JPMorgan Chase Dropping Tax Refund Loans

JPMorgan Chase & Co. is quitting the refund-anticipation loan business as the controversial product faces increased regulatory scrutiny.

The company began notifying the roughly 13,000 independent tax preparers it works with of its decision this week, a spokesman said Wednesday.

"We are discontinuing the refund-anticipation loan business because it's not a strategic fit for us," he said. "And we are reaching out to tax preparers so they have plenty of time to find a new bank for the next tax season."

Many tax-preparation companies partner with financial institutions to offer customers refund-anticipation loans. But the number of banks providing such funding has dwindled.

This year the Office of the Comptroller of the Currency updated its guidelines for national banks offering RALs, mandating additional disclosures to consumers. Starting in 2011 the Internal Revenue Service will require tax preparers to register with the agency.

Pacific Capital Bancorp Inc. in Santa Barbara, Calif., sold its RAL business in January after the OCC blocked it from making the loans.

In February 2009, the Federal Deposit Insurance Corp. ordered Republic Bancorp Inc. in Louisville to, among other things, increase oversight of its RAL program. The company has since eliminated instant RALs and reduced the number of locations that offer its RAL products. However, income from Republic's tax refund unit doubled year over year in the first quarter, partly because of higher demand for its nonloan products.

With JPMorgan Chase's exit, HSBC Holdings PLC is one of the last major lenders still in the business, and it is widely speculated that the London banking company will stop funding such loans once its contract with H&R Block Inc. expires next year. HSBC said H&R Block has the option to renew the contract for up to two years. Tax loans generated less than 1% of revenue for the HSBC Finance Corp. subsidiary in 2009.

"The bottom line is the headline risk to providing these loans I don't think is worth it to some of these large banks," said Vishnu Lekraj, an analyst at Morningstar Inc. "It's a very small piece of their portfolio."

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