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