I recently e-filed using TaxCut's online service. I initially was going to do the free version but since I was getting a large refund and the idea of getting it so soon with direct deposit sounded good I ended up paying about $35 bucks for the "service"+state+federal filing +direct deposit. After completing it the IRS estimated that I would recieve my money on the 20th while for some reason TaxCut estimated that I would receive it on the 23rd. According to them, this was because my bank MIGHT take 2-3 days to "process" the deposit once they recieved it. What they actually meant is that the not-so-direct deposit would go to Santa Barbara Banking and Trust (that's the bank they use if you select to have the fees come out of the refund) and sit there for several days before finally being deposited in your account. According to the IRS website and SBBT when I asked them, my refund was deposited with them on the 23rd and is scheduled to be deposited to me on the 27th. Since I paid the fees for direct depositing to get the money as fast as possible, the idea that they were sitting on it for 3+ days was fairly infuriating. After I calmed down though I started to hypothesize about what they could be doing my money that they were "processing" - along with possibly millions of others'. This line of thinking has left me a little bit of a rabid angry ranting nutcase.

I think it's important to get across why this pissed me off so much. The bank involved in this, SBBT, holds your refund as a deposit at its bank for those 3 days. By doing so, it affects their average fractional reserve inflating the apparent cash reserves of the bank (remember that the 3 day holds are spread out over a statistical distrubtion covering the entire tax season.) This average cash on hand is used to determine how much they are allowed to lend out. The idea is that they have at least a percentage of their loans backed by actual cash.

The problem is this assumes that deposits are a mix of long term savings, regular checking, COD's, etc. That is to say there is some assumption that the average reserves of the bank over any given time will not fluctuate wildly and that at least a good portion of those assets are long term deposits of some sort. With SBBT an amazingly large ammount of the cash they have for 2 months of the year comes from these 2-3 day holds on people's refunds. While it seems like this would just pocket change to a bank, consider the following statistics:

2008 Direct Deposit e-File returns - 61,820,000
Average Refund $2693

http://www.hrblock.com/taxes/tax_tips/tax_law_changes/filing_statistics.html

Granted that only about 20% of that goes through TaxCut software so that's just - $33 billion that they do returns for roughly (hard to find actual numbers from them.) The big problem is figuring out how many people opt to have their fees come out of their refund. Since this is the default option and [i]feels[i] free since you don't pay anything at the time, I would assume it's fairly popular. To be conservative though, I'd be willing to guess as little as 20% of TaxCut e-filers who take the federal refund as a direct deposit also chose to have the fees come out of their refund. This would guesstimate the money going through SBBT as being roughly $6.6 Billion.

Ok granted that they'll only have any one of those deposits for about 3 days out of the year, so they only get to add about $54 million to their daily average for the year. Still, that's a lot of money they don't REALLY have on hand as a reserve to be making loans on. It's worse when you consider the fractional reserve (I think about %10) means they can actually loan it out like it's $540 million if you average it out over the year (which isn't really appropriate and overly conservative). Really though, the actual increase in the capitol they have on hand for that time will vary over the tax season with some high point before the final due date. This means that at peak their apparent cash reserves could approach many times this amount. Compare this to the what it would be like if they only served to distribute and pass on the refunds - a process that takes seconds and does not really increase their cash on hand long enough to justify new loans.

So... what we have is a tax preparer who deposits millions of refunds in a bank for a short period of time. This increases the money they have on hand and, because of fractional reserve requirements, allows them to lend out a good deal more. The problem is that this money isn't going to be there to back any withdraws after tax season but it can be used to make new loans now by inflating the apparent capital the bank has on hand. They're using the delay of people's tax refunds to justify new loans by inflating their apparent cash reserves - knowing full well they will only have any one of those deposits for 2-3 days.

Anyways, I don't know enough to do more than guess at the actual numbers that SBBT is dealing with. If anyone does, or knows enough about accounting and banking to calm me down please correct me. I'm not an accountant but from the little I do know this practice seems extremely disagreeable especially in a time when banks are collapsing under the weight of bad loans even when they sometimes did have legitimate reserves. A lot of this is guessing in terms of the actual percentages, but really if I'm even I'm estimating 50-100x the actual amount it's still millions.

Anyways, I'm not arguing that this is or should be illegal nor that making loans based on large ammounts of relatively short term deposits is even a bad thing. What pisses me off is that they are delaying service and witholding money that is not theirs in order to make massive ammounts of loans based on reserve numbers that they know are a purely seasonal anomaly.

/rant

[Edited on March 26, 2009 at 1:35 AM. Reason : Please forgive the poor grammar, misuesed jargon, and racist anti-irish propoganda]

3/26/2009 1:34:52 AM

I think you coulda summarized all that in just a couple sentences.



[Edited on March 28, 2009 at 5:50 PM. Reason : w]

3/28/2009 5:48:53 PM