RAL consumers in 2010 paid different prices, depending on the RAL lender and tax preparer

Historically we have used approval rates of 90% and 85% to estimate the number of RALs made in relationship to the number of applications. However, Liberty Tax Service stated that its approval rate was much lower in 2010, at 55%. For 2010, we therefore assumed that H&R Block (with a market share of 68%) had an approval rate of 85%, and the rest of the industry had an approval rate of 55%, for an overall approval rate of about 75%.

The following table shows the trends in RALs since 2000, using a 25% rejection rate for 2010, a 15% rejection rate for 2007 to 2009 and 10% for years earlier. To give a better indicator of RAL trends, it also includes RAL applications in addition to total RALs made. Note that even a rejected RAL costs the taxpayer a fee, because the taxpayer is automatically given a refund anticipation check (RAC) at a cost of about $30 to $35.

Part of the dramatic drop in RAL volume in 2010 was caused by the departure of Santa Barbara Bank & Trust (SBBT) from the RAL market. After SBBT’s departure, both Liberty Tax and Jackson Hewitt were able to reach an agreement with Republic Bank & Trust to offer Republic RALs. However, SBBT’s departure left Jackson Hewitt without RALs in about half of its offices.

A typical RAL in 2010 from one of the RAL lenders was around $3,700. H&R Block charged $ for a RAL of $3,700. H&R Block had about 3.4 million RAL customers in 2010.

This compares to an estimated $606 million in RAL fees in 2009 and the high of $1.24 billion in RAL loan fees in 2004. This estimate is much lower than the 2009 estimate because of reduced loan volume, as well as the fact that Republic and JPMorgan Chase both followed Block’s lead in reducing RAL prices.

Republic Bank & Trust charged $58

This $338 million estimate for 2010 does not include the added fees paid for loan products that provide a RAL on the same day that the taxpayer’s return is prepared. In 2010, lenders charged an additional $25 to $55 for same-day RALs, a fee that the consumer paid on top of regular RAL fees. However, we do not have data on the number of same-day RALs made by the industry.

In addition to the fee charged by the RAL lenders, tax preparers and other third parties can charge their own fees for RALs payday loans in West Virginia. These fees, which we call “add-on” fees, are discussed in detail in Section I.I, below.

SBBT was one of the three biggest RAL lending banks, and the RAL lender for Jackson Hewitt and Liberty Tax Service

In 2010, Block did not charge add-on fees. Jackson Hewitt started charging them again in 2010, allowing its franchisees to set a “Data and Document Storage Fee” of up to $40. Liberty also appears to have charged an add-on fee. Furthermore, many independents and smaller chains charged add-on fees in 2010. These smaller players had over 70% of the paid preparer . In contrast to Jackson Hewitt’s $40 fee, we have seen add-on fees from independent preparers sometimes total up to several hundred dollars.

If we assume that Jackson Hewitt, Liberty Tax, and about half of independent preparers charge add-on fees, it would equate to about 1.2 million consumers, or about 25% of RAL borrowers. Using Jackson Hewitt’s cap of $40-a conservative assumption given the proliferation of multiple fees-these add-on fees increased by about $48 million the amount paid for RALs in 2010. Thus, taxpayers lost somewhere in the neighborhood of $386 million collectively to get loans a mere one to two weeks sooner than they could have gotten their refunds from the IRS.