Louisville-based Republic Bank & Trust Co. has been cited by The Federal Deposit Insurance Corp. for violating consumer protection laws with its controversial and profitable tax refund loan program. Friday, the FDIC released a 16-page cease and desist order, directing Republic to retrain those involved in the loan program, including outside loan originators, and to conduct regular audits to ensure the program complies with the law. The bank signed a consent agreement with the FDIC on Feb. 20 without admitting or denying guilt.
The FDIC determined that it had reason to believe that Republic had engaged in unsafe or unsound banking practices and had violated federal consumer protection laws.
The tax-refund program, administered through tax preparers nationwide, offers a loan in the amount of the tax refund, minus fees, if taxpayers sign the refund checks over to Republic. Last November, Steve Trager, Republic’s president and CEO, told Business First newspaper that the typical refund loan is about $3,400, and the fee is about $110, or roughly 3 percent of the loan. However, consumer advocates contend that because borrowers repay the loans within 10 days or so, the interest for borrowing the money for just a few days — calculated per annum — can exceed 1,000 percent.
Republic is a high-priced lender among large tax refund loan banks, charging nearly double the rates charged by banks such as HSBC or JPMorgan. The annual percentage rate it discloses with its average loan amount of $3,400 is 110%.
According to Business First, Republic processed about $6 billion in tax refund loans during 2007, and its largest client is Jackson Hewitt Tax Services Inc. The lucrative tax refund loan business accounted for about half of Republic’s profits for 2008.
Refund loans have figured in many tax-fraud cases, including a prominent civil suit filed by the Justice Department last year against five big Jackson Hewitt franchises that the government accused of processing $70 million in phony claims. The defendants had operated 125 Jackson Hewitt shops. In an October 2007 settlement, without admitting wrongdoing, the defendants consented to a ban from the tax prep business. An investigation by Jackson Hewitt concluded that the franchiser did no wrong.
According to an article in Barron’s magazine, Republic has “…a history of aggressively seeking to profit from hard-up borrowers. In the face of disapproving regulators, Republic doggedly promoted ‘payday loans’ -- small dollar loans against the borrower's next paycheck, at annualized interest rates up to 390%. When the Federal Deposit Insurance Corp. clamped down on Republic's storefront cash-advance partners, (Republic president Steve) Trager tried to continue the payday lending over the Internet. The FDIC stopped that tactic after four months.”
In 2004, Louisville Metro Mayor Jerry Abramson selected Republic Bank to be the sole provider of general banking services for Louisville Metro Government and government employees. On December 1st, 2008, Mayor Abramson appointed Republic CEO Steve Trager to the Louisville Regional Airport Authority board. Trager, 48, has a law degree from University of Louisville’s Brandeis School of Law, and was formerly an associate at Louisville’s Wyatt, Tarrant & Combs LLP, law firm.
BankTracker reports that Republic has a “troubled asset ratio” of 6.5%, as of December,
2008. This is up from the bank’s December, 2007 ratio of 3.9%, but below the 2008 national average of 9.9%. Last year,
Bank Director Magazine listed Republic as one of the ten best banks in the United States. Republic now has 45 branches in Kentucky, Indiana, Ohio and Florida.
On its web page, Republic presents an extensive Code of Conduct and Ethics statement, beginning: “Throughout its existence, Republic has exemplified the highest level of professional integrity and ethical standards. Since Republic’s reputation rests on the conduct of its directors, officers, and Associates, we expect the maintenance of the highest integrity and ethical standards in the conduct of all business and personal activities.”
In a 2007 interview with Business First, Trager described his personal work ethic: “We do work hard for our customers. ... We return our phone calls promptly. We answer our phones. That's not something every business can say."
Uh, Steve, there’s a call for you on line 2. It’s the FDIC calling…
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