Tax preparers offer tax filers the loans based on the taxpayer's anticipated refund. Advocates and consumer groups have criticized the loans as more expensive than they need to be and a bad deal for consumers. They also charged that the loans are most heavily marketed to lower income tax filers who are eligible for the earned income tax credit. Nearly two-thirds of RAL borrowers are EITC recipients, yet they make up only about 17% of taxpayers.
The bank, Santa Barbara Bank and Trust, funds the loans offered by tax preparer Jackson Hewitt. Neither the bank nor its holding company, Pacific Bancorp, has commented on the objections.
"Santa Barbara is feeding off of taxpayer money twice in making RALs this upcoming tax season," stated Peter Skillern, executive director of the Community Reinvestment Association of North Carolina. "First, Santa Barbara is skimming off hundreds of millions in refund dollars in making RALs to working families. Second, it is funding its RAL loans using tax dollars from the bailout."
In addition to Skillern's group, the coalition includes the Consumer Federation of America, the Woodstock Institute and the National Consumer Law Center.
Santa Barbara made 1.83 million RALs in 2007 earning $118 million in fees, the critics charged, arguing that it is one of the higher priced RAL lenders, charging about 40% more than some of its competitors. Santa Barbara relies heavily on revenue from RALs and a related product, refund anticipation checks; these products at one point constituted 56% of the bank's after-tax income, the group of organizations said.
"Californians are disappointed to see a supposed community bank in wealthy Santa Barbara take federal money while continuing to offer predatory tax refund loans to earned income tax credit recipients and other Californians in financial need," stated Alan Fisher, executive director of the California Reinvestment Coalition.