loans & Refund Anticipation Checks (RACs) for the 2010 Tax Season.
Bank Products have gotten a lot of negative press over the last few years due to their high fees and interest rates. R&G Brenner’s preferred filing method has always been direct deposit with FREE electronic filing. But, the fact remains that there continues to be a high demand for RACs & RALs. R&G Brenner offers bank products for one reason, and one reason only: to remain competitive.
The federal, state & local governments continue their attempt to regulate these products in a backwards manner–by punishing the provider, not the product. All that any business wishes for is an even playing field. If these products were uniformly eliminated, nobody would bat an eyelash (except for maybe the taxpayer accustomed to a RAL/RAC). However, to continue to go after the “big bad tax guy”, in the name of protecting the taxpayer, while leaving giant firms who own their own banks alone (like H&R Block), is not fair. When you own the bank you can set your own pricing, lending practices and offer products which nobody else can–essentially making your own rules, while putting the rest of us at a competitive disadvantage.
Therefore, either continue to regulate RACs & RALs and allow legitimate tax businesses to offer ALL available products, or eliminate them entirely. As previously reported here, the new laws governing paid tax preparers is rumored to favor mega-corporations like H&R Block. H&R Block should not be allowed free reign to offer RACs, RALs and other related products, while their competition is restrained. This will put many small businesses out of business and equate to less jobs, more unemployment as well as less tax revenue to fund the unemployment benefits they would be creating. It’s not good for business and not good for America.
Source: American Banker