Woodstock Institute and consumer advocate allies cheered when they learned on April 27 that JP Morgan Chase is exiting the business of providing about 1.5 million high-cost consumer loans annually based on expected income tax refunds (refund anticipation loans, or RALs). Chase stated its reasons for exiting are that these products are not “a strategic fit” with its business and that it faced “increased regulatory scrutiny.” On behalf of Woodstock, I commend Chase for (finally) doing the right thing.
Consumer advocate groups including Woodstock Institute, Community Reinvestment Association of North Carolina (CRA-NC), Neighborhood Economic Development Advocacy Project (NEDAP) of New York City, California Reinvestment Coalition (CRC), National Consumer Law Center (NCLC), and Consumer Federation of America (CFA) had ramped up efforts over the past year to persuade Chase to end its involvement in this business and to pressure the Office of the Comptroller of the Currency (Chase’s bank regulator) to require strict compliance with its policies. These efforts included meetings, calls, and correspondence with the bank; meetings, calls, and correspondence with OCC staff in Washington, DC; meetings with Treasury and the Internal Revenue Service; and research and publication of reports documenting the wealth-stripping effects and disproportionate impact of tax-time loans on communities of color and Earned Income Tax Credit recipients.
Although Chase did not publicly acknowledge the work of the advocates, Chase did call the advocates in advance of going public with the Chase decision. The advocates were quite pleased. "Chase's exit from the market is the beginning of the end for RALs,” announced Josh Zinner, co-director of NEDAP. “In the future, no banks should offer this abusive product, which siphons wealth from low-income communities." Jean Ann Fox of CFA said, "It is great to see that consumer group advocacy on RAL reform was influential in the decision by Chase to exit the RAL market." "JPMorgan Chase's exit from RALs is overdue, but welcome. America's low income communities can't endure another tax season of RALs' plunder and devastation. We are re-energized in the fight to eliminate RALs once and for all," noted Kimberly S. Jones, CRC Policy Advocate.
The consumer advocates had documented numerous instances in which the OCC was not enforcing, and Chase was not complying with, a February 2007 OCC internal guidance as to how banks should conduct proper oversight of tax preparation partners who act as the bank’s agents in making the tax-time loans. After advocates called for OCC to enforce its policies, OCC issued a stronger public policy and consumer advisory in February of 2010. Advocates believe that Chase would have found it extremely difficult to enforce with the new policy with its 13,000 independent tax preparation partners. Woodstock commends the OCC for (finally) taking its enforcement role seriously.
In its annual report and marketing materials, Chase has prided itself on “always trying to do the right thing.” In meetings with consumer advocates, Chase representatives had argued that Chase was somehow “different” or more ethical than other banks. Advocates pointed out that the tax-time products Chase provided are inconsistent with the kind of corporate image and responsibility to which Chase aspires. Financial analysts publicly speculated that Chase ultimately realized that these products sullied their reputation and were, thus, not “a strategic fit.”
As Chase exited the tax loan market, it said it was notifying its tax preparation partners so that they could find new bank partners for future tax seasons. Several banks already have exited the business and regulators including the FDIC and OCC are closely monitoring the few banks still in play. "JPMorgan Chase's departure from the RAL industry will have a huge impact. Following on the heels of Santa Barbara Bank & Trust's exit, it means two of the three biggest RAL lenders are out of the business,” noted Chi Chi Wu, NCLC staff attorney. The largest bank still in the RAL business, HSBC, is the OCC-regulated bank behind H&R Block’s tax loans. HSBC has publicly announced it plans to exit the tax loan business when its contract with Block expires, but that may not be until 2013.
The consumer advocates aim to keep up pressure on banks and regulators in hopes that no consumers will lose their refund dollars through these wealth-stripping loans and that Treasury and IRS will continue to improve regulation of tax preparation companies and speed up delivery of refunds. “We need to press on to find an answer for how low-income tax filers can satisfy the costs of tax settlement. The best outcome would be for the IRS to speed up returns,” suggested Adam Rust of CRA-NC.
Click here for media coverage of Chase’s exit from tax loans.