H&R Block Pulls Back From 'Instant Refund' Loans for Another Year

H&R Block says it will not offer refund anticipation loans (RAL) during the 2012 tax season, winning plaudits from consumer activists and putting the heat on its competitors to do likewise.

“H&R Block did the right thing by deciding to ‘just say no’ to RALs,” said Chi Chi Wu, a staff attorney at the National Consumer Law Center. “We have criticized these loans as high-cost and risky for over a decade, and we are pleased that Block has actively decided not to offer them.”  

An RAL is a short-term loan based on a taxpayer's anticipated federal tax refund. RALs were critical to taxpayers when IRS refund delivery times took up to eight weeks. But, with recent modernization efforts, the IRS estimates taxpayers will wait two weeks or less for their refunds in 2012, making RALs less attractive.

RALs can be astonishingly expensive; earlier this year, one bank charged $61.22 for a RAL of $1,500, which translates into an APR of 149 percent. RALs target low-income taxpayers, especially recipients of the Earned Income Tax Credit, a tax break for working poor families.

$600 million

In 2009, RALs skimmed over $600 million from the refunds of 7.2 million American taxpayers.

Jackson Hewitt and Liberty Tax Service both continued selling RALs last year, using Republic Bank & Trust as their lender. 

That may not last forever, however.  The Federal Deposit Insurance Corporation (FDIC) has taken action to stop Republic from making RALs, and is seeking to impose a $2 million fine for alleged widespread legal violations in Republic’s RAL program.

However, Republic has appealed the FDIC’s action to an Administrative Law Judge and the appeals hearing is not until February 2012. In the meantime, Republic has decided to defy the FDIC and continue to make RALs in early 2012.

“We think Republic’s decision to make RALs for 2012 is both bad for consumers and foolhardy for the bank,” said Peter Skillern, executive director of Community Reinvestment Association of North Carolina. “We are astonished that a bank would continue to offer these risky, abusive loans to consumers in the face of an explicit directive by their federal regulator to stop."

Other solutions

H&R Block said it will offer its clients low-cost financial alternatives to the RAL, such as refund anticipation checks (RAC). A RAC is not a loan. It is a product for taxpayers who want to deduct the cost of tax preparation from their refund.

The customer's RAC proceeds can be deposited onto a reloadable H&R Block Emerald Card that is accepted at more than 1 million ATMs nationwide. It is an especially useful product for unbanked taxpayers looking for a low-cost way to establish a year-round banking relationship, the company said.

H&R Block stopped offering RALs in 2011 after regulators directed its third-party lending bank to stop funding the product. However, some smaller tax preparation firms were still able to offer RALs due to different regulations imposed on their lending banks. H&R Block said it strongly believes this regulation should be consistent across the tax preparation industry.

"The expertise of our tax professionals and our superior client service resulted in H&R Block growing new clients by nearly 19 percent last year -- even without a RAL," said Bill Cobb, H&R Block's CEO.