United States

OCC issues risk management guidance for tax refund-related products


On Aug. 4, 2015, the Office of the Comptroller of the Currency (OCC) issued OCC Bulletin 2015-36 offering guidance to banks offering various products for tax refund-related products.

Tax refund-related products include credit and deposit products as well as settlement services to transmit refunds. These products present unique safety and soundness risks because of their repayment and cost structures and because institutions rely on third-party tax return preparers who deal with the customers.  Nonetheless, the OCC believes these products "may provide reasonable options for customers' if institutions implement "appropriate consumer protections and risk management controls that address safety and soundness concerns."

The guidance focuses on "sound underwriting and program management practices."  According to the guidance, the "bank's risk management policies, procedures and practices for tax refund-related products should be:

  • commensurate with the complexity and nature of such activities;
  • consistent with safe and sound banking practices and relevant reporting requirements; and
  • undertaken with an appreciation of and capacity to address all applicable consumer protection and reputation risk considerations, as well as legal compliance obligations, associated with the activity."

 Tax refund-related credit products are typically refund anticipation loans, holiday loans and prefile or pay-stub loans offered through third parties. Deposit tax refund-related products involve limited or special purpose deposit accounts or bank issued prepaid access cards. Settlement services involve the transmittal of a tax refund by a tax authority to a bank-controlled account from which the institution usually releases funds to the customer only after the tax preparer is paid for preparing the tax return.
As each type of tax refund-related product has its own individual characteristics, the OCC addressed risk management practices applicable to each particular product. Foundational elements of risk management practices set forth in detail include:

  • Maintaining proper board and management oversight
  • Consumer protection standards including marketing
  • Disclosures and appropriate costs and fees
  • Third-party risk management and verification
  • Fraud and anti-money laundering compliance
  • Training
  • Management information systems
  • Capital and liquidity

Tax refund-related credit products require additional practices regarding consumer protection standards, marketing, disclosures and loss recognition. The OCC expects tax refund-related deposit products to comply with all state and federal laws and regulations, particularly complying with the requirements of 31 CFR 2.5(b)5 involving account requirements for federal payments.