Quepos            It was an extra present under the palm tree to read in the pre-dawn that Santa Barbara Bank & Trust was being pulled out of the business of factoring RALs, predatory refund anticipation loan for Jackson & Hewitt and other companies in the viciously competitive tax services market for lower  income and working families.  Several years ago direct negotiations with HSBC, previously the largest factor for such loans, had pulled out of the market (which I have discussed in Citizen Wealth at some length) and Chase had been reforming its practices, but Santa Barbara had been the big holdout.

            Partially, it was simply the “one that got away.”  It’s footprint was smaller with a base in Santa Barbara that was too far away from our groups and members to do much damage.  They had gotten into this predatory business and done very well, but were impervious to the impacts.  What did it matter to their normal customer base  in Santa Barbara after all?

            Direct discussions with Jackson & Hewitt, when I was with ACORN, when round-and-round, with J&H always claiming they would not “unilaterally disarm,” but would do so as H&R Block did so and others like Liberty Tax Services.  H&R Block was going to move from HSBC to its own bank.  I’m not sure if that happened or not.  Liberty was also a big customer for Santa Barbara. 

            The actions of OCC and other banking regulators are key here, because the withdrawal of Santa Barbara from this line of lending could finally push RALs out of the market, which would be huge.

            This was the Christmas present report from Bloomberg News:

 

Regulators ordered Santa Barbara Bank & Trust to stop providing the loan money, which covered about 75 percent of Jackson Hewitt’s financial products program, according to a regulatory filing by Jackson Hewitt.

Shares of the company, the No. 2 tax preparer behind H&R Block, dropped $1.34 to $4.50 on Thursday.

The Office of the Comptroller of the Currency told Santa Barbara Bank & Trust on Dec. 18 that the lender would not receive regulatory approval to originate the refund anticipation loans in 2010, according to a statement from the bank’s parent, the Pacific Capital Bancorp.

A bank spokesman, Tony Rossi, said that “the tax refund loan business is a sort of niche business that falls outside of what would be considered core banking operations.”

The bank signed a nonbinding letter of intent with a private equity firm to sell the tax business, the statement said.

Tax preparers are locked in a battle for customers, with Jackson Hewitt vowing this month to regain market share from H&R Block. Firms can attract clients with refund anticipation loans, in which customers who need cash immediately can get a short-term loan, typically lasting a few weeks, that is based on the expected amount of their tax refund.

Jackson Hewitt, with 6,600 outlets and almost three million clients, has been losing customers to H&R Block and Intuit, which makes TurboTax software. It suspended its dividend in March and has hired Goldman Sachs to explore “strategic alternatives,” language that typically means a company may be sold.

            The next target for economic justice reformers and citizen wealth advocates will need to be the unknown “private equity” company that will be tarnishing its reputation and brand – if such a concept is possible in private equity – by buying the Santa Barbara RALs business.  The other target may end up being whomever buys Jackson & Hewitt if Goldman Sachs is able to do the offload.

            You sow what you reap.