FDIC reins in Republic

The Federal Deposit Insurance Corp. says Louisville-based Republic Bank & Trust Co. has violated consumer protection laws with its controversial and profitable tax-refund loan program.

In a 16-page cease-and-desist order, the FDIC ordered Republic to end the practices by retraining those involved in the loan program, including outside loan originators, and by conducting regular audits to ensure the program complies with the law.

The agency also ordered the bank's board of directors to appoint a committee of directors to meet monthly to review bank management's compliance with the order.

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.

The bank signed a consent agreement with the FDIC on Feb. 20 without admitting or denying guilt, the FDIC said in the order released Friday.

In a statement, the bank said the chief violation involved a requirement that spouses who file a joint tax return also sign the refund-anticipation-loan check, even if one is not getting the money.

Republic said it is "ultimately repaid" with an Internal Revenue Service check made payable to both spouses.

The bank said another violation involved one third-party loan originator who did not allow spouses to opt out when loan applications were filed.

Steve Trager, Republic's chief executive officer, said the requirement that both spouses sign the loan check has "always been our practice as an overabundance of caution and is part of our extensive fraud prevention effort to ensure that the tax refunds ... go to the right people."

The bank no longer requires the spouse's signature on the check if he or she opts out of the loan when the application is filed, he said.

The Republic loans are offered by more than 8,000 originators nationwide, including Jackson Hewitt Tax Services, Republic's largest refund-loan client.

During a recent hearing in Washington, the California Reinvestment Coalition and other consumer groups accused Republic and other tax-refund lenders of targeting low-income taxpayers with the loan programs.

The coalition said Republic "charges the most expensive (refund anticipation loan) fees of any lender," ranging from $34 to $125 for a typical refund of $2,600, plus electronic deposit and tax-preparation costs.

Trager has said the typical loan is actually about $3,400 and costs $110 or roughly 3.23 percent. Because the loans are often repaid within days, critics say the actual interest rate is much higher.

Republic reportedly processed $6 billion of the loans in 2007.

The bank has $3.9 billion in assets and branches in Lexington and 13 other Kentucky cities. The stock symbol is RBCAA.

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