The Office of the Comptroller of the Currency has issued a policy statement describing the measures national banks are expected to follow if they offer tax refund anticipation loans (RALs) and similar products through third-party tax preparers. The OCC Policy Statement on Tax Refund-Related Products released on February 18 includes new requirements relating to contract terms, fees, and compliance verification procedures necessary to meet safety and soundness expectations. Since RALs and other tax refund products (such as “pre-file” or “pay-stub” loans and “refund anticipation checks”) are provided through third-party tax preparers, the statement recommends that national banks perform substantive due diligence before entering into a business arrangement with a tax preparer, including background checks, assessing general competence and business practices and operations, and evaluating counter-party risk (such as potential conflicts of interest, reputation, financial capacity and condition). The statement also recommends that the written agreement with the tax preparer should specifically describe the products and services that the bank is committed to provide, should prohibit the tax preparer from imposing higher fees for tax preparation services to consumers based on whether they obtain a RAL or claim the earned income tax credit, and should provide that the bank can terminate the agreement if directed by the OCC.

Nutter Notes: The policy statement describes certain consumer disclosures that national banks are required to provide to meet the OCC’s consumer protection standards. According to the statement, national banks must deliver consumer disclosures in writing to each prospective customer before the customer applies for such a product or pays a nonrefundable fee, and must have procedures to verify that the disclosures were properly made. In the case of a RAL, such disclosures should include a statement that a RAL is a loan and not the consumer’s tax refund, that a federal income tax return may be filed electronically without obtaining a RAL and that a consumer may receive a refund directly from the IRS without obtaining a RAL (with an estimate of the average waiting time for an electronic refund to reach a consumer following the approval of an application). The statement lists a number of other consumer disclosures national banks should provide, such as the total cost of the tax refund-related product, specific breakdowns of fees relating to tax preparation services and tax return filing, and whether or not any fees imposed in connection with an application for a RAL will be refunded if the loan application is denied. Both the OCC and the Massachusetts Division of Banks have recently issued consumer advisories that highlight alternatives taxpayers can use instead of RALs to encourage consumers to avoid high-cost RALS and other tax refund-related products.