Refund Anticipation Loans or RALs have been under attack by the FDIC in recent years, according to an investigation by the Inspector General. Even though the loans are legal for banks to issue, the FDIC targeted three banks to shut down their RAL operations. This overreaching abuse of authority has threatened not only RAL loans, but also any other loan category the FDIC chooses to target through unreasonable enforcement tactics.
After an investigation into the abuses by the FDIC, which occurred from 2009 to 2012, the Inspector General concluded the FDIC used aggressive and abusive practices to drive banks out of the RAL business. Doing so creates a dangerous precedent and reduces consumer choice.
What Are RAL Loans?
Refund anticipation loans are offered to tax filers expecting a refund upon filing their tax return. Consumers can gain access to the funds immediately, without waiting for the deposit of the refund into their account. Consumers take out a short-term loan with the tax filing company, underwritten by national banks. The loan is paid back with the refund, within a few weeks.
While RAL loans come with high interest rates and fees, they are legal products used by millions of Americans in need of funds faster than the refund process allows. Not every loan product is right for every consumer. However, consumers should be able to decide what types of financial products are appropriate and suitable for their individual situation
What Abusive Tactics Occurred?
Abusive tactics included the downgrading of bank scores (with some scores determined before the audits took place), rejecting underwriting plans presented by the banks, and intrusive reviews of the bank departments. The goal of the FDIC was to force banks out of the RAL business, and after years of abusive tactics, the FDIC was successful in eliminating the RAL programs at the targeted banks.
The House Finance Services Committee has gotten involved in the investigation and were part of the report released in March 2016. The Chairman of the Committees Oversight and Investigation Subcommittee, Sean Duffy had these comments about the report, “The Inspector General’s report reveals a troubling pattern by FDIC officials of targeting legitimate and legal activities through abusive and unfair regulatory practices. I am concerned that the FDIC has repeatedly demonstrated a disregard for the rule of law, for the limitations of its own power and for the financial institutions that it is supposed to serve. This kind of behavior cannot and will not be tolerated by Congress and the American people who expect much more from their government,” said Chairman Duffy.
The Federal Government should not be using these types of egregious and abusive tactics to halt the offering of legal loan products. These actions, by overreaching regulators, clearly sidestepped the authority solely granted to the legislative branch of the federal government (Congress) and these Regulators, which fall under the Judicial Branch of the Federal government, violate the law and the constitution when they seek to legislate through enforcement. We saw this type of tactic with the recent IRS scandal, and we are now seeing the early signs of the justice department trying to use the RICO Racketeering laws to punish climate change deniers.
At the end of the day, the consumer is ultimately harmed due to a lack of choice and options available. Targeted financial products end up costing the consumer more because higher costs of compliance are passed along to the consumer, in the form of higher rates, fees, and service charges.
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