H&R Block Loses Refund Anticipation Loan Partner

Tax preparation firm H&R Block has run into a major obstacle in handing out controversial Refund Anticipation Loans (RAL) in the upcoming tax season. The lender it has relied on for years to provide the cash has broken off the relationship.

H&R Block said the contract with HSBC was terminated under orders from the

Office of the Comptroller of the Currency. The problem is not the first concerning the RALs, which allow taxpayers to receive their refunds immediately, minus a fee to H& R Block. The Internal Revenue Service (IRS) has pointed out that taxpayers who file electronically can receive their refunds almost as fast, without paying anything.

Fast money

Earlier this year the Association of Independent Consumer Credit Counseling Agencies (AICCCA) urged taxpayers to resist the temptation of RALs and decide the best way to use the money for their personal financial situation.

The appeal of the RAL is that consumers can get their money very quickly. While it does take about six weeks to get a refund for those who send paper returns via mail, those filing electronically and choose direct deposit can cut that time to 10 to 14 days. The fee charged to get your money a few days sooner using a RAL can be the equivalent of a 250 percent annual interest rate, the group said.

"Consumers who use refund anticipation loans will pay a hefty fee to get their own money," said Dave Jones, president, AICCCA. "Exercising patience and creating a plan for the best use of the money can make a difference."

Block scrambles

The regulator's action terminating the HSBC contract has made Block scramble to find a replacement product for the RAL in the upcoming tax season. Company president Alan Bennett said Block had been preparing for the loss of RALs and had some other products under consideration.

Wall Street reacted this week by sending H&R Block stock sharply lower. One analyst estimated the loss of RAL's would lower H&R Block's profitability by 10 percent.

Most consumer advocates, however, are cheering the news, calling RAL's "predatory" and targeted mostly at low income taxpayers.